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#1586528 - 08/02/11 07:38 PM ACH Exposure Limits - overridden
WonderWoman Offline
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WonderWoman
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gone fishin'
We have policies, procedures, & a risk assessment form we complete on all cash management/ACH Originators.

We're having issues with setting the customer's limit, then the account officer (typically the lender), overriding it and giving them a higher limit.

What are the best practices out there and shouldn't the analysis & limits be set by an independent party to help prevent fraud?

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eBanking / Technology
#1586701 - 08/03/11 12:16 AM Re: ACH Exposure Limits - overridden WonderWoman
rlcarey Offline
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Galveston, TX
If this is not done through your written ACH risk management policies and procedures, then it is going to raise havoc in your next IT audit. Refer the FFIEC IT Examination Manual for additional guidance.
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#1587790 - 08/04/11 07:44 PM Re: ACH Exposure Limits - overridden rlcarey
SusyG Offline
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We limit access to who can raise a cash management limit in our system to only a few people in the bank. If a customer needs it raised, we get the officer to sign an authorization form and then the limit gets raised. Examiners and auditors always look at this paper trail and as long as we have the authorization from the officer, it hasn't been a problem. We also have a dollar amount limit set that can only be authorized by an executive officer. Auditors like this also.

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#1588048 - 08/05/11 12:19 AM Re: ACH Exposure Limits - overridden SusyG
rlcarey Offline
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Galveston, TX
Typically, these limits are treated similar to guidance lines. For example, if the total risk exposure is $1MM - $800K in loans and $200K in ACH risk, then it would have to be approved by what ever mechanism the bank has to approve a $1MM loan - senior officer, combination of officers, committee, board, etc.
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#1595519 - 08/23/11 09:05 PM Re: ACH Exposure Limits - overridden rlcarey
kiemo Offline
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kiemo
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MidUS
Just working on the ACH audit now and Exposure Risk will be a focus. The person that sets up new Originators and sends files also overrides exposure limits by glancing at a few months of average balances. Is this not frightening. We're talking about @150K to $270K and more. I have noted this in previous audits, but it's the classic Audit Committee doesn't really understand the risk..but the economic situation in the area is exploding and the huge increases really are needed. It's the bust that I'm concerned about and don't want to be a fall guy that didn't adequately explain the risk. Any input on this would be greatly appreciated !

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#1595535 - 08/23/11 09:33 PM Re: ACH Exposure Limits - overridden kiemo
Kathleen O. Blanchard Offline

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Increases in ACH risk should be handled the same as increases in hard credit risk because it has the potential to be actual money owed.

The approvals should be done by individuals with a good understanding of the customer's financials and credit strength.
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#1595794 - 08/24/11 03:59 PM Re: ACH Exposure Limits - overridden Kathleen O. Blanchard
John Burnett Offline
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Cape Cod
Add to this mix the potential for fraud if your customer can originate ACH entries online. If you've got a customer with such access whose PC has been compromised by a banking trojan, a hard and fast credit exposure limit could be the only thing standing in the way to prevent huge losses. Ask Comerica Bank about being sued (successfully, so far) by a business customer for lax controls. Ask Ocean Bank in Maine about how much fun it was to be sued for the same thing (although so far it appears to have won the case).
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#1595796 - 08/24/11 04:03 PM Re: ACH Exposure Limits - overridden John Burnett
Kathleen O. Blanchard Offline

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Good point, John. The new authentication guidance specifically addresses commercial accounts and the fact that the frauds that have occurred could have been prevented if the bank had noted the change in pattern for the customer. Automatic approvals are not a good thing.

When I was a "relationship manager/lender" at a large bank, we called customers when a file came through that was overlimit for an explanation, to determine if we wanted to approve it, and to make sure it was authorized (fraud can be internal at the customers office as well). And that was years ago.
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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#1598428 - 08/30/11 09:30 PM Re: ACH Exposure Limits - overridden Kathleen O. Blanchard
kiemo Offline
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kiemo
Joined: Jan 2009
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MidUS
Went on vacation.Thank you all for the input...now to convince smile

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#1599429 - 09/01/11 09:07 PM Re: ACH Exposure Limits - overridden kiemo
MyScamper Offline
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Posts: 452
Between here and there
Does anyone require a certain percentage of the ACH activity to be held in reserve? If so how much and how do you calculate it? I am told the FDIC gave some guidance on it, but can't find anything.

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#1600255 - 09/06/11 08:05 PM Re: ACH Exposure Limits - overridden MyScamper
kiemo Offline
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kiemo
Joined: Jan 2009
Posts: 267
MidUS
You are referring to pre-funding. Both pre funding and risk pooling are mentioned as mitigators in the ODFI/Originator relationship and may be written as the f.i. sees fit in individual Originator/Cash Management agreements. Check out information in your ACH Rule Book and/or contact your regional ACH Association.

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