Recent Results of my last: International Banking & Cross Border Payments STP Project

1. Recent Results of my last: International Banking &Cross Border Payments STP Project By Martin Jermann – November 2004

2. Contents • Client: • Large UN Agency headquartered in Italy • Overview • Actions Taken • Achievements • Banking Data Analysis • Timeline – Project’s Progress • STP Data Analysis • Payment Volumes Analysis • Project’s Effect on Bank Charges • Recommendations • Conclusions

3. Overview • In July 2002, management created a Vendor Bank Task Force [VBTF] with the objectives to: • Increase the STP rate [Straight-Through-Processing] • Decrease banking charges • Normalize/standardize banking data in Oracle • Introduce banking standards to the organization • This presentation provides an overview of the accomplishments that the VBTF has achieved and its recommendations to further the success that has been achieved.

4. Overview Legacy Systems Limited validation Antiquated Bank Research Tools Why was the STP so low? No Standardization Prior to ERP Implementation and Upgrades Lack of Appropriate Staffing High number of untrained data entry clerks No Centralized Controls Why was the STP rate so low?

5. Actions Taken Phase I (July 02 to August 02) • Inserted country codes for banks migrating from Oracle 10.7 to 11i • Normalized banking data: • Eliminated duplicate banks • Determined the “Master Banks” • Placed the appropriate data in the appropriate banking data fields Created independence from the current banks that were actually being used by the UN organization for disbursement by applying the “Over-population” approach (note : This will allow the UN Organization to be able to make a payment on any banking network from any bank in the world) Phase II (September 02 to October 04)

6. Actions Taken • Introduced and applied international banking standards: • CredEuro convention • SWIFT MT103 and MT103+ • IBAN • Trained staff in the Accounts Payable Group on: • How to research banks • How to validate banking data • How to set-up vendor records for “cross-border” payments

7. Achievements • Increased the STP rate • Decreased banking charges • Reduced the number of rejected payments • Reduced the time it takes to respond and/or research a rejected payment request • Documented procedures • Introduced new forms • Introduced new software and research tools to validate banking data • Reduced over-time to a minimum

8. Banking Data AnalysisSegmentation of the banking database • As of July 2002 there were approximately 16.000 vendor bank account records • Of these, approximately 13.000 were migrated from Oracle 10.7 to 11i • The UN organization established the following criteria to determine whether a vendor bank record was to be reviewed and updated: • the vendor had payment activity in the last 18 months • Approximately 9,000 vendor bank records met the above criteria • Of these: • Approximately 6.500 (72%) were researched and updated by the task force • Approximately 2.500 (28%) were not chosen to be researched and updated by the VBTF • (they were in countries with low payment volume activity or their STP was deemed to be already satisfactory) • As of October 2004 there were approximately 12,300 active vendor bank accounts in this UN organization’s banking database • Note: Approximately 3,400 new vendor bank account records have been added during the life of this project by this UN organization’s Accounts Payable vendor bank update unit

9. Banking Data AnalysisSegmentation of the banking database

10. Banking Data AnalysisBanking database – Strategic approach • Banks in the following geographical regions were researched and updated by the VBTF : • Europe • 17 countries • United States • Canada • Note: • Over 75% of this UN organization’s payment activity was made to vendor banks in these geographical regions The remaining geographical areas were not researched in a systematic manner as they either had low payment activity or they had acceptable STP rates

11. Timeline – Project‘s Progress

12. STP Data Analysis Compare this UN organization’s obtained STP to the SWIFT Worldwide STP Average 90%

13. STP Data AnalysisCommon causes why some payments did not STP % Exceptions % Straight through processing • Exceptions • Use of obsolete SWIFT codes • (SWIFT codes change on an on-going basis) • Correspondent bank not found by our bankers and were reported to us as non STP • (this functionality is coming soon) • Certain cover SWIFT / ABA codes missing • (not at present communicated to our bankers) • Incorrect formatting of the beneficiary bank account number due to human error 11%

14. Payment Volumes Analysis • Average number of monthly payments made per month from bank accounts were: 2.000 payments • 1.100 were monthly payments made by Accounts Payable • 900 were monthly payments made by Payroll • As of October 2004 • 950 payments STP’d that were made by Accounts Payable • 150 payments did not STP that were made by Accounts Payable • 460 payments STP’d that were made by Payroll • 440 payments did not STP that were made by Payroll

15. Payment Volumes Analysis

16. Project‘s Effect on Bank Charges The repair portion of the bank charges has decreased by over 47% since Jun-2002

17. Project‘s Effect on Bank Charges Bank charges have decreased by approximately 22% since 30-June-2002 The repair portion of the bank charges has decreased by over 47% since June 2002

18. Steps the organization is going to take to maintain and increase thier STP rates • Publish their bank master file requirements on their internal intranet homepage in order to: • Communicate what is now required to make an effective payment • Communicate the international banking standards that they are using • Implement and make use of their new forms: • Consultant and staff member bank update form • External vendor bank update form

19. Steps the organization is going to take to maintain and increase thier STP rates • Continue the active management of the Accounts Payable Bank Update Group: • Ensure that they have the established staff to carry out the vendor bank update function • Keep abreast of changes in the external banking environment • Analyze / Review errors reported in the monthly bank STP report as furnished by their bankers • Query the AP Oracle vendor bank database for discrepancies and/or errors • Pre-validation – require the manager of the group to pre-validate all incoming data prior to its entry into Oracle

20. Steps the organization is going to take to maintain and increase thier STP rates • Continuously review their bank research subscription services to ensure that they are the most relevant to use: • SWIFT – BIC Database Plus • Thomson – The Global Banking Resource [TGBR] • IBAN Calculator by AlMiSoft • Link their Oracle AP Vendor Bank database with the SWIFT database • Further enhance the Oracle bank module to : • Make the beneficiary bank account number field link to country specific validation • Transmit the beneficiary’s legal bank account holder name • Transmit correspondent bank information • Transmit “pay through bank” / “cover bank” information

21. Conclusion - Benefits • Non-quantifiable benefits: • By having good vendor bank records, the UN organization is no longer locked into its current banking relationships [it is free to move] • Fewer payments are rejected • Less time is spent on payment query research • Staff members, consultants and vendors are happier • Payments are made more quickly

22. Conclusion – next steps • They will extend this project / exercise to review and update their Payroll bank records • The STP for this group is extremely low • They were able to determine the service levels that they will expect from their banks (they will be built into their future bank contracts) • STP reports : to be provided on a monthly basis • SLAs (Service Level Agreements) : Structured and well defined • They will continue to monitor and report internally their STP rates and compare it to the internationally accepted banking benchmarks • They will ensure that they will have the established resources to enter and maintain the banking database

23. Contact Information • To discuss this presentation or my services, I can be contacted at: • Martin Jermann • Via Anastasio II, 321 • 00165 Rome, Italy • Mobile: +39 3479946432 • Email: martinj@tin.it • http://xoomer.virgilio.it/mfj_consulting/