Chapter 2 Cash Transfer Methods

Question 1

made on a paper document, which has traditionally been
physically routed from the payer to the payee, to the payee ’s bank, and then back to the payer ’ s bank.

Answer 1

check payment

Question 1

made on a paper document, which has traditionally been
physically routed from the payer to the payee, to the payee ’s bank, and then back to the payer ’ s bank.

Answer 1

check payment

Question 2

The vast majority of checks are issued directly by companies. However, they may also be issued directly by a bank

Answer 2

a bank check or bank draft

Question 3

first, there is a delay while the payment is delivered through the postal service,

Answer 3

mail float

Question 4

Second, the supplier must deposit the check at its bank; the time from when the supplier receives the check and deposits

Answer 4

processing float.

Question 5

Third, the time between when the check is deposited and when it is available to the recipient. No longer than 2 days

Answer 5

availability float

Question 6

The time between when the check is deposited and when it is
charged to the payer ’ s account

Answer 6

presentation float

Question 7

The combination of the floats associated with these inbound and outbound check payments

Answer 7

net float

Question 8

When a company has written a large volume of checks that have not yet
cleared, the available cash balance shown by the company ’ s bank will be
larger than the company ’ s ledger balance. If the treasurer can reliably
predict how long it will take for the checks to clear, it is then possible to
invest some of the cash that is available due to uncleared checks.

Answer 8

Investing Float - Related Funds

Question 9

is the presumed date of receipt of the cash by the bank. Once the value date is reached, the payee has use of the funds. The value date may also be categorized by a bank as 1 - day float, 2+ - day float, or some similar term

Answer 9

Value Dating

Question 10

bank assigns a mailbox address to the company, which forwards this information to its customers. The customers
mail their checks to the lockbox, where the bank opens the envelopes, scans all checks and accompanying documents, deposits the checks, and makes the scans available to the company through a web site.

Answer 10

a lockbox service.

Question 11

allows a company to avoid the physical movement
of received checks to its bank. Instead, one can use a special scanner and scanning software to create an electronic image of each check, which it then transmits to the bank. The bank accepts the online image, posts it to the company ’ s account, and assigns funds availability based on a predetermined
schedule.

Answer 11

Remote Deposit Capture

Question 12

The fl oat concept can also be applied to a company ’ s payments. The key area that can be lengthened is the presentation float. A check written on a New York or Chicago bank will likely have a minimal lapse of a day or so
before it is presented for payment. However, if a check is written on a bank in a remote location, such as Montana or Idaho, presentation may require several additional days, all of which allow a company to continue using its cash during that time.

Answer 12

Remote Disbursement

Question 13

sends funds to the recipient ’ s bank account more rapidly
than any other form of payment, and is the standard form of international payment.

Answer 13

WIRE TRANSFERS

Question 14

an electronic network for the processing of both credit and
debit transactions within the United States and Canada. ACH payments include direct deposit payroll, Social Security payments, tax refunds, and the direct payment of business - to - business and consumer bills

Answer 14

ACHPAYMENTS Automated Clearing House

Question 15

allows a payee to initiate a debit of the payer ’ s bank account, with the funds shifting into the payee ’ s bank account. This is normally done with the written approval of the payer

Answer 15

ACH Debits Automated Clearing House

Question 16

A few large international banks have created links
between these systems, which simulate a global ACH system. Under their systems, a company enters payment information, which the banks then reformat into the standard format of the country where the payment will be
made.

Answer 16

Global ACH Payments

Question 17

an arrangement where the importer ’ s bank (the issuing bank) formally authorizes an obligation to pay the exporter ’ s bank during a specific period of time, assuming that several documented conditions have been met. The documents that must be presented to the issuing bank include an invoice and proof of delivery.

Answer 17

Letters of Credit

Question 18

If the exporter ’ s bank is unwilling to make this payment

Answer 18

advising bank

Question 19

merely passes along the documentation to the issuing bank

Answer 19

nominated bank

Question 20

If the exporter is uncertain of the reliability of the nominated bank, it may ask its own bank to confirm the letter of credit. If the bank agrees, then it is designated as

Answer 20

confirming bank

Question 21

can involve the use of debit cards, which deduct cash directly
from a company ’ s bank account, but more commonly employ credit cards .

Answer 21

PROCUREMENT CARDS

Question 22

Inbound cash payments tend to be for very small transactions, though possibly in very high volume, especially in retail situations. However, business -to - business cash payments are not common.

Answer 22

CASH PAYMENTS

Question 23

This section describes both basic and enhanced controls for multiple types of cash transfer. Flowcharts are included for the more comprehensive systems of control.

Answer 23

CASH TRANSFER CONTROLS

Question 24

assumes that a fully documented packet of payables information has already been created, which contains receiving, purchase order, and supplier invoice information.

Answer 24

Controls for Check Payments

Question 25

Unused check stock should always be kept in a locked storage cabinet. In addition, the range of check numbers used should be stored in a separate location and cross - checked against the check numbers on the stored checks to verify that no checks have been removed from the locked location.

Answer 25

Remove check stock from locked storage

Question 26

If a company uses any form of computerized check - printing equipment, it may be necessary to lock down all access to it. This can include any printers in which check stock is maintained, signature plates, and signature stamps.

Answer 26

Restrict access to check - signing equipment

Question 27

This control is useful when signature plates are used for smaller check amounts. When signature plates are used, there is no longer a final review of payments before they are mailed. Therefore, requiring a “ real ”signature for large checks adds a final review point to the payment process.

Answer 27

Require a manual signature on checks exceeding a predetermined amount

Question 28

The check signer must compare the backup information attached to each check to the check itself, verifying the payee name, amount to be paid, and the due date.

Answer 28

Check signer compares voucher package to check

Question 29

Under this approach, a company sends a list of all checks issued to its bank, which clears only checks on this list, rejecting all others. However, this approach also calls for consistent use of the positive pay concept, since any manual checks issued that are not included on the daily payments list to the bank will be rejected by the bank.

Answer 29

Implement positive pay

Question 30

There are several types of fraud that employees can use when a company pays with checks, while outside parties can also modify issued checks or attempt to duplicate them. This problem disappears when______ are made instead.

Answer 30

Use electronic payments

Question 31

An excellent detective control, this approach ensures that any fraudulently modified checks or checks not processed through the standard accounting system will be spotted as soon as they clear the bank and are posted on the bank ’ s web site.

Answer 31

Reconcile the checking account every day

Question 32

eliminates the need to physically transfer check payments to the local bank for deposit. However, the replacement process of converting the checks to an electronic format still requires some controls.

Answer 32

Controls for Remote Deposit Capture

Question 33

When processing checks through a remote deposit capture system, always print out a verification statement that the image was successfully sent to and received by the bank, and attach this verification to copies of the checks for storage. This ensures that the deposit has taken place.

Answer 33

Verify receipt by the bank

Question 34

Remote deposit capture works only for checks originating in the United States. However, if the person operating the scanning equipment were to mistakenly scan a foreign check, the system may indicate initial acceptance of the payment and then reject it a few days later

Answer 34

Train for handling of foreign checks

Question 35

can involve large amounts of money, and so require a stringent set of controls to mitigate the risk of loss

Answer 35

Controls for Electronic Payments

Question 36

The greatest risk with a letter of credit is not being paid. The documents that a payee must present in order to be paid are usually prepared and controlled by other parties, and the terms of those documents may be very strictly defined, thereby delaying payment.

Answer 36

Controls for Letters of Credit

Question 37

policies in this section are used to designate a preferred form of funds transfer, and to define the authorizations for various transfers.

Answer 37

Cash Transfer Policies