GFOA BEST PRACTICES IN BANKING

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GFOA BEST PRACTICES IN BANKING

• Northern Nevada Chapter of the Association of
  Government Accounts

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Pat Foley, Business Banking Manager Government
Services for Wells Fargo
Tom Ciesynski, CPA Chief Accountant WCSD
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Government Finance Officials Association (GFOA)

• The purpose of the Government Finance Officers
  Association is to enhance and promote the
  professional management of governments for the
  public benefit by identifying and developing
  financial policies and practices and promoting
  them through education, training and leadership.
• GFOA Website www.gfoa.org

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GFOA Best Practices

• Accounting, Auditing, and Financial Reporting
• Budgeting and Fiscal Policy
• Cash Management
• Debt Management
• Economic Development and Capital Planning
• Retirement and Benefits Administration

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Cash Management Best Practices

• Pool Collateral
• Positive Pay
• ACH Blocks
• Desktop Deposit
• Depository Accounts
• Zero Balance Accounts
• Audits
• Secure checks

• Secure digital signatures
• Establish limits
• Segregate duties
• Multi-factor identification
• Periodic review of signature cards
• Stay current with new banking trends

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Pooled Collateral

• In the summer of 2003, the Nevada legislature
  approved legislation to establish a program to
  monitor a collateral pool for public deposits.
  The program serves as an alternative method to
  allow financial institutions and local government
  agencies within the state to participate in
  pooled collateralization of their deposits in an
  efficient, cost effective and safe manner when
  collateralizing public funds.
• Objectives include
• Reduced risk for government agencies through
  pooled collateral
• Centralized reporting function through State
  Treasurers office.
• Cost effective way for financial institutions to
  pledge collateral.
• Acceptable securities will be pledged at a third
  party depository on behalf of the depository for
  the benefit of the State Treasurer to secure all
  public deposits.
• Application State Treasurers Office completes
  daily verification of sufficient collateral,
  collateral type and a daily fair market value.
  All participating banks are required to at least
  102 collateral to back all dollars deposited by
  local governments.

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State of Nevada Treasurers Office Pooled
Collateral Daily Depository Report
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State of Nevada Treasurers Office Pooled
Collateral Program Monthly Report
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Positive Pay

• Practice Implement positive pay on all
  disbursement bank accounts and reconcile daily.
  Positive pay is the best single fraud prevention
  devices available.
• Application District electronically sends each
  check run to the bank. The bank validates all
  paying checks to the Districts issues files,
  including check number, amount and payee
  information. This validation also takes place as
  checks are presented at a teller window.

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Positive Pay Statistics

• Check Fraud
• Types of check fraud examined in the survey
  include
• 61 of respondents whose organizations were
  victims of attempted or actual check fraud report
  that the fraud involved altered payee names on
  the checks they issued. 41 of respondents
  indicate that this type of fraud increased in
  2006 compared to 2005.
• For 57 of organizations that were victims of
  check fraud, one type involved the use of
  counterfeit checks with the organizations own
  MICR line but another organizations name. Forty
  percent of organizations that experienced this
  type of fraud indicate that it increased in 2006
  compared to 2005.
• 41 of organizations that suffered check fraud
  experienced fraud due to lost, stolen or
  counterfeit employee pay checks.
• 25 of respondents report that fraudulent checks
  returned by positive pay were then presented as
  ACH debits
• One-quarter of organizations that experienced
  check fraud in 2006 suffered a financial loss as
  a result of the fraud. Many organizations were
  able to avoid financial losses through the use of
  bank-provided services.
• Prior to 2006, 86 percent of organizations
  responding to the survey were using positive pay
  or reverse positive pay.
• Thirty percent of organizations were using payee
  positive pay before 2006, while an additional 25
  percent of organizations started using payee
  positive pay in 2006.

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Positive Pay Statistics

• Wells Fargo Clients stats -
• In 2005, potential check fraud increased 58 on
  Wells Fargos commercial accounts.
• In 2005, Positive Pay prevented 64 of the total
  potential fraud on Wells Fargos business
  customers accounts. This rose to 68 in 2006.
  
• For the two-year period ending December 2006,
  Payee Validation prevented 14.3 million in payee
  name fraud.
• In 2005, 20 of actual commercial account check
  fraud losses were presented over the counter at
  our stores
• In 2005 internal embezzlement was responsible for
  48 of our customers check fraud losses.

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Automated Clearing House (ACH)Blocks

• Practice Place total ACH blocks on all accounts
  that are not disbursement accounts.
• Application The District has entered into the
  banks system which outside entities are allowed
  to process ACH debits against their account. All
  non-approved ACH items are rejected and can only
  be processed by approval from the District.

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2008 ACH Frauds Prevented

• Here are 2008 stats on ACH Fraud Filter.
• MONTH STOPPED AND RETURNED CUSTOMER
  REVIEWED CUSTOMER REVIEWED AND RETURNED 2008
  TOTAL FRAUD PREVENTED
• JAN 291,161,176.02 7,059,787,605.08 24,985,078.
  10 316,146,254.12
• FEB 31,635,111.08 7,060,327,243.79 10,027,943.1
  8 41,663,054.26
• MAR 49,637,616.87 8,771,663,364.51 15,429,488.9
  6 65,067,105.83
• APR 14,625,363.65 8,473,190,021.22 21,028,039.1
  6 35,653,402.81
• MAY 21,455,069.75 7,428,893,474.53 7,292,185.17
  28,747,254.92
• JUN 35,395,789.68 9,739,867,681.28 6,668,305.46
  42,064,095.14
• JULY 23,902,150.54 8,107,723,568.11 4,841,085.3
  5 28,743,235.89
• AUG 259,360,981.39 7,346,707,532.49 7,853,743.2
  2 267,214,724.61
• SEP 885,072,937.91 9,131,266,172.59 109,830,802
  .15 994,903,740.06
• OCT
• NOV
• DEC
• TOTAL 1,612,246,196.89 73,119,426,663.60 207,95
  6,670.75 1,820,202,867.64

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ACH Fraud Statistics

• Key findings of the 2007 AFP Payments Fraud
  Survey include
• Seventy-two percent of organizations experienced
  attempted or actual payments fraud in 2006.
• - Thirty-nine percent of survey respondents
  report that incidents of fraud increased over
  last year.
• Checks continue to be the preferred target of
  thieves as nearly all organizations that
  experienced payments fraud were victims of
  attempted check fraud.
• - Other targeted payment types for fraud include
• ACH debits (35 percent)
• Consumer credit cards (17 percent)
• Corporate purchasing cards (14 percent).

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ACH Fraud Protection

• Best Practices to Prevent Check and ACH Fraud
• Nearly half of organizations added to their
  internal controls and procedures during 2006 to
  bolster their protection against payments fraud.
• One-quarter of organizations either added or
  revised approvals for check payments while 23
  percent did the same for electronic payments.
• Other changes to internal controls and
  procedures in 2006 to prevent check and
  electronic payments fraud include
• Performing more frequent audits of payments
  processes.
• Reconciling accounts more frequently.
• Improving the timely return of payments.

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Desktop Deposit

• Practice Using remote deposit technology made
  possible by the advent of Check 21 legislation,
  Desktop Deposit allows businesses to submit
  checks to their bank accounts using a personal
  computer and unique check scanner.
• Application DeskTop Deposit accelerates the
  collection of checks deposited. Utilizing Image
  Capture Technology, banks exchange images of
  checks that are deposited to lower cost and to
  lower float assigned to each check.

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Check 21

• Check 21 was created after 9/11 to allow banks to
  exchange images of checks that are being
  deposited.
• Check 21 has allowed banks to extend this
  capturing of images to our depositing clients.
• By clients using DeskTop Deposit, check
  collections is accelerated and cost savings are
  often passed on to the client.

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Depository Accounts

• Practice Establish one or more accounts if
  needed, for all deposits that come to your
  organization by check or ACH deposit or wire.
• Application For ease in reconciling large
  accounts, a best practice is to have an account
  or accounts the has no disbursements.

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Zero Balance Disbursement Accounts

• Practice Establish a zero balance account for
  each type of major disbursement in your
  organization (i.e. accounts payable and payroll).
• Application For ease in tracking and
  reconciling functions like A/P or Payroll a best
  practice is to have an individual account that
  can track specific disbursements. This system
  allows the District to consolidate its balances
  to a single account for investment opportunities
  and eliminates the need to transfer funds for
  daily funding requirements.

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Audits

• Practice Work with your banking partner to
  review your account set-ups to see that your
  organization is following good practices and
  records are up to date.
• Application Schedule annual meetings to go over
  all banking matters. Validate that proposed
  pricing is still active and to review what new
  products and services could be advantageous to
  the District. Review existing services to see if
  they are still needed and if cost could be
  lowered.

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Secure Check Stock

• Practice Protect all check stock in your
  organization.
• Application Keep all check stock in a locked
  location like a vault that is preferably
  fire-proof. Also keep check stock in a secure
  back-up facility in your organization in case of
  an emergency in your primary facility

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Secure Digital Signatures

• Practice In modern day accounting, most checks
  are produced on laser systems. Many systems have
  digital signatures.
• Application Make sure that passwords are in
  place with laser systems or if digital systems
  allow signature plates to be removed, that they
  are kept in locked locations.

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Establish Check and Transfer Limits

• Practice Require all checks, transfers and wires
  over a specified amount to have an additional
  review process.
• Application Both Wells Fargo and the District
  verify items that are over a specific threshold
  and all accounts. Constantly reviewing access
  and limits to insure who has authority and for
  what levels.

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Multi-Factor Identification

• Practice Ensure that your financial institution
  provides for multi-factor identification when
  using on-line banking services. Ensure
  appropriate separation of transaction duties for
  administration of the on-line system.
• Application Washoe County School District uses
  our CEO information Portal. CEO portal uses two
  levels of authentication
• Authentication using a Company ID, User ID, and
  password.
• Strong or two-factor authentication using RSA
  SecurID cards CEO services such as wire transfer
  or ACH are examples of services that require
  strong authentication.

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Staying Current Banking Trends

• Practice Banking institutions, like most
  organizations, are constantly updating technology
  systems to provide greater efficiencies
• Application Both the client and the bank have to
  maintain an active dialogue on new services.
  Attending industry conferences is another way to
  see new trends. Look to enhance current services
  that banks are providing. Payee Positive Pay,
  Coupon Capture on DeskTop Deposit, Raw Data
  available for direct upload into accounting
  systems are enhancements that have become
  available as products and services have been
  introduced to the market.

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Create a Team Approach with your Bank

• The Districts Bank is more than a simple service
  provider, they are responsible for the protection
  of the Districts funds.
• Constant monitoring of sufficient collateral
• Validation of proper payees.
• Processing deposits properly and timely.
• Accurately accounting for pricing and volumes
  that are bill for through Account Analysis.
• Understanding Districts needs and requirements.

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Wells Fargo Economist Predictions for 2009

• The deepest and longest recession since the 1930s
  should end in the second half of 2009
• The ongoing impact of the 2 trillion in
  government stimulus, with other factors such as
  pent-up consumer demand and returning consumer
  confidence will finally lead to a turnaround and
  the third quarter of the next year will be better
  than expected according to Dr. Jim Paulsen,
  chief investment strategist of Wells Capital.
  (December 19th 2008)

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Wells Fargo Economist Predictions for 2009

• Jim Paulsen believes this is a V cycle and many
  factors lead his enthusiasm for quick improvement
  in 2009. Lower oil prices and consumer demand
  will lead to increased spending after 1st quarter
  2009. Consumer who waited to buy a car and is
  definitely going to need one.

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Wells Fargo Economist Predictions for 2009

• Dr. Scott Anderson, senior economist for Wells
  Fargo predicts that the housing sector will lead
  the way. One bright note is the sector that led
  the economy into this morass is about to turn the
  corner, perhaps as soon as this summer and will
  to lead us out. Dr. Anderson however indicated
  that the current job market is one of the worst
  in decades, with another 3.7 million jobs
  expected to lost next year.

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Wells Fargo Economist Predictions for 2009

• Dr Anderson added that means that job losses in
  this recession will total 5.5 million, twice as
  many as were lost in the 1981-1982 recession, the
  second worse since WWII. Dr Anderson also
  stated Gross domestic product will decline in
  the first two quarters before expansion resumes
  in the 3rd quarter.

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FDIC Insurance Limits

• Basic FDIC Deposit Insurance Coverage Limits
• Single Accounts (owned by one person)250,000 per
  owner  
• Joint Accounts (two or more persons)250,000 per
  co-owner  
• IRAs and certain other retirement
  accounts250,000 per owner  Trust
  Accounts250,000 per owner per beneficiary
  subject to specific limitations and requirements 

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FDIC Insurance Limits

• Corporation, Partnership and Unincorporated
  Association Accounts 250,000 per corporation,
  partnership or unincorporated association  
• Employee Benefit Plan Accounts 250,000 for the
  non-contingent, ascertainable interest of each
  participant  
• Government Accounts 250,000 per official
  custodian  
• Non-interest Bearing Transaction Accounts
  Unlimited coverage only at participating
  FDIC-insured banks and savings associations

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Merger of Banks in 2008

• Wells Fargo and Wachovia together are 1.4
  Trillion
• Bank of America and Merrill Lynch are 2.7
  Trillion
• Chase and WAMU are 2.4 Trillion