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Internal Reviews for Banking
Banking as Part of Treasury
Collections
Speedy and timely receipt of funds
Streamlining collections
Safekeeping and Custody
Safety of funds
Investment safekeeping
Collateral
Safety of assets
Reporting
Cost efficiencies – net cost
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Internal Reviews
Banking relationships are business relationships
An internal review of government uses and
needs is critical
New technologies may require new system view
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Optimum Banking Relationships
Depend on:
The competitive environment
Abilities and services of local banks to respond to
government’s needs
Ability of government to effectively
use bank services
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Review Current Banking
Relationships and Services
Using outdated or inefficient services?
Controlled disbursement
Dual signature review
Faxes, mail notifications and paper reports
CD
Excess accounts (don’t make it another g/l)
Improve internal efficiency
Consolidate bank accounts
Web based reporting current or prior day
Bank center versus vault
Change orders
Reconciliation
Lockbox
Remote deposit
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Review Current Banking
Relationships and Services
Improve investment returns
Sweeps
Investment account options (MMA)
Use of ECR in low interest rates
Funds availability
Control costs
Account analysis monthly reviews
Carry-over basis
Over-draft facility
Short term borrowing
New Services
what new services do you need or are you looking for?
EDI
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Review Current Banking
Relationships and Services
Safety factors
Depositing with city employees – liability issues
Fraud
Positive pay – payee pay
ACH filters and blocks
PIN access control
Smart safes
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Major Relationship Factors
Obtaining competitive proposals
Bids versus proposals
Structure
Services and structures
Constraints (political and legal)
Local banks
Rotating banks
State and local laws
CRA or HUB considerations
Agreements and Contracts
Ongoing relationship
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Establishing the Relationship
Negotiated process
Negotiated and best offer options
Not aware of market prices
One bank towns
Competitive process
Know what the market offers
Often best prices and best services
Defensible
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Banking Services Agreements
Written Master Contract
Establishes a depository relationship
Identifies major parties and sub-contractors
Prices carry through to service agreements
RFP and Proposal attached as part of contract
Service agreements
Address each specific technical service
Tie to master for authorities and prices
Standard terms from master
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Services Agreements
Service agreement examples
Positive Pay
ACH and Debit Block
Wires and transfer
Vault collections
Concentration services
On-line services
Reconciliation services
Lockbox agreements
Safekeeping agreement
EDI
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Community Reinvestment Act
(CRA)
Federal regulators rate banks’ community involvement
Areas of: lending, service, investments
ratings: outstanding; high satisfactory; low satisfactory; needs
to improve; substantial non-compliance
Some governments have instituted a “linked deposit”
program
CRA grade a requisite for participation
Lump sum deposit
Loan-by-loan approach
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Bank Value Consideration
Historical information is needed as well as internal review
Value is provided by improvement in process
Savings can dwarf price increases
Time savings
reduction in DSO
“green” statement delivery
Incumbent bank has inside track, and little reason to innovate
Closed minds or polities may discourage other banks
GOVERNMENT FINANCE OFFICERS ASSOCIATION
What should you expect?
A good bank should
Ask a multitude of process and procedure questions
Inspect your documents, your workflow diagrams,
and your reports
Plumb the depths of your knowledge regarding
customer habits and demographics
Question and review your A/P and A/R systems and
how you enter data
Review your data security systems, dual controls,
and loss prevention procedures
GOVERNMENT FINANCE OFFICERS ASSOCIATION
How to get to the value
The RFP should state very general goals, not specific
requirements
Replication of existing structure will be considered, but
not preferred
New structures will be considered, but not preferred
Total economic impact is measured
Using fees, rates and earnings
Respect and reward the integrity of innovation
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Paying for Banking Services
Two Ways to Pay
It all goes back to the cost i.e. fees
It all depends on interest rates
Fee Basis
Paying the service fees directly in cash
Earn more in outside investments and then pay the toll
Compensating Balance
Providing a balance which earns interest that then pays the fees
The earnings credit rate (ECR) is used to earn the interest
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Rates Make the Difference
Current low rate environment
Pool rates are about 0.08%
ECR rates are 0.65% - 1.00%
Your fees are $ 1,500
Fees = balance*ECR/12
Balance required $ 2,769,231
Or earn $ 184 in the pool
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Rates Make the Difference
Below 3% Fed Funds
Balance required $ 2,769,231
In bank target balance you earn $ 1,500
You pay no fee
In pool you earn $ 184
You pay $ 1,500 -----net = <$ 1,316 >
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Rates Make the Difference
In a higher rate environment
Pool rates at about 5.00%
ECR rates would be 2.50% (usually roughly half)
Your fees are $ 1,500
Fees = balance * ECR/12
Balance required $ 720,000
Or earn $ 3,000 in the pool and keep $1,500
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Rates Make the Difference
Above 3% Fed Funds
Pools at 5% and ECR at 2.5%
Balance required $ 720,000
In bank target balance you earn $ 1,500
You pay no fee
In pool you earn $ 3,000
You pay $ 1,500 -----net = 1,500
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Calculating a
Compensating Balance
Daily Ledger Balances
- Federal Reserve Requirement (10%)
- Average Daily Float
Average Collected Balance
x Earnings Credit Rate (1.25%) (annualized)
Net Monthly Earnings
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Carry-over on Compensating Balance
Daily ledger 550,000
- Federal Reserve 66,000
-Daily Float 35,000
Average Collected 449,000
x ECR 3.25%/12
Earnings on ECR 1,216
Fees 1,000
Excess Paid 216
Bank retains the excess earnings and entity left money on
the table unless “carried over”
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Carry-over on Compensating Balance
Daily ledger 396,384
- Federal Reserve 66,000
-Daily Float 35,000
Average Collected 295,384
x ECR 3.25%/12
Earnings on ECR 800
Fees 1,000
Excess Paid <200>
Results in an ‘account analysis debit ‘
unless charges are “carried over”
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Compensating Balance
A basic view
Fees = (Balance Required * ECR%) / 12
$1,500 = (3,600,000 * 0.0050 ) / 12
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Compensating Balance
CB = monthly service charge
(1.00 - reserve requirement)
Monthly ECR
Monthly service charge = $4,116
Earnings credit rate: = .00255
Reserve requirement: 10%
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Account Analysis
Your Invoice
Lists each service used
States cost of each service
States amount of service used in period
Calculates fee basis of service
Calculates compensating balance for service
Based on a reduced ‘earnings credit rate’ (ECR)
Totals all fees
Computes excess/(deficit)
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Volume * price = Fee or
Balance
Required
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Your address
GOVERNMENT FINANCE OFFICERS ASSOCIATION
BASED ON FEES SET BY CONTRACT
Mo. Contract Total
Service Description Vol Fee Cost
Master Account Maintenance Fee 8.0000 0.00
From the Subsidiary Account Maintenance 8.0000 0.00
monthly account Money Market Account Maintenance Fee 8.0000 0.00
analysis, input 0.00
the volumes for Investment Sweep Maintenance 50.0000 0.00
each service.
Dr/Cr Sweep Transaction Fee 0.0000 0.00
A critical
monthly
ZBA Account - Subsidiary 8.0000 0.00
Match the total 0.00
responsibility
Checks/Debits Posted 0.0500 0.00
fees in the Branch Credits Posted - Electronic 0.1000 0.00
spread sheet to Automated Services - Balance & Detail
the account Acct Balance Report 0.00
analysis. Online Access Maintenance Fee 5.0000 0.00
Online Access Subscription Fee 5.0000 0.00
Previous day Reporting 10.0000 0.00
Previous Day Dr/Cr Items 10.0000 35,210.00
If they do not Image Capture Per Item 0.0300 0.00
match then a fee Image Retention Per Item 0.0200 0.00
is wrong. Branch Deposits
Commercial Account Maintenance 20.0000 0.00
Branch Credits Posted 0.5000 0.00
Branch Immediate Verification 0.1000 0.00
Check it!
TOTAL FEES AT CURRENT MONTH VOLUMES
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Compensating Balances vs.
Direct Fees
In terms of what should be done: direct fees
Private and public sector moving to fees
Payments with direct fees are less expensive than
payments with balances
Reality: Some fees and some balances
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Compensating Balances vs.
Direct Fees
In either case a pricing schedule should be used
Competitive bid process
Negotiation
Increasingly a combination of balances and fees
is used
Monthly monitoring is required
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Current Added Advantage to CB
Until January 1, 2014
All “non-interest bearing” accounts are 100% FDIC
insured
Reduces collateral cost for banks
Added safety insurance for entity
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Compensating Balances
Compensating balances are popular
because:
“That’s the way we’ve always done it”
“I don’t pay the banks anything” “FREE”
No budgeting impact
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Compensating Balances
Compensating balances are popular because:
With fees direct investment program must beat the monthly
average of the 91 day T-Bill rate
Little time or resources to monitor collected balances
If using balances make sure any over payment reverts back
to you on an annual basis
Requires annual settlement process
Popular and pushed by smaller banks especially
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Advantages of Using Fees
When rates are above 3%
Required bank reserves (10%) become earning
assets
Direct investment of balances normally exceeds bank
earnings credit rate
Lower balances mean lower FDIC assessment
Lower balances mean reduced state collateral
requirements
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Advantages of Using Fees
Bank charges clearly noted
Bank fees can be verified monthly
Fees debited from designated account
After review and approval by entity
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Compensating Balances
Formula
CB = Monthly service charge divided by (1.00 -
reserve requirement) / Monthly ECR
Where:
ECR = earnings credit rate
Reserve requirement:
• Bank’s current Federal Reserve requirement
(percentage) as applied to the positive collective
balance maintained in the demand deposit account
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Compensating Balances Formula
Note:
If the compensating balance is retained as a non-
interest bearing certificate of deposit (in lieu of a
demand deposit), the amount of balance required
is reduced because of the zero reserve
requirement
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Techniques to Decrease Collected
Balances
Daily monitoring of accounts
Active investing
Daily (O/N) repos
Sweep accounts
Controlled disbursements
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Collateral, Custody and
Safekeeping
Custody vs Safekeeping
Custodian has fiduciary responsibilities
Holding collateral
Becomes your bailee in an event of default
Usually you agree to but not chose a custodian
Safekeeping agents simply hold securities
For securities owned by the entity
You chose the safekeeping agent (normally your depository)
Key factors for either one
Independence on trades or pledgor
Reporting directly to you
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Collateral
Bank Collateral
Securities pledged to repay a debt
Deposits protected by FDIC and collateral
• Collateral above
Collateral is held by a “Custodian”
Bank collateral is “pledged” to the entity
not owned by your
FDIC issues
Levels of security
Who is covered?
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Managing Collateral Risk
Collateral risk is managed with 3 basic questions:
What collateral is authorized?
• What should be authorized?
How much collateral do I need for safety?
• What margin do I need?
Do we have control of the collateral in an event of default?
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Types of Collateral
Non- Perfected Claim
“Perfected” Claim
Test by N. Arkansas Medical Center v. Barrett
Based on FIRREA
GOVERNMENT FINANCE OFFICERS ASSOCIATION
FIRREA
For FDIC only compliance with FIRREA will protect you
Financial Institutions Reform, Recovery, and Enforcement
Act of 1989
FIRREA’s four conditions
Agreement must be in writing
Must be approved by resolution of Bank Board or Bank
Loan Committee
Must be in the official records of the bank
Must be simultaneous with movements of collateral itself
• i.e. don’t ever list the collateral in the agreement
Federal Banking Statutes - Section 1823(e)
GOVERNMENT FINANCE OFFICERS ASSOCIATION
The Uniform Commercial Code
You do not have a “perfected” interest in a
security unless you control it.
Control means that swaps, sales and transfers
cannot occur without your written approval.
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Sound Collateralization Practices
Obtain a copy of the state statute regarding
collateralization
Identify depository risk exposure
Establish a written depository collateralization
agreement
Establish effective safekeeping procedures
Prepare for financial reporting disclosures
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Written Collateral Agreement
Should state that all deposits must be collateralized
(checking accounts and certificates of deposit)
A list of eligible collateral
Market value should be reported monthly
Safekeeping procedures
Substitution
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Collateral Agreement
Bank warranties that:
Legal owner of pledged collateral
Collateral is free and clear of liens and claims
No other person has right, title or interest
Collateral not pledged or assigned for other
purposes
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Key Custody Factors
Custodian must be independent
Independent from holding company of pledging bank
Custodian should report to you directly
Will not report market values but holdings
Custodian must verify key factors
authorized collateral
margins
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
The Fed as Custodian
Perhaps the best custodian
Standard Pledgee Agreement Form is used
The Fed will not sign a collateral agreement
Supplements the Collateral Agreement
Reference the Circular 7 in your agreement
Fed will ask for authority to use e-mail to contact you
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Page Two
Authorizing
use of
e-mail for
contact
purposes
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Managing Collateral Risk
Define the authorized collateral (in policy and RFP)
“Obligations of the US Government, its agencies and
instrumentalities, including mortgage backed securities with
CMOs passing the bank test”
Monitored and maintained by the bank at all times.
The options by law include:
Surety bonds
Treasury notes and bills
US Agencies
Municipals rated A or better
Letters of Credit
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Surety Bonds
Surety bonds are insurance policies
Verify:
Company (and its strength)
Recipient (is it the District?)
Terms (tie it to the contract)
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Letters of Credit
Initiated for CD business
LOC issued by FHLB and backed by pledged
unrestricted securities
Created to replace collateral
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Collateral Pooling
Many variations
State controlled
State holds collateral
Independent custodians by banks
Voluntary or mandatory
Key factors to examine
Your role and reporting requirements
Players and controls
Margins
Authorized colalteral
costs
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Other Events of Default
Bank failure is not the only use of collateral
Your custodian becomes your bailee
A key player
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Brokered CDs
If two banks issuing you brokered CDs are merged or acquired, you
will not be given additional FDIC coverage.
You will have to sell the CD taking you over $250,000 immediately.
Suggested language:
The Investment Officer or Investment Adviser shall monitor, on no less
than a weekly basis, the status and ownership of all banks issuing
brokered CDs owned by the City based upon information from the
FDIC. If any bank has been acquired or merged with another bank in
which brokered CDs are owned, the Investment Officer or Adviser shall
immediately liquidate any brokered CD which places the City above the
FDIC insurance level.
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Use Sweeps to Reduce Collateral
When the markets are suitable (not now)
Sweeps move funds out of the bank daily
Investment in a Fund eliminates collateral
Repo Sweeps are unique
Dependent on type of take-over
No precise procedure
Segregation not buy-sell
GOVERNMENT FINANCE OFFICERS ASSOCIATION
FDIC
Are you a “public unit”
GOVERNMENT FINANCE OFFICERS ASSOCIATION
FDIC Coverage
Make sure you are
a “public unit” at
FDIC
GOVERNMENT FINANCE OFFICERS ASSOCIATION
FDIC Insurance
Based on Tax Identification Number
within the entire holding company of the bank
Based on Type of Account
FDIC defines only two types of accounts
• Non-interest bearing accounts have $250,000
• Interest earning accounts are combined for $250,000
Based on Location of city and bank
If the bank’s HQ is in your same state
• then both type accounts receive FDIC insurance
If the bank’s HQ is not in your state
• all accounts types together receive only $250,000
GOVERNMENT FINANCE OFFICERS ASSOCIATION
FDIC Insurance
Coverage is for the custodian
Testamentary Accounts (I&S Accounts)
Funds set aside to discharge a debt
Applies to debt holders
Coverage is $250,000 for each bond holder
Currently the $250,000 is permanent
GOVERNMENT FINANCE OFFICERS ASSOCIATION
FDIC Coverage
Currently all non-interest bearing accounts are fully FDIC insured
Banks will try to move you to these accounts to avoid collateral costs
Until 1/1/14
Only “public units” can have collateral pledged
If created under express authority of law
Has some function of government delegated
If it executes exclusive control of its funds for exclusive use
Special cases
4a and 4b corporations
Water supply corporations
Dependent on several factors
12 C.F.R. Part 330.15
GOVERNMENT FINANCE OFFICERS ASSOCIATION
What Can I Do to Monitor the Situation with My Bank ?
Pay
What is the
attention
first thing
to the
you do in
news
this
situation?
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Using a Rating Service
GOVERNMENT FINANCE OFFICERS ASSOCIATION
HIGHLINE – not the easiest to use
GOVERNMENT FINANCE OFFICERS ASSOCIATION
BEST COMPANY – Simple to use
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
FIRREA
Financial Institutions Resource
and Recovery Act
Requires:
that depository/collateral agreement be in writing
That agreement be approved by resolution of the Bank Board or
Bank Loan Committee
resolution be in official bank records
not contain a list of specific securities pledged
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Collateral Margins
Industry standard is 102%
You are protecting against volatility risk
Unnecessarily high margins cost you alot
Tie it to margin level and mar-to-market
102% when marked – to-market daily or weekly
105% when marked – to-market monthly
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Collateral Ratios: A Gauge of Risk
Form of Collateral Collateral Ratio
Pledged
U.S. Treasury Bills, Notes, and
Bonds in less than 1 year
Maturing 102%
Maturing in 1-5 years 105%
Maturing in more than 5 years 110%
Actively Traded U.S. Government Agencies
Maturing in less than 1 year 103%
Maturing in 1-5 years 107%
Maturing in more than 5 years 115%
U.S. Government Agency Variable Rate Securities 115%
State General Obligation Bonds
General obligation bonds issued in same state
Maturing in less than 1 year 102%
Maturing in 1-5 years 107%
Maturing in more than 5 years 110%
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Use Sweeps to Reduce Collateral
When the markets are suitable (not now)
Sweeps move funds out of the bank daily
Investment in a Fund eliminates collateral
Repo Sweeps are unique
Dependent on type of take-over
No precise procedure
Segregation not buy-sell
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Key Custody Factors
Custodian must be independent
Custodian should report to you directly
Custodian should verify authorized collateral and margin
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Fees include:
Account Maintenance
Clearing
Safekeeping
Income Distribution
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Linking it into a Bank Contract
or Not…
Safekeeping need not be at banking services bank
Banking services bank is convenient
Other banks may be needed or less expensive
A second bank requires ongoing transfers and an account
Agreements
Depository/Collateral Agreements at banking services bank
Collateral Agreements at any bank over FDIC
Master Agreements are for banking services
Safekeeping agreements for safekeeping only
• Will probably involve collateral as funds move through account
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Recommendations for Bank Credit
Criteria
Establish credit criteria for depository bank
Highline Banking Data (fka Sheshunoff) rating of 30
or higher
On a scale of 0 to 99 with 0 being the lowest and
99 being the highest
Remember this is a peer group rating only
Establish credit criteria for custodial bank
Highline rating of 20 or higher
On a scale of 0 to 99 with 0 being the lowest and
99 being the highest
Issue should be sophistication of services not
credit rating
GOVERNMENT FINANCE OFFICERS ASSOCIATION
How can you protect yourself?
Know with whom you are dealing and only
deal with financially stable institutions
(there are firms that rate financial
institutions for risk)
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Protect yourselves
Do not rely only on state statutes or past practices
Do not cut corners when executing or monitoring an
agreement
Make sure that each step outlined by the Banking statute and
reiterated by the court is carefully followed
Insist upon a written, jointly signed, agreement
Take care to establish a clear audit trail
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Avoiding Collateral
Limit deposits to $249,000/institution (too
cumbersome)
Purchase insured certificates of deposit
Use non-interest bearing accounts for ECR
CDARS spread funds
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GFOA’s Committee on Treasury and
Investment Management
Best Practice: Collateralization of Public Deposits
(1984, 1987, 1993, 2000 and 2007)
Revised Security Agreements (2001)
An Introduction to Collateralizing Public Deposits for
State and Local Governments (2006)
www.gfoa.org
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Banking Services:
A Changing Environment
Focus on
Expediting Funds !
Fed started movement to increased automation in 1980s
impetus added in 2011
Move funds and documents as expeditiously and efficiently as
possible to reduce float in system
Use technology to minimize cost
Use technology to increase access to funds for longer earning
period
Add physical and electronic mechanisms
Changing internal processes
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Tools for Expediting Funds
Physical Minimization
Moving away from documents
Capturing documents electronically
Minimizing physical handling
Electronic Maximization
Wires
ACH
Check 21
Reporting
Payment/receivable processing
Monetary Rewards
Availability schedules and policies
Staff time
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Banks are Looking Ahead – Are You?
Ancillary services have added to bank scope
Segregation of ACH initiation
Investment online reporting
Regulation changes
SS# masking last four digits
Reg CC: $200 availability on deposits
Req Q repeal: non-interest bearing ECR accounts are FDIC insured
100%
FRB and clearinghouse extended field length
• Funds transfer Business Remittance extension
Mobile access and alerts/reporting
ZBA to Automated Dollar Transfers flexibility
Insurance and HSA products
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Stepping Up with Tech
Electronic and Imaging Changes
Remote deposit checks at bank
Cut internal costs and bank costs
Image Lockbox
Merchant Services
Capture checks at point of sale (POS)
Faster but slow for customer
Capture checks in back office (BOC)
Capture checks and stub information
Receive check and stub information direct to G/L
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Focus on Safety
Same old issues: safety and service
Collateral and margins
FDIC coverage
Bank credit
Delivery versus payment settlement
Independent transactions and parties
New approaches
Electronic processing
Positive pay
Courier options
Pooling of collateral
Security sign-ons (PINS and secure-cards)
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Focus on Information Needs
Balance and detail reporting
Reporting: cross functionality – drill down
Location capture
Imaging and storage
Archived bank and city information
• Paper >> CD >> image download
Reconciliation
Partial and full eliminates staff time
Speed of information retrieval
New Processes to Outsource
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Focus on Technology Tools
Reporting and imaging
Electronic transactions
Wires
ACH
• New uses of ACH
Check 21 and beyond – a huge business impact
E-payables and e-receivables
Consumer and corporate checks
Remote back-office processing
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Focus on Hands-off Imaging
All services moving to imaging
Eliminate cost of paper and faxing
Banks move to archiving documents
Bank and non-bank documents
Other services (printing)
All documents are imaged and transmitted
Utilize electronic capture
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Virtual Receivables
Electronic capture and replacement of documents
Targeting expedition of funds and cost savings
Streamline invoicing and reporting
Maintains compliance discipline
Tied to a lockbox type transaction
Scan the check and the document at site
Checks and documents imaged and captured
Combines with all receivables
Transmitted to your g/l with detail
Archived at bank
GOVERNMENT FINANCE OFFICERS ASSOCIATION
ERP
Enterprise Resource Planning
Business integrated solutions
Business processes
• Planning
• Purchasing
• CRM (Customer Relationship Management)
• Inventory control
• Accounting
• Finance
• HR
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Lockbox Goals
Lockbox basic functions
Reduce mail float
Reduce processing float
Reduce clearing float
Retail or wholesale lockbox use
Mail Processing Clearing
Unique PO box 20 hr/day
and coded Multiple same-
automated day deposits into
return operation opens,
envelopes your bank
reads & transmits
Taxes, utility payments, any repetitive payments, court payments
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Image Lockbox
Replacing traditional lockbox
Documents fully imaged at receipt
All checks, envelopes and “white stuff”
Paper retained minimal time at lockbox
Reporting and posting to G/L electronically
Specialized areas developing
Health care
• Matching
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Remote Check Acceptance
Next generation of lockbox
Imaged at your site
Creates a lockbox on-your-site
Timing of scan denotes service
Cashiers scan on receipt at counter – “point-of-sale” (POS)
Cashiers consolidate and back office scans after balance “Back Office Conversion” (BOC)
Accounts Receivable Conversion (ARC)
Transmission of scanned image
Daily deposit without transport to bank
Customization of fields and account capture
Benefits and Savings
Float savings on deposit speed
Courier savings
Liability savings over staff deposit
Extended deposit times (9:00pm)
GOVERNMENT FINANCE OFFICERS ASSOCIATION
How Remote Deposit Works
1 2 3 4
1. Customer pays with a check
2. Checks are scanned at cashier or in back office balancing - balanced
3. Images transmitted directly to the bank for processing same day
4. Real time reports and deposits on line multiple times per day
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Remote Deposit Capture
Reduced check clearing costs
Spend a little – save a lot
• $0.06 average to $0.03 average
Courier costs
Multiple depository costs
Next generation
Capture of PO, invoice or stub information
Moving to true EDI
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Alternative Providers
Banks are competing against outside vendors
for system checking, clearing and reporting
alternatives
Costs are declining
Use is increasing
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Consolidating Payments
Then
Invoice preparation and mailing
Manual sorts, opening and extracting
Manual batching and balancing
Armored car delivery
Check clearing availability
Now – E-Payables
Produce a tape of the bills for print/mail service
Receive a transmission of bills paid and funds deposited
GOVERNMENT FINANCE OFFICERS ASSOCIATION
E-payables
Creates channel to make AP payments
Bank systems can chose most effective payment mode
Bank puts AP charges on credit card payment automatically creating credit
card spend credits
Bank sends email to notify vendor who initiates payment
Bank prints a check and sends it
Bank wires
Bank directory of suppliers can submit invoices directly
Sends invoice directly electronically – matches to ship notice
Validates invoices
routes info
delivers remittances documents
GOVERNMENT FINANCE OFFICERS ASSOCIATION
E-Payables
E-payables (and “e-payables lite”)
A/P sends invoice and PO details electronically
Assignment of one-time credit card number
“Any-to-Any” connectivity
Built on existing standard systems
Populates invoice information from PO info
Multiple bank and non-bank providers
Process (Hillsborough Schools, Tampa)
Vendors submit invoices to A/P
• A/P matches and approves
Vendor receives email notification
• Simultaneously card is debited
• Virtual card # is disabled to eliminate second use
Vendor logs into secure site with restricted sign-on
GOVERNMENT FINANCE OFFICERS ASSOCIATION
E-Payables
Capture of payment information
Electronic capture
Bank determines best remittance vehicle
Wires, ACH, card, etc.
Multiple providers – bank and non-bank
GOVERNMENT FINANCE OFFICERS ASSOCIATION
E-Receivables
Provides information to customers via web
Customers remit via EFT or credit card
Requires vendor collaboration
Sharing of documents electronically
Dashboard approach normally
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GOVERNMENT FINANCE OFFICERS ASSOCIATION
E-Commerce Terms
ARC: accounts receivable conversion
Requires consumer consent
Converts to ACH
POP: point of purchase conversion
Checks under $25,000
BOC: back office conversion
IRD: image replacement document
ACH: automated clearinghouse
NACHA: national association of ACH
Truncation: conversion to an electronic format
E-Check: converting a check to a direct debit
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Positive Pay
A requirement for safety
Relieves liability for fraudulent checks received
City sends bank the check register
Bank data base of valid checks screens all checks received
Check number and amount standard
Payee and signatures new innovations
City gets option to review and approve
Timing critical – need large time window
Without positive pay City retains liability
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Reconciliation (ARP)
Serial Sort
physical checks returned in order
Phasing out with Check 21
Partial Reconciliation
paid check report
Full Reconciliation
matches issued and paid
outstanding items, voids & cancels
Deposit Reconciliation
Location identification
Combining with Positive Pay
Price savings
Staff time savings
GOVERNMENT FINANCE OFFICERS ASSOCIATION
RCK – Represented Check
Transforming NSF consumer checks to ACH
NSF checks are not represented next day
NSF checks converted to ACH
ACH direct debits are processed on a specific date
Increased collections benefit
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Stored Value Cards
Originally for payroll alternative (“pay card”)
Extended to reimbursements, ongoing payments, etc
Creates a debit card for employee
Creates ‘virtual account’ for employee
Internal payroll processed as ACH direct deposit
Funds go to the card
Minimize cost and liability on lost checks
Point of sale, bank or ATM use
Limited free transactions then fee
Cuts cost of checks
$0.06 versus $0.03
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Purchasing Cards
Limits purchases on SCI product types
Limits use by day or week
Agreement issues
Liability for unauthorized use
Billing disputes and chargebacks
Credit limits
Proprietary information
Arbitration
Termination and revocation
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Controlled Disbursement
Little or no use now with alternatives available
Sweeps eliminate usefulness
Cost is lower to sweep
Using remote bank to clear checks
Cash management purposes - not delay
Elimination with electronic capture
Costs
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Pros and Cons – Credit Card Acceptance
Pros:
Meets customer demands for payment options
Aligned with private sector practices
Control improvements:
• Simplified cashiering, reduce cash theft, “bounced” checks, improve cash
flow, enables internet-based transactions to occur
Cons:
Nature of government bills may result in a low number of transactions with high
admin effort
Full “bill” not realized as fees to credit card companies
Some states prohibit payment any amount less than full bill
• no provision for fees to be paid – convenience fee
• Credit card companies prohibit the addition of the fee to the bill
Lockbox processing sites may limit applicability
Possible merchant liability
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Credit Card Acceptance
GFOA Best Practice
recommends that the costs and benefits of credit card
acceptance be evaluated compared to other payment
mechanisms
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Merchant Services
Multiple providers involved and contracted
Payment Companies
Visa, MasterCard, Discover, AmEx, Diners, etc.
Card types
Card present and card-not-present
Credit, debit, gift, fastpay, etc.
Merchant types assigned by payment company
Defined by sector and types
• Governmental, transport, charity, retail, etc.
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Merchant Service Players
Merchant: accepts credit card
Acquiring bank: merchant’s bank
Provides merchant a merchant account
Front money for the issuing bank
Pays issuing bank and card association
Issuing bank: customer’s bank (Issuer)
Physically provides card to customer for use
MSP: Merchant Service Provider
Provides access to bank
Provides all communications and flow
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Merchant Service Players
Payment Gateways
Connect merchant to bank or MSP
Card Associations
MC, Visa, Discover, AmEx, etc
Make rules for acceptance
• security, data requirements
Processors
Provide point of connectivity for merchant
Front-end or back-end
Grouped by BIN (Bank Id Number)
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Merchant Services RFPs
More effective to bid outside depository
services
Bring in alternative providers
Bank merchant services is separate division
No correspondence with banking services
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Merchant Service Providers
Volume of transactions and dollars determine service
provider
Providers charge by % or transaction
Combine units for greater purchasing power
• State contracts
Provide details for best estimate of cost
Key determining factors in pricing services:
Transaction volume
Transaction dollars
Average ticket
Ticket range typically gets best price quotations
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Key RFP Questions
Firm Information
Client Base
Relationship Representatives
Card acceptance - Interface processing
Authorization processing
Settlement processing
Ticket Retreival and Charge-backs
Debot Card Processing
Technical capabilities Merchant Services
Security and PCI Compliance is not a simple
Disaster Recovery matter…
Information Reporting
Implementation
Customer service
Pricing and contracts
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Merchant Services Fees
Discount rate (add-on or pass-thru)
Issuing bank deducts interchange fee from amount paid
acquiring bank
Interchange fees
Fee between banks on acceptance
Merchant’s bank (acquiring bank) pays customer’s bank (issuing bank)
Assessment fees are not negotiable
same for all providers
Payment card company cost
Cost per transaction PC Association members
Fees charged by merchant processor xx
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Check for State Contracts
Service
Fees
Line Item Detail Credit
Group Description FY08
Qu
an Visa or
tit Master
y Detailed Description Card
Responde Bank Discount Rate $ Percent of dollar value per transaction
nt 61, Fee paid to Respondent for services
Fee 89
s 0,9
23.
46 0.0300%
Bank Per Transaction Fee 1,075,46 Fixed dollar amount per Transaction $
9 Fee paid to Respondent for services 0.03
Other Bank AVS NA Fixed dollar amount Per Transaction
Fee Fee paid to Respondent for address $
s verification service -
Chargeback Fees NA Per occurrence fee for chargebacks. See Part A - $
Special Instructions for more details 5.00
Retrieval Fees NA Fees generated by inquires for sales draft retrieval $
requests 5.00
Online Reporting NA Access fees related to user IDs or access to network
for viewing of transaction information $
electronically or online -
Statement Fees NA Fees related to each merchant statement $
-
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Convenience Fees
Fees charged to payer to recoup processing costs
Card Associations rules govern how and when convenience fees
can be charged
Rules subject to change and interpretation
Typically “convenience fees” tied to the transaction
Card not present payments
Rules differ for tax programs vs. non-tax programs
Mastercard and Visa rules differ
if you take both cards, Visa rules take precedent
Merchant (your government) is ultimately responsible for compliance
with rules
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Convenience Fees
Tax Payments
Convenience fees on Visa/MC transactions
allowed
in all payment environments, including in-person
can be percentage based or tiered based on dollar
amount of transaction
Differentiated convenience fees allowed for
check (ACH) vs. card payments
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Convenience Fees
Non-Tax Payments
Convenience fees not allowed in person (Visa)
Convenience fees are allowed in person (MC)
Differentiated convenience fees
not allowed by Visa but are allowed by MC (if you’re
using both, Visa rules take precedent)
Convenience fees are to be flat, set $$ fee
GOVERNMENT FINANCE OFFICERS ASSOCIATION
PCI Compliance
Payment Card Industry
PCI Security Standards Council
Requirements for merchant
Focus on security of information
Non-compliance can cost your ability to be a merchant
https://www.pcisecuritystandards.org/
GOVERNMENT FINANCE OFFICERS ASSOCIATION
PCI Data Security Standards
PCIDSS
Work only with service providers dedicated to keeping
payment data secure
Data security and assessments required
Training opportunities (Trustwave, etc.)
Providers check Visa/MasterCard websites
listing of compliant service providers
search CISP-compliant service providers
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Vaults and Deposits
Vault services are expensive
Reduce through internal planning
Online vault services replicate deposits
Online vault provide for coin/currency orders
Deposit location tracking
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Bank Investment Services
Should be limited to safekeeping
Legal and policy constraints
Registration of firm as RIA
Banks normally require safekeeping
Eliminates Delivery versus payment
Safekeeping may be in bank or brokerage
(unacceptable)
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Banking Services
Request for Proposals
Banking Words of Wisdom
If you don’t ask for it, you won’t get it!
Ask for the Order!
Who do you work for? City or Bank?
GOVERNMENT FINANCE OFFICERS ASSOCIATION
GFOA Best Practice
Periodically evaluate banking services:
Initiate competitive bidding and negotiation
Establish specific contracts
Evaluate benefits and costs of bank compensation
Evaluate all available banking services
Look at optional services
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Request for Proposal or Bid
Request for Proposal formal request
Allows for definition of needs
Allows for clear comparison of services and fees
Allows for negotiation
State laws may require Applications/Information/bids
Bids
Formalized set prices discourages “wiggle room”
Request for Qualifications informal request
Does not allow for clear definition of needs
Does not allow for clear comparisons
Information only
GOVERNMENT FINANCE OFFICERS ASSOCIATION
What is a Request for Proposal ?
Designed to obtain competitive pricing
Designed for fair comparison
Designed to assist in final negotiations
Obtains quantitative and qualitative information
Good for specific definable services
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Why a Formal Process
Smaller jurisdiction
Need to eliminate local political pressures
With technology ability to open viable non-local bank options
Use proposal process to negotiate best terms
Establishes time table for periodic review and RFP
Dependent on state law
3-year to 5-year schedules
Include requirement for competitive process in investment policy
Likely to establish a new relationship
even with incumbent banks
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Why a Formal Process
Requires a review of your situation to prepare
Adds to responsiveness of financial institutions
Clarifies ability of bank to meet needs
Provides competitive environment
Provides basis for Master Agreement
RFP and Proposal become part of agreement
Locks in your requirements
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Local Banks
More prevalent in small communities
Can involve higher level of political pressures
“Share the wealth” mindset among community banks
Political consideration can be factored in
• Contributions, employee involvement
“Local” Banks
State chartered banks vs interstate
State holding companies
Technologies change the game in suburban areas
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Assessment and Preparation
Internal practices review
Current practices – gather information
Account Analysis – current services
Current System and Procedures
Internal needs – today and in the future
Problem Areas
Reporting and Audit Requirements
Goals
• determine targeted needs
• eliminate weaknesses
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Assessment and Preparation
Major tasks
Identify “users” of services to be evaluated
If large enough, develop checklist for distribution to
each department that will be included
Benefits
Understanding of current environment
Understanding of key business issues
Listing of technical requirements
Identification of service gaps
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Who are the Process Stakeholders
• Government Entity
County
City
State
Staff
Finance Staff
Treasury and Cashiering Staff
Building Personnel
IT Personnel
Community
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Establish a Timeline
Manage and Monitor the RFP process
Target Key Dates
• Issuance
• Q&A
• Submission
• Council Approval
• Contract Commencement
Include each Phase
• Deadlines for Deliverables
Provide for flexibility or change in schedule
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Preliminary Questions
Are we willing to move from current bank?
What is the vision?
Begin with the end in mind
Best value vs. low cost
What are you trying to accomplish internally?
Improve efficiency - collection process, number of accounts,
etc.
Identify and manage information better
Lower the cost of disbursements
Implement new technologies
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Preliminary Questions
Bank communications needs?
Frequency and usefulness
Are resources available to implement the results?
How do I choose which banks to ask?
State ;aw requirements rule
Should I use a consultant for the process?
How many banks should I include?
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Preliminary Questions
What expertise is available for process?
Use of a independent consultant
How should bank responses be compared?
Who should be involved in the evaluation of responses?
What factors should be considered when selecting the final bank?
Handling RFP questions?
How and when to communicate results to the banks?
What implementation factors should be considered?
Contractual issues?
How often should banking services be competitively bid?
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Writing and Issuing the RFP
Common Requested Information
Resumes of Key Relationship Personnel
Community Involvement
Credit Rating
Ownership
Organization Structure
References and Experience
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Writing and Issuing the RFP
Be Informative
Provide Detailed Information
State Objectives, Selection Criteria and Timeline
Be Interactive
Schedule a Pre-bidder’s Conference,
Allow for Questions Submission
Be Specific
References and Pricing
Adhere to Bidding Requirements
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Submission Instructions
Clear schedule
Format criteria
Deadline of proposals
Cover letter limited in size gives contact info
Paper and one electronic copy for archiving
Stress concise answers but allow additional info
Purchasing boilerplate inclusion (attachment?)
Q&A
Have all questions in by e-mail on date certain
Respond to all (or post) to all on date certain
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Government Overview Info
Structure of finance and cashiering
Historical data on account balances
Do not release statements or account analyses
Bids will just barely beast the current
Limits competition and innovation
To assign responsibilities in contract
GOVERNMENT FINANCE OFFICERS ASSOCIATION
The Request for Proposal
Introduction
Scope of Banking Services
Bidding Instructions
Proposed Evaluation
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Introduction
Historical government entity information
Size of community, # of accounts, services provided
Budget and audit report info should be available
Timeline and due dates for RFP process
RFP issuance through implementation
Evaluation criteria
Contract term
General and specific qualifications
Response format
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Financial Institution Requirements
Transition or retention incentives
Credit factors
Senior and subordinate debt
Rating company report
Changes during contract requirements
Holding company information
Customer service focus
Representational contacts
Disaster support
Local presence
CRA rating
HUB status rating
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Sample Minimum Qualifying Criteria
Minimum criteria to submit a proposal
Banking structure
• Holding company
• State charter
• HQ
• FDIC status and FRB status
Locations
• Locations within government offices and ETJ
Financial statements (unqualified) - annual
Quarterly call reports (really?)
• Consolidated Report on Condition and Income
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Bank and Staff
Size of bank
Location where services are to be provided
Experience in providing services
Organization structure
Collateralization of deposits
Creditworthiness of bank
Qualifications of personnel (bios included)
Community involvement (CRA)
References
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Timeline
Issue date
Pre-bid conference (rarely useful)
Questions and answers on RFP
Submission date
Interviews/presentations
Contract award/approval
Contract implementation
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Community Reinvestment Act (CRA)
Support of low income areas in service area
Bank’s demonstrated commitment to the community
CRA score and scorer certification
Other examples of community support
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Bidding Instructions
Imperative that clear bidding instructions provided
Require answer to each question
Finite timelines for submission
Pre-proposals conferences rarely useful
Provide for standardization of questions and answers
Control the process
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Responses to RFP
RFP process should strive to maintain confidentiality
Many banks may note “proprietary” information which
may enable protection of such information from public
viewing
Winning bid documentation info may be sought from
vendors not awarded contract
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Scope and Objectives
Core services should be defined with sufficient detail
to allow the prospective vendor to understand scope
of operations and level of service needed
Example core services:
collections (inflows)
disbursements (outflows)
on-line banking services/reporting
reconciliation services and account analysis
Account structure
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Scope of Services
Describe services desired with detailed questions to
evaluate the differences between providers
Ask the “right” questions
Do not set minimums/set requirements
• to get best possible options and differences
• Concise questions
• Open-ended questions = open-ended answers
• Use fill in the blank sparingly or to save time
– Cutoff time for deposits is _______.
– Final presentment time is ______.
– Branch hours are _______.
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Expedite Cash Flows
Services to expedite inflows
Electronic fund transfers (EFTs)
Lockbox (ACH options)
Credit card acceptance
Improved check processing
Services to manage outflows
Electronic disbursement
Payroll direct deposit and cards
Credit card payments
ACH, EDI
Security and fraud deterrence needs
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Required Services
Account structure
Sweeps
ZBA structures
Compensating balance and fee basis flexibility
• Carry-over
Indexed account bases
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Required Services
Collections
Positive pay
Deposits
Vault services
• Immediate verification
• Change orders
Remote deposit
RCK – represented checks by ACH
Stale-date and NSF processing
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Required Services
Disbursements
Positive pay
Payee positive pay
Stored value cards
ACH
Filters and blocks
Reporting of trailers
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Required Services
Information Services
Web based
Cross functionality
Reports and report writing
Availability
Reconciliation
Partial or full
Deposit reconciliation
Location idenitification
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Required Services
Collateral
Set standard conditions and require confirmation
List authorized collateral
Stipulate margin (102%
Require independent custodial counterparty name
Require collateral agreement
Monthly reporting by custodian
GOVERNMENT FINANCE OFFICERS ASSOCIATION
On-line Banking Services
Detail of on-line services (web-based)
Reporting
Execution of transactions
Correspondent use
Internal controls
Security Authorizations and control
Download to G/L capabilities
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Required Services
Stop pay
Manual versus on-line
Renewals
Safekeeping
Format of fees
Non-bank brokerage trades only
Correspondent use
Company Banking
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Optional Services
Purchasing cards
Smart Safes
Image lockbox
Merchant services
best done outside banking contract
ATM
Short term financing availability
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Alternative Services
E-payables
E-receivables
Newly available and unanticipated services
Services that the bank may provide outside requirements
Request suggestions for innovations and/or value-added
services
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Proposal Evaluation
Preparation for evaluation committee
What evaluation criteria were set?
Services provisions need to be weighted and scored
Fees need to be compared
Verify bundled for accuracy
As much art as science
Requires depth of knowledge of service provision
Earnings Rates
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Class Input into Criteria Weight
Fees
Net interest rates
Rates, fees and compensating balance basis results
Service requirements
Bank credit and representatives
References
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Purchasing Selection Criteria
% Vendor A Vendor B Vendor C
Meet scope 20% 15 16 17
Quality of personnel 20% 17 15 13
Meet service needs 25% 20 23 15
Responsiveness 15% 10 11 9
Cost 20% 20 18 16
100% 82 83 70
Cost detail:
Vendor quote 7,000 8,000 9,000
% of best quote 100% 88% 78%
Evaluation score 20 18 16
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Fee Analysis
Current Contract Bank 1 Bank 2 Bank 3 Bank 4 Bank 5
Item Quanity Price Cost Price Cost Price Cost Price Cost Price Cost Price Cost
Account Maintenance 120 19.500 2,340.00 19.500 2,340.00 10.000 1,200.00 7.000 840.00 15.000 1,800.00 10.00 1,200.00
Checks Paid 4,000 .100 400.00 .100 400.00 .150 600.00 .050 200.00 .120 480.00 0.08 320.00
Number of Deposit Slips 1,000 .150 150.00 .500 500.00 1.000 1,000.00 .350 350.00 .650 650.00 0.50 500.00
Items Deposited - non LB 28,000 .085 2,380.00 .085 2,380.00 .100 2,800.00 .050 1,400.00 .090 2,520.00 0.08 2,240.00
FDIC Assessment 0.00 .000 0.00 .000 0.00 0.00 .000 0.00 0.00 0.00
Wire Transfers: 0.00 0.00 0.00 0.00 0.00 0.00
Incoming 35 5.000 175.00 5.000 175.00 1.000 35.00 5.000 175.00 5.000 175.00 5.00 175.00
Outgoing 10 7.500 75.00 7.500 75.00 7.500 75.00 4.000 40.00 10.000 100.00 8.00 80.00
Notification of Wire Transfer 45 0.00 3.250 146.25 3.500 157.50 .000 0.00 .000 0.00 0.00 0.00
Transfer Between Accts 135 1.000 135.00 1.000 135.00 .500 67.50 .100 13.50 .125 16.88 0.00 0.00
ACH Transactions: 0.00 0.00 0.00 0.00 0.00 0.00
ACH Maint. Fee 12 0.00 0.00 80.000 960.00 0.00 0.00 0.00
ACH in 130 .080 10.40 .080 10.40 .080 10.40 .040 5.20 .125 16.25 0.08 10.40
ACH out 27,500 .085 2,337.50 .085 2,337.50 .080 2,200.00 .040 1,100.00 .125 3,437.50 0.08 2,200.00
Ach Origination 50 10.000 500.00 10.000 500.00 0.00 5.000 250.00 7.500 375.00 5.00 250.00
ACH Returned (RCK) 75 4.500 337.50 4.500 337.50 .500 37.50 1.500 112.50 6.000 450.00 5.00 375.00
ACH/ (RCK) Base Fee 12 .000 0.00 .000 0.00 0.00 .000 0.00 45.000 540.00 0.00 0.00
Notification of incoming ACH 130 0.00 .000 0.00 3.500 455.00 .000 0.00 .000 0.00 0.00 0.00
Returned Checks (RCK) 250 4.500 1,125.00 .080 20.00 1.000 250.00 4.500 1,125.00 6.000 1,500.00 1.00 250.00
Currency Processing 13,000 .049 637.00 .049 637.00 .000 0.00 .001 13.00 0.0025 32.50 0.002 26.00
Stop Payments 10 10.000 100.00 10.000 100.00 7.500 75.00 3.000 30.00 9.000 90.00 10.00 100.00
Payee Positive Pay/ARP 24 0.00 50.000 1,200.00 50.000 1,200.00 20.000 480.00 80.000 1,920.00 40.00 960.00
Payee Positive Pay trans. 24 0.00 0.00 0.00 0.00 .000 0.00 10.00 240.00
EDI 300 0.00 .085 25.50 .080 24.00 .050 15.00 .220 66.00 0.50 150.00
EDI maintenance 12 .000 0.00 .000 0.00 0.00 .000 0.00 .000 0.00 30.00 360.00
Payee Positive Pay/check 4,000 .050 200.00 .000 0.00 .070 280.00 .010 40.00 .090 360.00 0.04 160.00
Payee Positive Pay except. 15 5.000 75.00 5.000 75.00 1.000 15.00 1.000 15.00 2.500 37.50 2.00 30.00
On-line check/deposit archiv 12 0.00 100.000 1,200.00 0.00 .100 1.20 .000 0.00 0.00 0.00
Check Imaging 4,000 0.00 0.00 .030 120.00 .000 0.00 0.00 0.00
Courior Service 12 .000 0.00 0.00 .000 0.00 .000 0.00 .000 0.00 0.00 0.00
PC Banking Software 12 0.00 45.000 540.00 50.000 600.00 25.000 300.00 125.000 1,500.00 100.00 1,200.00
Monthly Account Maint.(SW) 120 5.000 600.00 5.000 600.00 5.000 600.00 .000 0.00 5.000 600.00 0.00 0.00
Check Truncation/CD Rom 12 40.000 480.00 10.000 120.00 50.000 600.00 25.000 300.00 25.000 300.00 25.00 300.00
TOTAL 12,057.40 13,854.15 13,241.90 6,925.40 16,966.63 11,126.40
Average Monthly Amount 1,004.78 1,154.51 1,103.49 577.12 1,413.89 927.20
Balance Required to Support
$1.00 of Services 261.65 256.14 318.08 286.27 270.37 261.65
Required Monthly Compensating Balance 262,901.56 295,716.83 350,998.63 165,211.19 382,272.20 242,601.88
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Finalist Presentations
Final research and validation
to ensure bank’s ability to meet the current and future
requirements
Not necessary but helpful on new service types
Major tasks
Restrict to short list of banks
Timely notification for presentation
• plenty of advance notice
Require presentation format and provide to banks
Schedule presentations
Evaluate and debrief after each meeting with team
Conduct on-site tours of finalist
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Awarding of Contract
Unbiased objective decision required
Data and process driven decision
• Fees
• Services
• Rates and net result to government
Decide on contract execution timing on award
Present summary findings with recommendations
Be aware of open records requirements
Formal governing body award
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Use of Outside Consultants
Benefits
Time savings
Banking services and market expertise
Credibility and independent esp. in political situation
Costs
Cost of consultant usually hour basis with cap
Orientation of consultant
Cost benefit in end result
• Final contract less cost and more efficiency
• Increased earnings potential
• Additional services
• Cash management efficiencies identified
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Contractual Issues
Have banks provide contracts in proposal
Allows for advance review
Sample contract requirements in RFP as conditions
RFP and proposal part of end contract
Government attorney needs to be involved
Finance folks add practical experience and need to review
Master contract with service agreements attached
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Points of Contention
Indemnification issues are key
Venue and law guidance
Use NY for certain issues for case law
State and local laws
Fee structure must be controlled by proposal
Service agreements often allow for fee changes
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Transition to a New Bank
Provide for sufficient time
Set time limits for all services to be in place
Define technology changes on date transmission
ACH, positive pay, recon
Bank’s platform will become default platform
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Implementing the Services
Important Steps to ensure Success
Agree on and set limits for timeline
Timely Contract Negotiations
• Review as part proposal beforehand
Dedicated team use
Responsible party identification
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Elements of Bank Conversion
Building consensus
Implementation team
Project timeline
Testing, training and follow-up
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Banking Conversion Success
Consensus Change management
Implementation teams Testing
Timeline External notification
Terminology Feedback to bank
Business process Post-conversion
efficiencies evaluation
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Ongoing Banking Relationships
Ongoing Relationship
Requires periodic meetings
Review account structure
Review services
Review costs
Investigate new opportunities and services
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Optimum Banking Relationships
Depend on:
Communication
Ability of bank to respond to government’s needs
Ability of government to effectively use bank
services
Bank’s approach and acceptance of new technology
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Periodic Reviews
Identify costs and benefits
Identify new services and possible use
Can increase income
Can improve internal efficiency
Can improve external efficiency
Can improve investment returns
Control costs
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Ongoing Evaluations
Service levels being provided versus proposal
Account structure changes
Payment basis in changing rates
Availability of funds
New technologies availability
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Bank Report Card
Measures bank performance
Program objective
Scope
After two representative periods - look for trends
Delays
Criteria measurements
Requirements and capabilities met
Reporting acceptability
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Bank Relations Management
Manage bank relationships centrally
Monitor bank credit
Ensure collateral and FDIC
Ensure bank provides maximum funds availability
Evaluate benefits in automated services
Monitor services
Monitor balances
Monitor charges and volumes with account analysis
Use periodic RFP process to select depositories
Require written agreements
• FIRREA requirements
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Ongoing Expectations
The bank should continue to:
Ask questions regarding process and procedures
Inspect reports for efficiency
Ask about customer habits and needs
Review with you A/P and A/R systems
Review data security systems and loss prevention
procedures
Check for fraud protection measures
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Bank relationships must be
mutually beneficial and create a
cost beneficial business
relationship!!!
GOVERNMENT FINANCE OFFICERS ASSOCIATION
Presenters
Cynthia Evangelisti
Deputy Treasurer, Chicago Park District
541 N. Fairbanks Court, 6th Floor
Chicago, IL 60611
312-742-4289
Cynthia.evangelisti@chicagoparkdistrict.com
Linda T. Patterson
President, Patterson & Associates
301 Congress Avenue, Suite 570
Austin, TX 78701
800-817-2442
linda@patterson.net
GOVERNMENT FINANCE OFFICERS ASSOCIATION
