1. AFP Learning System Treasury
Module One: The Corporate Treasury Management Function
Module Two: Corporate Financial Management
Module Three: Working Capital Management
Module Four: Cash and Liquidity Management
Module Five: Money and Capital Markets
Module Six: Treasury Operations and Controls
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Course Overview - 1

2. Session 1, Module One: The Corporate Treasury Management Function
Chapter 1:
The Role and Organization of Treasury Management
Chapter 2:
Financial Regulatory Environment

3. Chapter 1: The Role and Organization of Treasury Management
Outline:
Introduction to the Study of Treasury Management
The Role of Treasury Management
Finance and Treasury Organization
Treasury/Finance Organizational Structure
Corporate Governance
Ethics and Accountability
AFP Standards of Ethical Conduct
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter 1 - 3

4. Treasury and Its Relationship to the Corporate Finance Function
Treasury professionals:
Short-term
Perform critical liquidity management tasks daily to ensure availability of cash resources for operational activities.
Long-term
Perform critical finance functions that ensure availability of funds and information to sustain initiatives to support the financial objectives.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter 1 - 4

5. Discussion Question
What are the principal roles of the corporate finance function?
Answer:
Corporate finance functions:
Short-term funding (credit lines, revolving credit agreements, issuance of commercial paper)
Long-term funding (issuance of stocks, bonds, term loans and long-term lease agreements)
Acquiring strategic assets with long lives
Assessing when and how to divest assets
Advising on declaration and payment of dividends
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter 1 - 5

6. Discussion Question
What are eight major objectives of treasury management?
Answer:
Maintain liquidity.
Optimize cash resources.
Manage risk.
Maintain access to short-term financing.
Maintain investments.
Maintain access to medium- and long-term financing to support investments in capital assets.
Coordinate financial functions and share financial information.
Enhance global and cross-border focus.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter 1 - 6

7. Discussion Question Answer:
What are some actions that can be taken to mitigate counterparty risk?
Answer:
Add to the number of counterparties to increase diversification.
Eliminate specific counterparties.
Implement or adjust single counterparty balance limits.
Rebalance liquidity allocations among counterparties.
Adopt third-party custodians for investments.
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter 1 - 7

8. Financial Function Organization
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter 1 - 8

9. Discussion Question
For companies publicly traded on a U.S. public exchange, the Sarbanes-Oxley Act (SOX) makes which of the following personally responsible for the accuracy of financial statements?
Treasurer
Chief financial officer (CFO)
Controller
All of the above
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter 1 - 9

10. Discussion Question
What are six primary responsibilities of the treasurer?
Answer:
Managing overall financial risk
Arranging external financing
Managing relationships with banks and other financial institutions
Overseeing day-to-day liquidity and cash management
Investing for the short- and long-term
Developing and implementing treasury policies and procedures
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

11. Role of the Board of Directors in Treasury Operations
General authority for treasury operations
Approve business policies, major initiatives and business contracts
Board grants authority to:
Open, close and modify bank accounts
Establish borrowing facilities
Oversee investments
Issue debt and equity securities
Devise, implement and execute risk management strategies through board-approved policy statements
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

12. Daily Funds Management
Prepare cash position worksheet.
Monitor cash balances.
Collect, concentrate and disburse cash.
Invest and borrow on short-term basis.
Research and reconcile exception items.
Coordinate finance functions with A/R, A/P and accounting.
Other responsibilities
Banking relationship administration
Liquidity management
Cash forecasting
Systems design
Financial risk management
Daily reporting
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

13. Bank Account Management
Treasury responsibilities:
Opening, maintaining and closing all organization bank accounts
Organization’s articles of incorporation and bylaws
Corporate resolution
Certificate of incumbency
Managing all bank and service provider relationships
Company policies
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

14. Internal and External Collaboration
Internal collaboration
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

15. Internal and External Collaboration
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

16. Efficient Treasury Operations
Benchmarking
Examining and comparing core activities within/across an industry or functional area for the purpose of identifying best practices
Example: Basic staffing levels
Reengineering
Radical redesign of a particular business process with the goal of continuous improvement
Example: Application of Six-Sigma concepts to treasury area
Outsourcing
Utilizing a third party to perform all or part of a core function
Example: Payroll processing
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

17. Business Transitions: Mergers, Acquisitions and Reorganization
When two companies combine, with one company ceasing to exist as legal entity. Combined assets are operated under surviving company. Usually consensual.
Acquisition
When one company buys a majority of voting shares of another corporation. May be friendly or hostile.
Reorganization
In the event of severe financial distress, a company may face bankruptcy, which could result in the reorganization or liquidation of the company.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

18. Discussion Question
Why is treasury sometimes set up as a cost center and other times as a profit center? Which is more common, and why?
Answer: A cost center is the most common approach because treasury is seen as a support function.
A profit center is used in companies specializing in global finance, trade or risk management; they require use of derivatives and should be able to generate income from hedging and/or speculation.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

19. Discussion Question
What are the advantages and disadvantages of centralized and decentralized control of the global treasury management organization?
Answer:
Centralized control
Advantages—Control, economies of scale and lower operating costs
Disadvantages—Little autonomy for field office personnel
Decentralized control
Advantages—In-country personnel familiar with local business and banking practices, language and customs
Disadvantages—May have heavier compliance burden; field offices generally submit periodic reports and the home office must conduct audits
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

20. Discussion Question Answer:
Describe some of the reasons for the popularity of SSCs.
Answer:
Web-based technology has enabled developments in treasury and may provide cost reduction benefits over outsourcing.
Some global treasury back-office operations do not require local management.
Development of global TMS standardizes information and enhances SSC benefits.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

21. Discussion Question Answer:
What are the benefits of utilizing in-house banks in international treasury management?
Answer:
The primary benefit is a reduction in overall banking costs by aggregating many small transactions into fewer larger ones. An in-house bank can also manage five principal international treasury management solutions—investments/debts, netting, pooling, re-invoicing and centralization of FX exposures.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

22. Corporate Governance
Major concern for large, publicly traded companies; regulations vary widely between countries.
Challenges include:
Separation of ownership and control in large companies (stockholders vs. executive officers)
Not-for-profit organizations: board serves as oversight for the public (public vs. internal management)
Think of stockholders as investors rather than owners (agency problem).
Establish procedures for checks and balances, board of directors.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

23. Discussion Question
Who are the five key parties in corporate governance of publicly traded companies in the U.S.?
Answer:
Securities and Exchange Commission (SEC)
Public Company Accounting Oversight Board (PCAOB)
New York Stock Exchange (NYSE)
Large institutional investors (e.g., labor unions, mutual funds, pension funds)
States’ attorneys general offices (especially New York and California)
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

24. Investor Relations
Company function that deals with the disclosure or release of information to bond- and stockholders in a timely manner; activities mandated to support market regulatory requirements.
Responsibilities include earnings releases and forecasts, annual/quarterly reports, press releases, legal disclosures.
Investor relations department is a company’s only interaction with the stock market, over which it has full control.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

25. Role of Independent Directors
Four purposes of NYSE standards
Define independent directors.
Define role and authority of independent directors.
Define shareholder participation in governance decisions.
Define control and enforcement mechanisms.
Financial professionals at NYSE-listed firms must understand standards.
CEOs must certify to the listing exchanges that their companies comply with standards.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

26. Ethics and Accountability
After numerous accounting scandals, AFP published “Standards of Ethical Conduct.”
Steps to institutionalize ethical conduct:
Establish a code of conduct and have all members of the treasury department pledge to adhere to it.
Develop specific treasury policies and procedures statements.
Provide ethics training sessions that review the code of conduct, its purposes, and examples.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

27. Ethics and Accountability
Code of conduct for treasury
Encourage ethical conduct through clear statements of what is, and is not, acceptable behavior.
Confidential information
Cannot be disclosed to vendors, family or third parties.
Conflicts of interest
Avoid conflict of interest or appearance thereof.
External activities
External business ventures should not interfere with duties or create a conflict of interest.
Employee conduct
On-the-job behaviors and personal habits should not reflect negatively on company.
Conformance to code
Employees should personally certify that they have read and comply with the code.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

28. Discussion Question Answer:
Name types of unethical and illegal activities that can be reported under whistle-blower protection.
Answer:
Failure to maintain work papers
Manipulation of financial statements and reports
Document destruction
Securities fraud
Personal loans to executives
Insider trading during blackout periods
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

29. Training Sessions in Corporate Treasury Ethics
Possible off-site meeting agenda:
Explain company’s concern for ethics, as mandated by board of directors, CEO and/or CFO.
Discuss recent historical cases of unethical/criminal behavior.
Present hypothetical unethical situations and resolution.
Explain code of conduct (purpose and obligations).
Review corporate P&Ps and cite violations at company or elsewhere.
Describe insider trading restrictions.
Discuss examples of conflicts of interest.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

30. Discussion Question
What are some areas of particular concern to treasury and finance employees regarding ethical breaches?
Answer:
Check and electronic payments fraud
Rogue trading or trading without approval
Segregation of duties failures
Anti-money laundering violations
Backdating options
Manipulation of earnings
Revenue recognition issues
Failure to report significant accounting deficiencies
Insider trading
Unfair dealings with vendors
Improper use of company assets
Chinese wall violations
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

31. AFP Standards of Ethical Conduct
Competence
Continue to acquire appropriate level of professional knowledge and skill in finance.
Perform professional duties in good faith and in accordance with technical, legal and regulatory practices, as well as the letter and spirit of the law in the field of finance.
Confidentiality
Maintain confidential information acquired in the course of professional activities and disclose such information when legally obligated to do so.
Refrain from using or appearing to use confidential information for unethical or illegal advantage either personally or through third parties.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

32. AFP Standards of Ethical Conduct
Integrity
Practice honesty and accuracy in all dealings without engaging in any activity that would prejudice the ability to carry out professional responsibilities competently and fairly.
Avoid conflicts of interest or the appearance thereof.
Refrain from abusing the financial systems and markets.
Disclose fully all relevant information that could reasonably be expected to influence business dealings.
Certified Cash Manager (CCM) and Certified Treasury Professional (CTP) designations may be used only if active.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

33. Chapter 2: Financial Regulatory Environment
Outline:
General Regulatory Environment
Primary Regulators and Standard Setters of Global Financial Markets
U.S. Regulatory Environment
U.S. Federal Legislation
The Uniform Commercial Code (UCC)
The Employee Retirement Income Security Act (ERISA) (1974)
U.S. Bankruptcy Legislation
Federal Liquidity Programs
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

34. General Types of FI Regulations
Monitoring and managing the overall safety and soundness of the banking system
Setting and implementing monetary policy
Determining guidelines for the chartering of banks and other depository FIs
Allocating credit toward certain sectors of the economy and protecting consumers
Protecting investors purchasing securities through FIs
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

35. Discussion Question
Which of the following regulatory approaches used to monitor and manage the safety and soundness of the banking system carries a moral hazard for both depositors and bankers?
Setting minimum capital levels required of banks operating in the country (ratio of capital to at-risk assets and tiered capital)
Ensuring proper investment policies and diversification (impairment of capital rules)
Deposit insurance for investors’ funds held by the bank
Regular monitoring and surveillance
Answer: c. Depositors may not investigate a bank’s creditworthiness; banks may undertake more risk.
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

36. Primary Regulators and Standard Setters of Global Financial Markets
Financial Stability Board (FSB)
Bank for International Settlements (BIS)
International Organization of Securities Commissions (IOSCO)
Financial Action Task Force (FATF)
Coordinates national financial authorities and international standard setting bodies
Develops and promotes implementation of effective regulatory, supervisory and other financial sector policies
Organization that fosters international monetary and financial cooperation
Serves as bank for central banks
Sponsor of BCBS, CPSS
Recognized as the international standard setter for securities markets
Membership regulates more than 95% of world’s securities markets
International organization composed of members from more than 30 countries
Develops and promotes policies at national and international levels to combat money laundering and terrorist financing
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

37. U.S. Regulatory Environment
Treasury Department is organized into two major components:
Departmental offices
Formulate policy and management of Treasury
Operating bureaus
Carry out specific operations assigned to Treasury
Regulatory agencies:
OCC
OFAC
FinCEN
IRS
U.S. Mint
FMS
Office of Inspector General
FSOC
OFR
FIO
FDIC
NCUA
DOJ
CFPB
SEC
CFTC
FINRA
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

38. The Federal Reserve System (Fed)
Organization:
Board of Governors
Federal Open Market Committee (FOMC)
12 banks and 24 branches
Dodd-Frank Act:
New governance rules (appointing members)
Periodic audits and counterparty disclosure (discount window and open market operations)
New vice chairman for supervision
Three tools of monetary policy:
Open market operations
Discount rate
Reserve requirements
Principal roles:
Monetary policy
Supervision and regulation
Government services
Depository institution services
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

39. Discussion Question
Which component of the Fed has the most impact on monetary policy, and why?
Answer: The Federal Open Market Committee (FOMC) because it oversees the buying and selling of T-bills, T-notes and T-bonds. The FOMC’s sale of government securities reduces the money supply and credit; redemption causes the opposite.
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

40. Office of the Comptroller of the Currency (OCC)
Regulates the national banking system
Administers:
Nationally chartered banks and federal thrifts of all sizes
Holding companies of national banks and federal thrifts with less than $50 billion in assets
For national banks and federal thrifts:
Oversees the execution of laws
Proposes rules and regulations governing operations
Supervises a nationwide staff of bank examiners
Approves/denies national bank and thrift charters, branches, capital and other banking structure changes
Examines national banks and federal thrifts for asset (loan) quality, capital adequacy, management and key regulatory issues
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

41. Discussion Question Answer: a Which of the following is true?
FinCEN enforces counter-money laundering legislation (e.g., the Bank Secrecy Act) and provides intelligence and analytical support to law enforcement agencies to build investigations and plan new strategies that combat money laundering.
The FDIC provides deposit insurance for banks and thrifts and acts as a trustee for failed banks but does not supervise any depository institutions.
The Dodd-Frank Act phased out the “dual nature” of the U.S. banking system.
Answer: a
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

42. Regulatory/Supervisory Agencies Focusing on Consumer Protection, Investors and Insurance Companies
CFPB
SEC
CFTC
FINRA
FIO
Office accountable for consumer protection
Regulates and supervises securities sales
Regulates commodity futures and options in U.S.
Provides investor protection and market integrity
Will provide recommen-dations and guidance on insurance industry
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

43. Securities and Exchange Commission (SEC)
Registers public offerings of debt and equity securities by banks, bank holding companies and other corporations
Sets financial disclosure standards for corporations that sell securities to the public
Requires filing of quarterly and annual financial statements by companies with publicly owned securities
Regulates mutual funds and investment advisors
Monitors insider trading
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 1: Module 1, Chapter

44. End of Session 1 Assignment: Complete the online pre-test.
Complete the following tasks for Module One, Chapters 1 through 3:
Review each chapter.
Complete the test-your-understanding questions at the end of each chapter.
Complete the online module-specific test.
Complete the Exam Practice (Describe and Differentiate) questions (located at the end of the module).
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 1: Module 1, Chapter

45. Session 2, Module One:
The Corporate Treasury Management Function

46. Chapter 2: Financial Regulatory Environment
Outline:
General Regulatory Environment
Primary Regulators and Standard Setters of Global Financial Markets
U.S. Regulatory Environment
U.S. Federal Legislation
The Uniform Commercial Code (UCC)
The Employee Retirement Income Security Act (ERISA) (1974)
U.S. Bankruptcy Legislation
Federal Liquidity Programs
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

47. Gramm-Leach-Bliley Act (1999)
Permits the creation of financial holding companies (FHCs)
Establishes the Fed as the primary regulator of FHCs
Allows easier entry by foreign banks
Placed CRA rating stipulations on mergers of bank holding companies with insurance or securities firms
Required financial institutions to establish and regularly disclose privacy policies; prohibited credit card and account numbers from being shared with third-party marketers
Eliminated many provisions of the Glass-Steagall Act (e.g., barriers among banking, insurance and securities businesses)
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

48. Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
Ends “too big to fail” bailouts
Increases regulation of payment, clearing and settlement systems
Provides an advance warning system
Increases transparency and accountability for exotic instruments
Provides executive compensation and corporate governance
Provides transparency and accountability rules for credit rating agencies
Enforces regulations on the books
Enacted in response to the near failure of the U.S. banking system as a result of the Great Recession
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

49. Check Clearing for the 21st Century Act (Check 21) (2003)
Facilitates check truncation
Fosters check-payment innovation without mandating receipt of electronic checks
Improves payment system overall
Creates IRD or substitute check that is legal equivalent of original check
MICR-encoded paper reproduction with image of front/back
Conforms to industry standards
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

50. Acts Controlling Money Laundering
Bank Secrecy Act (1970) and Money Laundering Control Act (1986)
Stages of money laundering:
Placement
Layering
Integration
All FIs must report suspicious financial transactions.
USA PATRIOT Act (2001)
Imposed obligations on non-bank financial institutions
Made foreign banks in U.S. subject to U.S. jurisdiction
Prohibited U.S. banks from maintaining correspondent accounts for foreign shell banks
Prevented U.S. credit card operators from authorizing foreign banks to issue or accept U.S. credit cards without taking steps to prevent terrorist use
Requires banks to know customers (due diligence)
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

51. Sarbanes-Oxley Act (SOX) (2002)
Improves disclosure and financial reporting.
SEC rule changes require companies to:
Disclose code of ethics for senior management (and any waivers).
Indicate if audit committee has a financial expert.
Have audit committees preapprove auditor’s audit and non-audit services; be briefed on company’s accounting (including preferable alternatives).
Regulation G requires companies to:
Reconcile pro-forma financial information to financial statements.
Issue earnings releases on Form 8-K.
Include material off-balance-sheet arrangements in MD&A.
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

52. Discussion Question
Which act requires periodic evaluations of a depository institution’s records to meet credit needs in the area in which they operate?
Community Reinvestment Act (CRA) (1977, 1995)
Expedited Funds Availability Act (1997)
Gramm-Leach-Bliley Act (1999)
Dodd-Frank Act (2010)
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

53. Federal Reserve Regulations
Regulation D
Implements Federal Reserve Act of 1913; imposes uniform reserve requirements on all depository institutions with different levels of reserves for different types of deposits
Regulation E
Implements EFTA (1978); defines rights and responsibilities of parties using consumer-related EFTs and provides consumer protection for ATM, ACH and credit card transactions
Regulation J
Implements check collection and settlement provision of Federal Reserve Act (1913); establishes check collection and settlement procedures, duties and responsibilities
Regulation Q
Prohibits depository institutions from paying interest on corporate demand deposit accounts; repealed by Dodd-Frank Act
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

54. Federal Reserve Regulations
Regulation Z
Protects consumers from unexpected credit card rate increases; prohibits issuing credit card to consumer under age 21; requires consent before charging over-limit fees; limits high fees; bans creditors from two-cycle billing method; prohibits allocating payments to maximize interest charges
Regulation BB
Implements CRA
Regulation CC
Establishes rules designed to speed the collection and return of checks; establishes endorsement standards for banks and companies to follow in depositing and clearing checks; imposes the same return procedures that apply to checks to payable through drafts
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

55. Discussion Question Match each tax with its correct use.
Foreign tax credit (FTC)
Capital tax
Asset tax and turnover tax
Withholding tax
Sales and use taxes
VAT
To relieve double taxation
To slow foreign direct investment
To tax despite no profits
To tax funds moving out of a country
To tax at the point of purchase or Internet
To tax at each stage of production
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

56. The Uniform Commercial Code (UCC)
Article 3—Negotiable Instruments
Article 4—Bank Deposits and Collections
Accord and satisfaction:
Stipulates when a check could constitute a payment made in full
Revised to permit avoidance of inadvertent accord and satisfaction (if the payee discovers an error within 90 days)
Unauthorized signatures:
Properly payable checks
When a company may be held liable for situations related to check issuance
Defines the various bank parties to the deposit and collection process and their respective rights and duties
Defines the relationship between a bank and its customers
Defines a company’s duty to examine bank statements; makes it imperative to accurately reconcile accounts on a timely basis
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

57. The Uniform Commercial Code (UCC)
Article 4A—Funds Transfers
Article 5—Letters of Credit (L/Cs)
Bank must make security procedures available to the customer.
Includes the use of:
Personal identification numbers (PINs)
Callbacks
Encryption
Message authentication
Consequential damages:
Relieves a bank of liability for losses beyond the actual loss
Holds a bank liable for interest losses or incidental expenses
Defines a L/C, a documentary draft or documentary demand for payment
Defines the roles of the issuer, applicant, beneficiary, advising and confirming banks
Article 9—Secured Transactions
Businesses that require a security interest must file UCC-1 Financing Statement listing collateral.
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

58. Retirement Plan Formats
Defined benefit plan
Defined contribution plan
Based on pay or seniority.
Plan obligation is discounted aggregate of projected benefits.
Value is independent of liability and based on fair market value (can be overfunded or underfunded).
Funding/valuation can have significant impact on firm’s financial condition.
Retirement savings based solely on contributions credited to an individual account and its earnings.
Participants bear risk of self-directed investment decisions.
Assets and liabilities are always equal.
No funding/valuation issues but significant record keeping (work with HR).
Other types of plans:
Hybrid plans (technically one or the other)
Qualified vs. non-qualified plans
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

59. Employee Retirement Income Security Act (ERISA)
Objectives
Ensure that employees and beneficiaries receive adequate information on plans.
Set standards of conduct for individuals who manage employee benefit plans and funds.
Determine that adequate funds are set aside to pay promised pension benefits.
Ensure that employees receive pension benefits after they have satisfied certain minimum requirements.
Safeguard pension benefits for workers whose pension plans are terminated.
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

60. ERISA Reporting and Disclosure Requirements
Favorable tax treatment vs. penalties, disqualification or excise tax
Applies to all private- sector retirement plans
DOL
Annual report (Form 5500) that describes plan, financial statements, insurance and actuarial information, plan assets
Summary plan description and ERISA statement of rights
Pension Benefit Guaranty Corporation (PBGC)
Insures pension plans of private U.S. corporations and sends report of premiums due
Other filings
Must give participants summary plan description and annual summary of financial statements (others on request)
Must provide participants with periodic benefit statements
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

61. Discussion Question Answer: d
Which of the following is true of ERISA rules?
Using the ratio percentage test, the plan must cover a nondiscriminatory group of non-HCEs who receive compensation worth at least 70% of what HCEs receive.
Using the average benefits test, the percentage of non-HCEs benefiting must be ≥ 70% of HCEs who benefit.
Any firm with unfunded benefits can qualify for a distress termination and PBGC plan takeover.
In a distress termination, the plan sponsor and control group of companies are liable for unfunded benefits.
Answer: d
v3.0 © 2011 Association for Financial Professionals. All rights reserved. Session 2: Module 1, Chapter

62. Pension Protection Act (PPA) (2006)
Impact on defined benefit plans
Updates for defined contribution plans
Specifies actions to remedy underfunded plan
Must pay higher premiums to PBGC
If underfunded at time of termination, must pay extra funding to pension system
Closes other loopholes
Removes conflict of interest fiduciary liability for self-interested investment advice
Gives plan participants greater control over how their accounts are invested
Establishes safe harbor investments
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

63. U.S. Bankruptcy Legislation
Chapter 11 reorganization
Unanimous consent procedure
Cram-down procedure
Chapter 7 liquidation
Provides safeguards against withdrawal of assets by owners of bankrupt firm
Provides for equitable distribution of assets among creditors
Allows insolvent debtors to discharge all of their obligations and start over
Formal bankruptcy
Freefall
Pre-arranged
Pre-packaged
Informal bankruptcy
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter

64. Discussion Question
Complete the following Chapter 7 bankruptcy priority of claims.
Specific property pledged (e.g., lien)
Trustee’s costs
Pre-trustee involuntary liquidation expenses
Wages earned three months prior to filing
Unpaid benefit contributions owed six months prior
Unsecured claims for customer deposits
Taxes due
Unfunded pension plan liabilities up to 30% of book value of common/preferred equity
General unsecured creditors
Preferred stockholders (paid up to par value)
Common stockholders (receive remaining funds)
v3.0 © 2011 Association for Financial Professionals. All rights reserved Session 2: Module 1, Chapter