AAP Are You Ready? - CIA Studiosproduction.ciastudios.tv/events/wespay_12/802/notes/presentation_3.pdf · Regional Payments Associations are directly engaged in the NACHA rulemaking

© 2008 Western Payments Alliance. All rights reserved. No reproduction or distribution in any manner without prior written consent.

AAP Are You Ready?

John Curtis, AAP, Vice President, Director of Training

Jim Petkovits, AAP, Vice President, Education

© 2008 Western Payments Alliance. All rights reserved. No reproduction or distribution in any manner without prior written consent. 2

WesPay, as a Direct Member of NACHA, is a specially recognized and licensed provider of ACH education, publications and support. Regional Payments Associations are directly engaged in the NACHA rulemaking process and the Accredited ACH Professional (AAP) program.

This material is derived from collaborative work product developed by NACHA ─The Electronic Payments Association and its member Regional Payments Associations. This material is not intended to provide any warranties or legal advice, and is intended for educational purposes only.

© 2011 Western Payments Alliance (WesPay). All rights reserved.

NACHA owns the copyright for the NACHA Operating Rules & Guidelines.

The Accredited ACH Professional (AAP) is a registered service mark of NACHA.


General Test Overview

• 120 multiple choice questions (20 pilot questions for future exams)

• Test length is 3 hours

• Must have drivers license or ID card with photo and signature


Test Makeup

- General Payments Overview 10%

- Products 8%

- Risk Management 15%

- Rules and Regulations 24%

- Operational Process and Flow 28%

- Technical Standards 15%


General Payment Overview

• Test weight: 10 percent

• Covers the history, concepts, participants and legal framework of ACH. Also covered is the basic information of comparative payment systems including checks, credit cards and wire transfers.


History of ACH

• Early 1970s special committee on paperless entries (SCOPE) is formed

• 1972 first automated clearing house (ACH) began operation

• 1974 national automated clearing house formed (NACHA)

• 1978 NACHA and the federal reserve system link local ACH systems on a nationwide basis


RDFI

RECEIVERRECEIVER

••CustomerCustomer

••EmployeeEmployee

••CompanyCompany

ACH Participants

Operator

ACH

Authorization

John Doe

Originator

• Company

• Employer

• Customer

ODFI


History of Checks

• One of oldest, most common payment methods

• Development of check clearing houses

• ABA adoption of routing # policy

• MICR standard adopted

• Creation of federal reserve system

• Automated check processing machinery


Fedwire & Securities Transfer Systems

• Two distinct payment systems used for securities transactions, interbank settlement, Fed Funds purchases, corporate and other large value payments with a need for real-time processing and settlement of funds

• Fedwire is a real-time, gross-settlement system

• Fedwire is a credit transfer system that provides immediate finality of settlement. Once authorized by the sender and processed by Fedwire, a transfer is irrevocable

• Fedwire is governed by Regulation J


Card Payments Systems

• Credit Cards

• Debit Cards

• ATM & POS Cards

• Prepaid Cards

- Requirements of a POS or ATM network are governed by the rules governing the network to which the participant belongs


Products

• Test Weight: 8 Percent

• Covers the basics of marketing techniques and strategies for promoting and cultivating the use of ACH applications, products and services. Also covered are the benefits and developing applications offered in the network.


Marketing Applications

• Develop an effective marketing strategy

- Identify products and benefits

- Identify potential clients who will be receptive to ACH services

• The ACH Advantage

- Quick

- Accurate

- Secure


Key Benefits of ACH Payments

• Cost Reduction

• Customer/Trading Partner Retention

• Revenue Opportunities

• Value-Added Services for Customers

• Paper Reduction- Check

- Receipts

- Deposit Slips


ACH Products and Applications

• Direct Deposit

• Direct Payment

• Point of Sale/Machine Transfer Entry/Shared Network Entry

• Corporate to Corporate Payments (Financial EDI)

• Cross-Border Payments


e-Checks

• Point of Purchase

• Re-presented Check Entries

• Accounts Receivable Entries

• Back Office Conversion

• Telephone-Initiated Entries

• Internet-Initiated Entries


Risk Management

• Test Weight: 15 percent

• Covers the risks associated with the ACH network and risk control techniques. The ACH network is not without risk and the ACH professional should know how to identify and control risk.


ACH Risk Identification

• Credit Risk - The risk that a party to a transaction cannot provide final settlement

• Operational Risk - The risk that a transaction is altered due to a clerical error

• Fraud Risk - The risk that a transaction is altered in an attempt to misappropriate funds

• Systemic Risk - The risk that a party to a transaction will fail to settle, causing others parties to the transaction to fail to settle


Credit Monitoring

• ODFIs should establish policies and procedures to limit exposure

- Based on internal credit reviews or public credit rating agencies

- Establish procedures for non-rated or financially impaired Originators

- Monitor and respond to changes in Originator’s financial condition

• NACHA Operating Rules require each ODFI to establish exposure limits for each of it’s originators monitored across multiple settlement dates


Contingency Planning

• Contingency planning is being prepared to process under unusual circumstances, not only natural disasters or civil unrest, but also developing plans on how to handle exception files

(Note: computer failure can not be used for an excused delay)


ODFI Exception Controls

• Exception Conditions

- Duplicate files

- Late files, lost files or files that are not received

- Files that cannot be processed

- File, batch or item rejected by operator

• Operational Considerations

- ODFI and originator remake capabilities

- Missed deadline procedures


RDFI Controls

• Exception Conditions

- Late or lost files

- Files that cannot be processed

- Erroneous files, duplicate files or files received in error

• Operational Considerations

- Flexible ACH processing for late or missing files

- Memo posting capabilities


Rules and Regulations


• Covers the NACHA Operating Rules and the NACHA Operating Guidelines as well as other related industry standards and regulations. Also covered are relevant Federal Government Regulations.


ACH Operating Rules

• Eight Articles

• Ten Appendixes

- This is the most important publication in preparing for the AAP Exam. You must ensure you are using the NACHA

Operating Rules and Guidelines published in the year you are taking the exam any other rule book may have incorrect or incomplete information

23


Regulation E

• Electronic Funds Transfer Act (EFTA) (November 1978)

- Consumer Transactions

- Reporting Requirements

- Does not apply to corporate payments

- Does not apply to RCK transactions


Uniform Commercial Code Article 4A

• UCC4A is a comprehensive body of state law governing commercial electronic funds transfers

- Choice of law New York

- Liability for unauthorized transaction between ODFI and Originator


Fed Uniform Operating Circular on ACH Items

• The Feds Uniform Operating Circular on ACH items incorporates the NACHA Operating Rules and generally conforms to the requirements of UCC4A


Office of the Comptroller of the Currency Banking Circular 235

• This Circular was issued to alert national banks to the risk associated with large dollar payments systems, particularly within the International sector


Regulation D/Regulation CC

• Regulation D - Reserve Requirements

- No more than 6 electronic transactions per month

• Regulation CC - Funds Availability

- Curbs unnecessary holding of funds by Financial Institutions


EFT Mandate/EFTPS

• EFT Mandate - Debt Collection Improvement act of 1996

- Virtually all non-tax related payments made by the Federal Government must be made electronically

• EFTPS - Electronic Federal Tax Payment System

- Allows/Requires corporate taxpayers the ability to pay their taxes electronically


Operational Process/Flow

• Test Weight: 28 Percent

• Covers the functions and responsibilities of the participants in the ACH network. Also covered is the Settlement process and the effect of settlement on all ACH entries.


Responsibilities of Originators

• Establish a relationship with an ODFI

• Agree to media and format specifications for transmission of ACH entries

• Fund ODFI account for credit entries

• Live $ entries no sooner than 6 days after prenotes, if a prenote is sent

• Respond to NOCs


Responsibilities of ODFI

• Transmit all ACH files in a timely manner

• Warrant ACH entries are authorized

• Monitor credit worthiness/exposure limits of Originators

• Annual audit

• Verify/Test/Schedule incoming files

• Assign a trace number to each item


RDFI Responsibilities for Receipt

• Accept all transactions in compliance with ACH Rules

• Post entries on the settlement date.

• Rely solely on the account number

• Comply with Regulation E

• Make addenda information available upon request

• Verify prenotes


Third Party Processors and Senders

• Provides ACH services to or on behalf of a financial institution, or Originator they can include

- other financial institutions

- payroll processors

- data collection companies

- bill payment companies

• Anyone using Third Party is still liable for all transactions processed on their behalf


Settlement

• Settlement is the actual transfer of funds between DFIsto complete the payment instruction of an ACH entry

- ODFI - Settlement occurs on the “Settlement date”posting to Originator based on agreement

- Operator - Calculates the settlement date based on effective entry date and processing date

- RDFI - Settlement occurs on the “Settlement date”posting to Receiver on settlement date� Credit - Transmitted no earlier then two banking days prior to

settlement date

� Debit - Transmited no earlier then one banking day prior to the settlement date


Exception Processing

• An exception entry is an ACH entry that requires special handling by a DFI (outside normal procedures). DFIsmay not suspend ACH exceptions, entries must be posted on a timely basis or returned within the proper time frame


Technical Standards/Formats


• Covers the technical requirements and standards that govern the processing of ACH payments. The appendices of the ACH Operating Rules are also covered, including audit requirements, rules violations and arbitration procedures


ACH Format - File Requirements

• 94 characters in length; blanks, zero’s and 9’s are used to fill to the 94th character

• Each record is made up of specific fields which are assigned a position number range

• All characters contained in alphameric and alphabetic fields must be left justified and space filled

• All characters contained in numeric fields must be right justified and zero filled


ACH Field Requirements

• Mandatory - will be rejected by the ACH Operator if left blank (M)

• Required - may be rejected by the RDFI if left blank (R)

• Optional - Originators discretion as to whether to leave blank (O)


ACH File

101 125000037 1250000370210151200A094101WASHINGTON NATIONAL BNK AAAA. STATE INSURANCE

5200AAAA WASH INSR 12-3456789PPDPAYROLL 021015 1125000030000001

622125000049 12345670000125020123456789SSA JOHN Q CUSTOMER 0125000030000001

82000000010012500000400000000000000000012505012-3456789 125000030000001

9000001000010000000010012500004000000000000000000125050

99999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999

99999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999

99999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999

99999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999

99999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999999


File Header Record

• First record in an ACH formatted file

• Key Fields in the File Header Record- Immediate Origin (sending point or ACH Operator)

- Immediate Destination (sending point or ACH Operator)

- Date, Time and File ID Modifier (used to uniquely identify the file)


Batch Header Record

• Second record in an ACH formatted file

• Key Fields in the Batch Header Record- Standard Entry Class Code (Used to identify consumer or

corporate transactions)

- Company Name

- Settlement Date (Julian date added by operator, indicates the date funds will settle between participating DFIs Fed accounts)


Entry Detail Record

• Third record in an ACH formatted file

• Key Fields in the Entry Detail Record- Receivers Account Number

- RDFI Routing Number

- Transaction Code (Indicates credit or debit item and type of account it will post to)

- Amount of item


Addenda Record

• Content of the Addenda Record is dependent on the standard entry class (SEC) located in the Batch Header Record

• The Addenda Record is used to transmit additional payment related information along with a corresponding Entry Detail Record

• Addenda Records are also used to communicate return or NOC information back to the ODFI


Batch Control Record

• Last record in a batch of an ACH formatted file.

• Key Fields in the Batch Control Record.- Entry Addenda Count (how many entry detail records and

addenda records are in the batch)

- Hash Totals

- Total credit and/or debit dollar totals for batch


File Control Record

• Last record in an ACH formatted file

• Key Fields in the File Control Record- Batch Count (how many batches in a file)

- Block Count (how many blocks of ten “lines” in an ACH File)

- Total credit and/or debit dollar totals for file


So you know your ready, now what?


Contact your RPA

• They want you to pass and will make every effort to assist you

• They will have multiple prep classes and other option to help you prepare

• Don’t be afraid to ask them questions


Study Tips

• Write out a study plan

- Schedule - set aside time to study

- Prioritize - study most what you know least

- Prepare - have a quiet place to study and have everything you’ll need before you start

- Practice - answer all the questions in the study guide

- Revise - make sure you can change your schedule if the real world gets in the way


The SQ3R Method

• Survey

- Get an overall picture BEFORE you study

• Question

- Ask questions for learning

• Read

- Read to answer questions

• Recite

- Stop reading and try to recall what you have read

• Review

- Reread to measure what you have learned


Study Tips Continued

• Don’t cram

- There is a lot to cover, make sure you give yourself enough time to learn it all

• Take breaks

- If possible, study no more than 45-60 minutes at a time, then take a short break

• A final word

- Work smarter not harder


Exam Tip # 1Read the Whole Question and Each Answer

• An ODFI transmitted an erroneous file. The reversing file, and if necessary, a correcting file must be originated in order for them to be made available to the RDFI within:

A 5 banking days for the reversing file and correcting file

B 2 banking days for the reversing file and correcting file

C 5 banking days for the reversing file and 24 hours for the correcting file

D 2 banking days for the reversing file and 24 hours for the correcting file

• Don’t jump to conclusions, read the whole question and each answer.


Exam Tip # 2Answer According to the Rules

• According to the NACHA operating rules, an RDFI must include thefollowing information on a consumer’s statement:

A Company name and company entry description

B Effective entry date

C Company descriptive date

D Individual identification number

• Individual identification is recommended, not required.


Exam Tip # 3Learn Key Terminology

• Settlement for ACH transactions occurs:

A When an RDFI receives its transmission from the Federal Reserve or third-party service provider

B When the receiver withdraws money on payday

C On the effective entry date

D On the julian date

• The settlement date or julian date is entered by the ACH Operator and is when funds are posted to the participating DFIs Federal Reserve account.


Exam Tip # 4Find the Best Answer

• The CTX payment can include:

A One addenda record with 94 characters

B 9,999 addenda records with 80 characters of related information

C 9,999 addenda records with 94 characters of related information

D One addenda record with 9,999 characters

• You can make an argument for 3 answers, pick the best


Exam Tip # 5Look for Underlined Words

• Which of the following ACH applications may not be returned as authorization revoked:

A WEB entries and PPD entries only

B Single entry WEB

C ARC, POP and BOC

D Single entry TEL

• The word NOT was underlined make sure you understand what is being asked.


Exam Tip # 6Underline Key Words

• The Originator is responsible for retaining the original item to which an ARC entry relates for:

A 2 years

B Zero days

C 180 days

D 60 days

• The Originator is responsible for retaining the original item to

which an ARC entry relates for:


Exam Tip # 7Eliminate Incorrect Answers

• The RDFI is responsible for:

A Posting debit and credit transactions on the effective date

B Making sure that account name and number match on a prenotification

C Service bureau compliance

D Notifying the receiver that a notification of change was processed for the RDFI’s account

• Eliminate the answers you know are incorrect.


Exam Tip # 8Define the Payment

• Direct payment can be all except:

A Used to send a payment to a mortgage account

B Used to collect a utility payment

C A variable amount

D A recurring bill

• Direct payment (a debit transaction) can be all except:


Exam Tip # 9Turn It Into a Real World Example

• When an ODFI utilizes a third-party service provider in the origination process, which party warrants that the entries are authorized:

A The third-party service provider

B The ODFI

C The ACH Operator

D The Originator

• When an ODFI (BofA) utilizes a third-party service provider (ADP) in the origination process, which party warrants that the entries are authorized.


Exam Tip # 10When in Doubt Make an Educated Guess

• What standard entry class codes require addenda records

A ACK, ATX, ADV, POS, TRC, TRX, XCK

B ATX, CTX, CIE, COR, SHR, POS, PPD

C COR, DNE, ENR, MTE, POS, SHR, TRX

D MTE, POS, RET, CCD, CTX, PPD, POP

• Even if you are unsure of the answer try to eliminate as many possibilities as you can and guess.


More Exam Tips

• Develop and study using a matrix

- Know all SEC’s and their “exceptions”

- Know all the time frames

- Know the government exceptions

• What type of payment/question is it?

- Consumer or corporate item

- Which participants perspective

- ACH rules or government regulations

• Get plenty of sleep the night before the exam


Even More Exam Tips

• Read the whole question and each answer

- Answer the easy questions first

- Answer the more difficult questions next

- See if other questions can help you answer questions you do not know

- Trust yourself - if you are sure you know the answer the first time don’t change your mind

- Write down your reminders before you begin

• Relax - 3 hours is plenty of time

© 2008 Western Payments Alliance. All rights reserved. No reproduction or distribution in any manner without prior written consent. 64

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AAP Are You Ready? - CIA Studiosproduction.ciastudios.tv/events/wespay_12/802/notes/presentation_3.pdf · Regional Payments Associations are directly engaged in the NACHA rulemaking