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Title: Managing the Risks of Payments Systems by Paul S. Turner, Diane B. Wunnicke ISBN: 0-471-32848-0 Publisher: John Wiley & Sons Pub. Date: 15 July, 2002 Format: Hardcover Volumes: 1 List Price(USD): $65.00

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Average Customer Rating: 5 (1 review)

Rating: 5
Summary: Helpful Primer on Managing Payment System Risk
Comment: Experienced financial professionals with years of practical operating experience wrote this recently published book. Therefore, it is not surprising that this book methodically covers the principal payment systems (checks, ACHs, wires and global transfer systems - CHIPS and SWIFT), their basic workings, risk, and how to manage those risks. The subject matter of this book is critical for corporate financial managers - CFOs, Treasurers, Cash Managers, Controllers - as well as bank operations officers, and bank and corporate auditors.

Since check fraud is currently a $10 billion a year problem an entire chapter is devoted to checks, their characteristics, the prevailing regulations, the risk parameters, and how to manage that risk including using internal controls, bank controls, check stock controls, and positive pay controls. The authors warn corporations that they should be alert to "gross negligence and willful conduct clauses" in bank agreements which may put undue and unnecessary risk on them.

Wire transfer, defined to include FedWire, CHIPS and SWIFT, are covered in two chapters. The first chapter covers the transfer from the originating bank to the receiving bank. The next topics reviewed include: liability for fraudulent transfers, managing risks in the links of the wire systems, and the bank's perspective on wire transfer risk. The second chapter on wire transfers focuses on completing the transfer and the rules for handing errors.

The Automated Clearing House (ACH), the second type of electronic funds transfer, in addition to wires, is covered in a separate chapter. A basic discussion of this payment type is provided along with a definition of the types of ACHs and how they are processed. The ACH origination process is covered and the warranties and liabilities of the originating bank are examined.

Other topics reviewed in this section include ACH prenotification, reversal of duplicate and erroneous payments. The authors then examine the receipt of entries, returns, change and acknowledgements. Lastly, settlement and accountability, cross-border payments, US Government payments, and ACH payment system risks are reviewed.

[In light of the recent coverage in an August 2003 issue of the American Banker newspaper, corporate treasury managers should make sure that they setup special ACH debit blocks on their bank accounts to reduce the risk of ACH fraud.]

An entire chapter is devoted to Electronic Commerce and Internet payments. Corporate financial managers are well advised to bone up on this material to ensure that they protect their corporate assets from potential fraud in these two exploding areas. There are a cyber crooks and hackers who are looking to defraud any company that doesn't protect itself on the Internet. Also included in the book is an 8-page glossary.

The last chapter covers the specifics of controlling corporate payment system risks as opposed to risks faced by financial institutions. Included in this chapter is a 5-page "Risk Management Crime Coverage Checklist." Additional material covered in this chapter are pointers on handling payment systems disruptions, managing check, wire, and ACH fraud.

In conclusion, this book covers all the bases on payments system risk. The readers will obtain a comprehensive view of the entire subject matter and be better prepared to face the challenges ahead once they realize the importance and understand the vulnerabilities in the existing payments systems.