Image Exchange: Processes National Check Payments Certification. Image Exchange: Processes

Transcription

1 NCP 2014 Exam ECCHO Training Series Session 5 March 13, :00 pm ET (1:00 pm CT; 11:00 am PT) All sessions 90 min. 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) 2 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 1

2 Session Overview Check Processing Overview Types of Image Exchange Day 1 Processes Day 2 Processes 3 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 4 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 2

3 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 5 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 vault, lockbox or POD/branch work Work may be cut off at either a volume limit or time of day schedule 6 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 3

4 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 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 7 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 8 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 4

5 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 9 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 CASH LETTER #3 WITH TOTAL CASH LETTER #2 WITH TOTAL Bundle 3 Bundle 2 Bundle 1 Bundle 1 Bundle 2 Bundle 1 CASH LETTER #1 WITH TOTAL 10 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 5

6 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 12 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 6

7 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 IMAGE CASH LETTER CUSTOMER SENDING BANK (BOFD) RECEIVING BANK PAYING BANK STORE CHECKS Truncation: Stop processing of physical paper item(s) and forward electronic image(s) and MICR data 13 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 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 SENDING BANK (BOFD) IMAGE ARCHIVE IMAGE Access 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 14 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 7

8 Local/Regional Exchange Other Banks Other Exchanges (i.e., Viewpointe, Endpoint Exchange, SVPCO) Federal Reserve National Check Settlement Payments Certification Bank Exchange Network Member Banks Private Sector Rules Cover These Exchanges 15 Day 1 Processes Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 8

9 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 17 Check Collection Process Day in the Life of a Check Forward Collection On Us Items Image Image Individual Payor or Individual Payee Image Clearing Banks /Correspondent Image Corporate Payor Merchant or Corporate Payee Image Bank of First Deposit (BOFD) Image Federal Reserve Image Paying Bank 18 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 9

10 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 19 Work Setup / Proof & Encoding Regional Image Capture Ensures items are in proper order, right side up, etc. Encode amount and missing MICR information Makes 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 20 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 10

11 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 21 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 22 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 11

12 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 do 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 23 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 24 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 12

13 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 25 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 26 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 13

14 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 27 File Transmission / Dispatch Create outgoing ICL in standard format (X ) 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 28 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 14

15 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 29 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 30 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 15

16 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 31 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) 32 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 16

17 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 34 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 17

18 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 35 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 If image received look in X9 electronic records Type 26 or back of the item, or Type 28 record Follow Return Routing Hierarchy 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 36 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 18

19 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 37 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 38 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 19

20 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 39 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 address provided Example: Request to determine how error occurred and provide entry to reverse if issue is found System s or delivers information direct to requestor 40 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 20

21 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 41 Questions 42 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 21

22 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 43 Recommended Resources Regulation CC (12 CFR Part 229): bin/textidx?sid=0ed75d38896a339d9b5189ceb4ebe8b9&node=12: &rgn=div5 Regulation J Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through Fedwire (12 CFR Part 210): bin/textidx?sid=0ed75d38896a339d9b5189ceb4ebe8b9&node=12: &rgn=div5 Federal Reserve website: ECCHO website: 44 Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 22

23 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 45 Ellen Heffner, NCP Director and Education Manager eheffner@eccho.org Phyllis Meyerson, AAP, CCM Executive Vice President pmeyerson@ eccho.org Image Exchange: Processes Thank You! Electronic Check Clearing House Organization 3710 Rawlins Street; Suite 1075 Dallas, Texas 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. Copyright 2013 by ECCHO (Certain contributed content subject to third party copyrights) 23