Funds Transfer Developing Commercially Reasonable Security Procedures For Your Bank, Part 1

Funds Transfer: Developing Commercially Reasonable Security Procedures For Your Bank, Part 2
by Dana Turner

A Practical Example
So what is "commercially reasonable"? Your customers -- the Meltons -- are on a business trip in another state, buying merchandise for resale in their store. They find an exceptional bargain in a quantity of special goods and the seller requests immediate payment. Think of this scenario as addressing a memo: To, From, Date, Instructions.

The Meltons [Originator/Sender] call your bank [Originator's/Receiving Bank] to transfer funds [payment order] from the Meltons' business account to the seller's [Beneficiary] business account at the seller's bank [Beneficiary's Bank]. Here are the suggested security steps that the Originator's/Receiving Bank should take in this funds transfer:
The Receiving Employee
The Receiving Employee begins documenting the request and verifies the customer's identity using available resources and information already on file, including:

• Bank account number
• Personal identification number issued by the bank
• All signature and identifying information, including:
  • Names;
  • Address;
  • Telephone numbers;
  • Social Security numbers;
  • Driver's license numbers;
  • Signature comparison;
  • Photo comparison from identification documents;
  • Physical description from identification documents;
  • Safety deposit box number, if it's appropriate;
  • Any account number of any account held by this bank;
  • Faxed instruction; and
  • Notarized statement.

  
  The Receiving Employee verifies that the funds are available in the Meltons' account, and that those funds have actually been collected. The Receiving Employee then prepares and delivers the payment order to the Verification Employee and signs the appropriate documentation.
  
  The Verification Employee
  The Verification Employee takes over the process and accompanying documentation, and calls the Melton's back to verify the information contained in the payment order, including the:
  

  • Customer's information and security code;
  • Amount of transfer;
  • Destination bank, including:
    • Name;
    • ABA number;
    • Address and other identifying information, including:
      • Branch of other office, if it's appropriate;
      • "Special attention to" information; and
      • Beneficiary's information and code;
  • Account number or other identifier, including:
    • Special handling, reference or instructions;
    • Details of payment; and
    • Transaction or invoice number.

  The Verification Employee then accepts and authorizes the payment order according to the sender's instructions, or rejects the payment order for any of several reasons, including:
  

  • Insufficient funds;
  • Account closed;
  • The account has been used as a vehicle to commit a crime (e.g., kiting, embezzlement, loan fraud, money laundering, etc.);
  • Court order on file freezing funds;
  • Unclear instructions; or
  • Equipment failure.

  The Verification Employee enters the payment order into the system, delivers it to the Sending Employee and signs the appropriate documentation.
  
  The Sending Employee
  The Sending Employee takes over the documentation and:
  

  • Verifies the data input;
  • Checks the information for errors and omissions; and
  • Sends the payment order.

  Cautions & Suggestions
  

  • Include funds transfer security procedures in quarterly operational audits;
  • Periodically conduct an external audit of the person(s) responsible for issuing access codes and system maintenance;
  • Be particularly careful with any account governed by a power of attorney or a court order:
  • All such accounts should be placed into a unique category that requires special handling by a supervisor -- or one that references the bank's legal counsel;
  • The only power of attorney document involved with any account should be the form supplied by the bank; and
  • All signatures should be witnessed by bank personnel.
  • All commercial customers should provide the same documentation to transfer funds as they would to open any other type of account, including:
  • Sole Proprietorship: Business license, fictitious name statement, tax identification numbers and other routine signature card information (line out all unused spaces);
  • Partnership: Business license, fictitious name statement, a copy of the partnership agreement, a list of authorized signers on this account and their respective negotiation limits, tax identification numbers and other routine signature card information (line out all unused spaces); and
  • Corporation: Business license, fictitious name statement, a copy of the articles of incorporation and state registry, a corporate resolution listing the authorized signers on this account and their respective negotiation limits, tax identification numbers and other routine signature card information (line out all unused spaces).
    
    

  Click here to read Part 1.
  
  Copyright Dana Turner & Security Education Systems 1980 - 2002
  
  First published on BankersOnline.com 1/14/02