Avoiding Common ACH Origination Weaknesses

Oct 25, 2006
SWACHA Conference (Brave New Frontiers in Electronic Payments).

One or more individuals should be trained and familiar with the NACHA Rules. And, if activity volume warrants, at least one person should be NACHA certified.

1. Establish a “credit approval” process that includes “specific” credit limits for origination customers. That is, establish a maximum transmission amount and maximum frequency of transmission. (A $75,000 transmission once a month creates a lower credit exposure than $50,000 transmitted every day.) NACHA Operating Guidelines require tracking exposure limits of customers across multiple settlement dates.
2. Establish procedures to document that the ACH staff has confirmed that each transmission is within the limit established for that customer and that the file has been received from an authorized person. The staff should also document that they have verified that pre-funding or adequate credit limits exist for each file prior to transmission.
3. Establish an annual renewal / credit review process. The lending staff should perform the annual credit review. Consider sending the customer a renewal package or having them sign a letter agreement that reminds them of the limits of the contract they have already signed.
4. Include the ACH approved limit when internally reporting the borrower’s total credit exposure. (This might have to just be a “best estimate” when trying to quantify the bank’s exposure on debit origination, since those can be returned up to approximately two months.)
5. Review cash management (ACH Origination) contracts and ensure that they address all of the provisions in the NACHA sample contract, or that provisions that were left out were done so for a specific reason. (Often several different contract forms are in files, and they do not contain many of the protective clauses in the sample ACH contract developed by the trade association to protect banks.)
6. Contracts should include (by addendum, appendix, or annual letter agreement) the transmission limit that has been approved for the customer. This is so the customer will know in advance that a file will (can) be rejected if it is over their approved/established transmission limit or if they have exceeded their transmission frequency.
7. Require all ACH contracts to be approved and signed by the client at the same company level required for opening the deposit account, e.g. company president or board resolution.
8. Contracts should address the issue of who is authorized to send a file to the bank and how the bank can rely on the file as being authorized by the company. (Does the clerk that creates and delivers the file to the bank sign on the depository agreement? If not, why does the bank accept disbursement instructions from them? If the depository agreement requires checks to bear two signatures, what will be acceptable payment instructions for ACH disbursements?)
9. Daily processing schedules and calendars should be developed as recommended by NACHA Operating Guidelines.
10. Contracts with all customers need to require compliance with NACHA rules. And, ensure that a contract is on file before originating any transmissions for a customer.
11. NACHA rules should be distributed to all origination customers – or given information for obtaining them.
12. Perform the Annual ACH Self Audit as required by NACHA rules. NACHA has a low cost ACH Self Audit workbook available.

Questions and comments can be directed to our Information Technology Specialist.