Transcript Test Master Look

NCP 2014 Exam
ECCHO Training Series
Session 5
March 13, 2014
2:00 pm ET (1:00 pm CT; 11:00 am PT)
All sessions 90-min.
National Check Payments Certification
Image Exchange: Processes
Copyright© 2013 by the Electronic Check Clearing House Organization
NOTICES
This training course may provide an introduction to or summary of various aspects of check
payments and the legal and rules framework for check image exchange. Responsibility for
compliance with image exchange rules, and/or the legal, operational and regulatory
requirements applicable to check image exchange, remains at all times with the financial
institution participating in check image exchange and/or the individual or company using a
check image exchange service.
This presentation and the information contained herein is not intended as legal or compliance
advice or recommendation to any person or company. This document could include technical
inaccuracies or typographical errors and individual users are responsible for verifying any
information found in this presentation and related “live” webinar or webinar playback.
Financial institutions should consult with their legal counsel regarding legal and operational
requirements applicable to any check image exchange program they may offer or in which they
participate.
These program training materials may not be reproduced or published, in whole or in part,
without the express permission of ECCHO.
Copyright© 2013 by the Electronic Check Clearing House Organization
(Certain contributed content subject to third party copyrights)
National Check Payments Certification
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Session Overview
•
•
•
•
Check Processing Overview
Types of Image Exchange
Day 1 Processes
Day 2 Processes
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Check Processing Overview
• Paper vs. Image
– Check processing no longer primarily a physical
movement of paper
– Variety of electronic transmissions in addition
to physical paper delivery:
Image Cash Letters (ICLs) between banks for
inclearing or transit cash letters
Internal image transmissions from front office to
back office
From Image ATM, vault, lockbox, or Branch image
capture
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59.46 million
Images/Day =
14.9 billion images
annually
Source: Federal Reserve, Viewpointe, The Clearing House, selected ECCHO Full and Participating Members and other local / regional exchanges
59/ day
# Items in Millions
Average # of Images Rec / Day
5
Substitute Check volume
has decreased to
volumes prior to
Jan 2005
Substitute Checks
Source: Federal Reserve, Viewpointe, The Clearing House, selected ECCHO Full and Participating Members and other local / regional exchanges
19 days in November totaling 1,129
# Items in Millions
# of Image Based Transactions
Check Processing Definitions
• Capture – Process to electronically read
information from paper check or image of check
• Inclearing Items – Received for payment
– Generally inbound items from clearing house or
Fed
• On-Us Items – Drawn against accounts at your
financial institution
– Deposited to same bank they are drawn on
• Transit Items – Drawn against accounts at other
financial institutions
– Separated from on-us checks during processing
– Sent for collection to Paying Bank via direct
presentment or through the Fed
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Check Processing Definitions
• Reject Repair – Items sent to “reject” pocket
during capture due to misread MICR information
– Correction of MICR data to allow recapture /
processing
• Unit of Work – Generally individual or multiple
transactions
– Credits/debits to complete a balanced transaction
– Based on specific bank products; could include:
Large corporate deposit
Individual customer transaction from ATM or branch
Multiple transactions from:
o Vault, lockbox or POD/branch work
– Cut-Off: Work may be cut off at either a volume
limit or time of day schedule
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Cash Letters
• Cash Letter
– Group of checks sent by a bank or its agent(s) to
another bank, clearing house, or Federal Reserve office
– Contains number of negotiable items (usually checks)
accompanied by a transmittal letter listing dollar totals
of all check bundles contained in that cash letter
• Bundle
– Subset of a cash letter usually containing about 200 –
400 checks
– Dollar amount of the bundle serves as a control total
and is listed on the cash letter
• File
– Collection of related data or program records stored on
an input/output device or auxiliary storage medium
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Cash Letter Preparation
Example: For a physical
cash letter
Bundle 3
Tape of Detail w/ bundle total showing
Bundle 2
Tape of Detail w/ bundle total showing
Bundle 1
Tape of Detail w/ bundle total showing
CASH LETTER (CL)
WITH TOTAL
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Item/Bundle/Cash Letter/File
Example: File with Three Cash Letters
FILE-1
- Cash Letter #1
- 3 Bundles
- Forward Debit Item(s)
- Cash Letter #2
- 1 Bundle
- Forward Debit Item(s)
- Cash Letter #3
- 2 Bundles
- Forward Debit Item(s)
FILE-1
Bundle 2
Bundle 1
CASH LETTER #3
WITH TOTAL
Bundle 1
CASH LETTER #2
WITH TOTAL
Bundle 3
Bundle 2
Bundle 1
CASH LETTER #1
WITH TOTAL
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Preparing Transit Cash Letters
• Checks sorted by destination
• Cash letters prepared for each batch
– Transmittal letter or form that accompanies a
bundle of checks
– Used to transfer checks from one bank to
another
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Types of Image Exchange
Image Cash Letter (ICL)
• Image Cash Letter (ICL)
– Digital images of paper cash letter
– Includes both MICR data record and check images
– Transmitted from sending bank to receiving bank
– Can be created for presentment of all eligible items
Items eligible for image exchange can include anything
defined as a check under Reg CC and an item under UCC
May differ based on channel used and applicable rules
– Single or multiple presentment point options are
available depending upon clearing channels
Correspondent Bank
Clearing House
Direct Presentment
Federal Reserve Bank
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Image Cash Letter
Forward Collection
Image Cash Letter: Digital images of paper cash
letter; includes both the MICR data record and the
transmitted check images
ICL
DEPOSIT
CHECK
CUSTOMER
IMAGE
CASH LETTER
SENDING BANK
(BOFD)
RECEIVING BANK /
PRESENTING BANK
PAYING BANK
STORE CHECKS
Truncation: Stop processing of
physical paper item(s) and forward
electronic image(s) and MICR data
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Shared Archive
Image Archive: Facility of the sending bank and/or the receiving bank,
or of a third-party agent that stores images for and makes them
available to the receiving bank and/or the sending bank
CUSTOMER
IMAGE
Scan
Original Check
IMAGE
SENDING BANK
(BOFD)
Remote Deposit: Capture of the paper
items at a location other than the DFI’s
check processing operations center
including customer and/or branch
locations
National Check Payments Certification
IMAGE
Access
ARCHIVE MICR Data Record
PAYING
BANK
Electronic Record: Governed by check law and created from
entire MICR line on a check, suitable for posting to a customer’s
account
Image exchange requires MICR data record to be sent along with
(or preceding/following) the image of the physical item. BOFD
may send directly to Paying Bank or to ARCHIVE provider which
then sends to Paying Bank
16
Local/Regional Exchange
Other Banks
Other Exchanges
(i.e., Viewpointe,
Endpoint Exchange, SVPCO)
Federal
Reserve
Exchange Network
Member Banks
Private Sector Rules
Cover These
Exchanges
Settlement Bank
17
Day 1 Processes
Typical Item Processing Functions
• Day 1
– Receipt – File or Paper
– Work Set-up / Proof & Encoding
– Image Quality Analysis (IQA) and Code Line Match
– Electronic (Virtual) Capture / Capture/Sort
– Reject Repair/Re-entry
– Duplicate Item Detection
– Image Balancing
– File Transmission / Dispatch
– Image Archive / Bulk File
– DDA Posting
– Settlement and Reconciliation
• Day 2
– Exceptions
– Outgoing Returns
– Incoming Returns
– Research and Adjustments
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Check Collection Process
“Day in the Life of a Check”
Forward Collection
On-Us
Items
Individual
Payor
or
Image
Image
Image
Individual
Payee
Clearing Banks
/Correspondent
Image
Image
Corporate
Payor
Merchant
or
Corporate Payee
National Check Payments Certification
Bank of First
Deposit
(BOFD)
Image
Image
Federal
Reserve
Paying Bank
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Receipt
• Image Files Created/Transmitted to Centralized Back Office
Operation
– Image ATM, Vault or Lockbox
– Front counter/Branch image capture
Teller receives, scans, transmits customer deposits to centralized
location
– Back counter/Branch image capture
Teller receives customer deposit and sends to another station
within branch to be scanned
– Image Deposit products
ICL, RDC – Options to manage electronic file receipt and
confirmation process prior to “virtual capture”
– Incoming transit cash letters (ICLs)
• Any physical/paper inclearing or transit cash letters
– Handed off to Proof & Encoding or
– Prepared directly for capture
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Work Setup / Proof & Encoding
• Regional Image Capture
– Replaces Proof and Encoding function
Ensure items are in proper order, right side up, etc.
Encode amount and missing MICR information
Make corrections to transactions as needed to balance
– Remote Image Keying function
Key missing MICR information into electronic work flow
Direct keying using image instead of physical item
• Proof & Encoding for remaining paper items
– Prepare unencoded paper deposits received from:
Branches or internal bank departments for image capture process
– Encode amount and missing MICR fields
– Correct customer errors, as needed
– Balance transactions
• Prepare for capture/sort process
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Image Quality Analysis (IQA)
• Image Quality Analysis (IQA)
– Image processing function to interrogate electronic
items prior to virtual or electronic capture
– Ensure all items adhere to the accepted quality
standards
– Most systems utilize combination of systematic IQA
and manual staff review
Systematic first level rejection of any items
Manual second level review of any items
Based upon business rules parameters which are
configurable by each bank
– Items that fail IQA
May be rejected, returned or adjusted
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IQA / Code Line Match
• Ensure item’s electronic data record (MICR
information) matches visual representation of
original check’s MICR line
– As shown on image
• Business Rules Parameters
– Image quality requirements
Too light, too dark
Size of item, etc.
– Needed MICR information for items
Full-field versus partial MICR
Some image exchange rules allow partial MICR “by
agreement”
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Electronic / Virtual Capture
• File Control – Verify X9 format, control totals, check for
duplicate file
• Image Capture Functionality – Can set business rules for:
– Special processing requirements
– Assign virtual sort patterns (time of day, type of work, etc.)
– Assign internal control documents
– Full-field encoding requirements
– Image quality parameters
– Adjustment method
– Indorsement to be applied (BOFD/Subsequent)
– Automatic system alerts (i.e.: file does not fit profile)
• Paper Items: Capture/Sort
– Read / capture MICR line data and sort items based on
routing criteria
May indorse item backs with BOFD / subsequent indorsement
– Microfilm or image capture fronts and backs of item
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Electronic / Virtual Capture
• System “Reads” Electronic Data Record
– Capture of front and back of image
– Appends data record with:
Processing sequence number
Indorsement (BOFD/Subsequent)
• Electronic Items “Virtually Sorted” by
Destination
– On-us items uploaded to bank’s posting
application and image archive (if appropriate)
– Transit items included in outgoing Image Cash
Letter (ICL) based upon routing criteria
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Image Reject Repair
• Items missing required MICR information
– Rejected from the virtual capture process
– Queued for key entry process using image
Key entry missing or incorrect electronic data record
(MICR) information
– Merge “repaired” data records back into
electronic work flow
– Segment items requiring additional investigation
– Send to Exceptions & Returns
Usually researched and processed next day
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Duplicate Item Detection
• Follows data imaging and repair
– Suspect duplicates presented on image review
screen
– Operator reviews for decision
– True duplicates result in exception item
May be returned or adjusted
Depends on timing and other factors
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Image Balancing
• Branch Capture Workflow
– Balance individual transactions
– Create correction entries as needed
• Image Deposit / Inclearing ICL workflow
– Verify incoming customer-created X9 file
Check for duplicates and verify required information
– Systems may electronically insert credit (“deposit ticket”)
– Systems may automatically create adjustments directly
back to the customer for:
Ineligible items enclosed
Poor quality image
Missing image
– System can reject file prior to processing if:
Incoming work out-of-balance at a file level
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File Transmission / Dispatch
• Create outgoing ICL in standard format (X9.100-187)
• Transmit outgoing image cash letters by endpoint
– Image exchange system queries captured item information
Attach associated images and addenda records
Manage file transmission schedule by endpoint
• Software generally manages:
– Image file creation
– Valid X9 file format
– Duplicate item / file detection and prevention
– Verification control totals prior to transmission
– ICL transmission and tracking
– Dispatch according to schedules
Determined by agreement / Float Management scheduling
• Transit Dispatch (Paper)
– Ensure correct routing by captured MICR information
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Image Archive / Bulk File
• Completion of Virtual Capture Process
– Balancing, and posting processes
– On-us items segmented by statement requirements by
account
• No image process to replace bulk file
– For statement rendering
On statement date, file becomes “pick list” into image archive
• Bulk File – Paper
– Filing and temporary retention system
Process occurs at end of day after capture, balancing and posting
– May still be required for customers with special statement
requirements
IRD may need to be created for customer / statement type that
requires return of physical checks
– Process: All captured on-us items resorted into appropriate
cycles associated with statement cutoff dates
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DDA Posting
• Posting to customer accounts
– Part of end of day processing functions for
check processing area
– Send all information about items processed
that day to DDA system to attempt posting to
customer accounts
Deposited credits
On-us checks
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Settlement and Reconciliation
• Settlement – Facilitates the exchange of funds
between banks for the value of cash letters sent and
received
– All credits must equal debits before processing can be
determined to be complete
• Reconciliation – Focuses on control totals after
posting
– Primarily for internal accounts
– Compares internal control totals for items captured to
credit and debit entries reflected in GL accounts
• Float Management Reporting
– Analyze trend data based on specific product
requirement
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General Ledger Reconciling
• Reconciling cash letters in an electronic
environment can be more complicated and
critical than with paper
– It is impossible to send two of the same paper
cash letters; not so with ICL
– Multiple presentments and added clearing
channels make reconciling more complicated, as
there could be:
More general ledgers to reconcile (added clearing
channels)
More items to reconcile (multiple presentments)
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Day 2 Processes
Typical Item Processing Functions
• Day 1
– Receipt – File or Paper
– Work Set-up / Proof & Encoding
– Image Quality Analysis (IQA) and Code Line Match
– Electronic (Virtual) Capture / Capture/Sort
– Reject Repair/Re-entry
– Duplicate Item Detection
– Image Balancing
– File Transmission / Dispatch
– Image Archive / Bulk File
– DDA Posting
– Settlement and Reconciliation
• Day 2
– Exceptions
– Outgoing Returns
– Incoming Returns
– Research and Adjustments
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Check Collection Process
“Day in the Life of a Check”
Returns
On-Us
Items
ICLR
or
ICLR
ICLR
Returning Bank
/Correspondent
Individual
Payee
ICLR
ICLR
ICLR
or
Merchant
or
Corporate Payee
National Check Payments Certification
Bank of First
Deposit
(BOFD) /
Reconverting
Bank
ICLR
Federal
Reserve
Paying Bank
37
Image Exceptions
• Exceptions – Review and Resolution
– Can systematically download items
– Review on-us items rejected from previous day’s posting for:
Stop payments or non-sufficient funds
Fraud review, selected signature verification
Other conditions
Repair missing or incorrect information
– Items to be paid
Add to workflow to be processed on today’s business
– Items to be returned: Return items to BOFD
Add to a Return Image Cash Letter (ICLR) or create an IRD
For image records, add return reason code in X9 file
Return records “Type 31” and “Type 35”
– All outgoing returns timing must follow UCC and Reg CC return
deadlines
• Physical Paper Exception Items
– Sorted out from all other on-us items
– Delivered to Exceptions area for manual review and resolution
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Outgoing Returns
• Completes process started in Exceptions area for items
decisioned to “Return”
– Reg CC requires Paying Bank to:
Identify return and
Reason for return
• Route return file (ICLR or paper) to BOFD
– Based on indorsement from forward item received; follow Return
Routing Hierarchy for images received
– Look in X9 electronic records Type “26” or back of the item, or Type
“28” record(s)
• Exceptions $2,500 or greater segregated for special handling
– Based on Reg CC Notice of Nonpayment requirement
• Reg CC requires returns must get back to BOFD by 4:00 pm local
time (of BOFD) 2nd business day after presentment
– Same timing for Notice of Nonpayment
Return can serve as notice
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Incoming Returns
• Items matched to bank’s All Items File
– Charged back to depositing customer or
represented
Images of items to be charged back provided to
customer
Printed notice sent or IRD created
– Items to be represented are segregated and
uploaded to today’s workflow
Can eliminate need to re-process through Proof
and Encoding
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Statement Processing
• Items pulled from Bulk File
– Sent to statement area for statement rendering
– Statements made available / sent to customers
No image process to replace bulk file
o For statement rendering, statement file becomes “pick list”
into image archive
• Statement Types
– Safe-keeping statement
Check number and dollar amount
– Enclosure statements
Physical paper and other enclosures
– Online statements
– Image statement
Image of paid items
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Research and Adjustments
• Many adjustments reduced with image exchange
– Information may be downloaded from Fed or other
exchange partners
– Manually entered into system
– System assigns cases and queues for operator
System obtains images, all items file information,
addenda data, etc.
Presents to operator for review
System generates letters to other institutions if needed
System generates settlement entries
– Once research completed
System generates cases to be uploaded to the Fed and
exchange partners
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Research and Adjustments
• Research request submitted and downloaded
– Put in a processing queue for operator retrieval
• Photo copy requests: System automatically does
image retrieval from image archive
– Can submit direct to requestor if email address
provided
Example: Request to determine how error occurred
and provide entry to reverse if issue is found
System emails or delivers information direct to
requestor
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Adjustments
• Additional information will be covered in a
future session
– March 20: Session #7 – “Exceptions – Returns
and Adjustments”
– Will discuss:
Common adjustment types
Fed OC 3 and Reg J provisions
ECCHO Rules provisions and Matrix
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Questions
National Check Payments Certification
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Quiz Questions
• Available online with session handouts
• Review each question carefully
– Answer based on what’s been presented
– Use additional recommended resources as needed
P.R.E.P. Guide
Question of the Day
Other online exam resources
– Answer Key included
– Will review at start of next session
• Save weekly Quiz Handouts
– Review Questions and answers
– Will reference in Series Review sessions
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Recommended Resources
• Regulation CC (12 CFR – Part 229):
http://www.ecfr.gov/cgi-bin/textidx?SID=0ed75d38896a339d9b5189ceb4ebe8b9&node=12:3.0.1.1.10&rgn=div5
• Regulation J – Collection of Checks and Other
Items by Federal Reserve Banks and Funds
Transfers Through Fedwire (12 CFR – Part
210): http://www.ecfr.gov/cgi-bin/textidx?SID=0ed75d38896a339d9b5189ceb4ebe8b9&node=12:2.0.1.1.11&rgn=div5
• Federal Reserve website:
http://www.frbservices.org/regulations/operating_circulars.html
• ECCHO website:
National Check Payments Certification
www.eccho.org/rules
47
Next Session
• Session #6: March 18
– 2:00 pm ET (1:00 pm CT / 11:00 am PT)
– All sessions – 90-minutes
• Topic: “Series Review #1”
– General discussion and scenarios to reinforce
information provided in first 5 training sessions:
Check Fundamentals
Uniform Commercial Code (UCC)
Regulation CC (Reg CC)
Image Exchange – Rules and Agreements; and
Image Exchange – Processes
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Ellen Heffner, NCP
Director and Education Manager
Phyllis Meyerson, AAP, CCM
Executive Vice President
[email protected]
214-273-3211
pmeyerson@ eccho.org
214-273-3202
Image Exchange: Processes
Thank You!
Electronic Check Clearing House Organization
3710 Rawlins Street; Suite 1075
Dallas, Texas 75219
NOTICE
This NCPC Program document contains copyrighted materials of its publisher.
These program training materials may not be reproduced or published, in whole or in part, without the express permission of ECCHO.