Risk Management Question

Discussion in 'Growing and Managing a Business' started by moogle1979, Sep 29, 2010.

  1. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    I am in a Risk Management class for school I just got the following situation to analyze. As one can see from reading I am not wanting anyone to do my homework, just trying to get some ideas from someone with a little bit more experience and learn in the process. Anything I use will be referenced and sourced properly as the school requires based on APA format.

    • The Cash Receipts Department of an insurance company processes the policy renewals and retainers for new policies on a daily basis. At 2:00 p.m. each day, all processed receipts (in the form of personal checks) are taken to the bank for deposit into the company’s account. At the end of the day (4:30 p.m.), the clerks place all undeposited checks, which were not taken to the bank, on the top open shelf of their cubicles. Processing of these undeposited receipts is completed the next day.

    After looking at this I saw the risks as, The known risk in situation one is that at the end of the day the undeposited checks are just left out in the open top shelf in the cubicles. There are several reasons this is a risk, which all include the same thing leading to either loss of the check through misplacement or theft or damage to the check through disasters both natural and unnatural.

    Now after knowing this the only alternative I could think of is having a disaster proof safe to store the undeposited checks at the end of the day. Basically have the employees put the undeposited checks in a slot on the disaster proof safe.

    My question is can anyone else think of any alternatives than the one I just mentioned?
     
  2. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,578
    Likes Received:
    1,163
    Thanks for posting your question moogle1979. There may be other potential risks involved in the situation you outlined, such as;

    • Risk to the person delivering checks to the bank. A potential thief may believe that this person is carrying cash on the daily bank run, or just decide to take their chances with the checks
    • When does the insurance cover come into effect - when the company accepts the check, or when the check is cleared through the banking system? Are there any potential risks in that, e.g. someone not having cover until their check is cleared or someone having cover even though they haven't paid for it (in the event that their check bounces)?
    • Are there any risks involved with the employee handling of checks - e.g. could employees steal some of the checks?

    A safe is a good idea and would certainly help to reduce the risk. Other tactics to consider would be;
    • Dropping the checks in the bank mail box every evening
    • Using a bank night box facility
    • Having a cut off time for receipt of customer checks. E.g. if customer checks were only accepted in the mornings then all checks would get to the bank everyday. Not exactly good customer care but an option nonetheless
    • Encourage and / or incentivise more customers to pay credit card or by bank transfer - this would contain risks within itself but still would reduce the amount of checks the business is physically handling.

    Do you feel that any of those suggestions would work? Hopefully some of our other members will have suggestions.

    Good luck with your assignment.
     
    • Like Like x 1
  3. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    This helps out much, it gives me ideas I had never even considered. The instructor gave us 3 scenerios to choose from. The first one being this and the second one dealing with more IT risks which with me being in IT makes it easier to spot. I wanted to choose a challenging one that I had less knowledge about to learn. In the process I could not think up other alternatives, so I just wanted to get ideas from others.

    Thank you Fergal.
     
  4. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,578
    Likes Received:
    1,163
    You're very welcome moogle1979, it's great to have a student perspective on our business discussions. Please post back to let us know how you score in the assignment, top marks I hope.
     
  5. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    Thank you Fergal, I do online schooling and they give discussion questions to help the classmates discuss topics related to the class. This teacher has decided to do analyzing situations, he said anyone can read books but when you analyze real-life situations it helps you learn better as everyone can have different opinions related to the situation.

    So far I have a Cumulative Score:43.8/45 (97.33%) in the class of which I only messed up on a paper on the effects of the Internet on a virtual organizations security. This I did well except they asked for costs to solutions and I am really bad at determining exact costs when I know little about a company.
     
  6. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,578
    Likes Received:
    1,163
    That's a great percentage score moogle1979, well done and congratulations.
     
  7. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    Thank you, I got full credit and in the new week we are working on Fault Tolerance. I was talking to some local disaster recovery companies that develop DR plans for businesses and they had no idea what fault tolerance was. I was completely shocked.
     
  8. Kay

    Kay
    uix_expand uix_collapse
    Member

    Joined:
    Sep 29, 2008
    Messages:
    1,816
    Likes Received:
    21
    Hey, you stole all the good answers!! :p Excellent post, Fergal. I scratched my head to come up with anything else.

    I can add one thing to "Risk to the person delivering checks to the bank." Also risky is the fact they have a set time of day when they deliver the checks. Routines and routes need to be varied when feasible if you want to avoid the risk of being robbed. Trips to the bank should be a two person deal for the same reason and also to ensure the deposit is made. You wouldn't want a disgruntled employee throwing them in a dumpster.

    Leaving the undeposited checks out is madness. Wherever they go has to be fireproof and inaccessible to anyone except the most senior of staff: as suggested, a safe. Since there's the lapse period between them going in that safe and going to the bank the following day, there needs to be some kind of record of what checks are in the safe that's kept under lock and key too. Just a simple three column list of cheque numbers, names and policy numbers would suffice, with two senior staff members signing off on that list to say it's accurate. In the morning, they double check the list and pass them for processing in that day's batch.

    You must, must have a paper trail in case one were to go amiss. That way you know what definitely went in the safe each night and what may have for example been blown by a breeze into a trash can unnoticed before the checks were put away. (I'm assuming receipts are issued for the checks.)

    I worked in banking. It happens, checks do go astray. Very rarely but it does and can occur at any point between the office it was mailed to and the bank. You have to be able to backtrack to see where it happened.

    Good point on when the cover actually kicks in, Fergal. Also risky is how close the processing of the check is to the date their insurance quote expires. That one extra day's processing if it's done after 2pm could make the difference between a valid policy and none at all. The cheques should be sorted and the ones closest to the policy implementation date processed first.

    They should also find out when the bank considers to be the close of the business day in case it's later than their own 2pm deadline. For example, if the bank still processes up until 4pm and classes that as the same day, they should be taking their cheques to the bank later than 2pm. Assuming the bank is a quiet one and close by, a 3pm deadline should leave plenty of time to do the banking and adds another 5 hours weekly per staff member (assuming they work Mon-Fri) to process checks on the same day they come in. That also reduces the risks of keeping checks overnight on the premises as there would be fewer checks in the safe.

    That's all I can think of for now. Hope that helps and best of luck moogle1979! Sounds like you're doing great. Welcome aboard. :)
     
  9. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    Thank you Kay, our teacher mentioned businesses working with banks to scan the checks to them allowing the checks to be deposited the exact time it was scanned. Had you heard of this?
     
  10. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,578
    Likes Received:
    1,163
    I haven't heard of banks doing that moogle1979. If you search some of the major banks's websites you should find some details of services like that, if they offer them. Please do post back and let us know if you come up with anything.
     
  11. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    This is what the teacher posted exactly word for word except it it sanitized to leave names out.

    <Classmates Name> and class, just a thought. Today's technology allows a company to scan checks for redemption. The result is instant redemption of the check (no float for the consumer) and well as a quicker turn-around time for payment. If this process were used in this case study it would prevent the possibility of checks sitting around. And the cost of the scanning equipment might even be offset by the quicker redemption times.
     
  12. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    For added information one classmate stated this

    Chase offers a service called quick deposit.
    Quick Deposit is our remote deposit solution that enables you to scan paper checks and deposit the images directly into your checking account without leaving your office.

    Here is the sales pitch from the website. I would think that most large banking institutions would offer this kind of solution.

    Quick Deposit lets you:

    * Streamline your paper check deposits by integrating it with our online banking solution
    * Save time and expense by eliminating multiple trips to the bank
    * Maximize the availability of your deposited funds
    * Reduce paperwork with a secure, online storage of check images and transaction history

    Even more advantages of Quick Deposit are:

    * You can scan up to 150 checks in a single deposit.
    * There is no limit to the number of deposits you can make.
    * Deposits that you scan by 9:00 PM ET are processed on the same business day.


    https://www.chase.com/ccp/index.jsp...iness/online_banking/page/collection_services
     
  13. Kay

    Kay
    uix_expand uix_collapse
    Member

    Joined:
    Sep 29, 2008
    Messages:
    1,816
    Likes Received:
    21
    When I worked in banking that wasn't an option, moogle1979. It was a long time ago now though.

    I do know that other banks are coming up with similar options like Chase's quick deposit for personal banking, not just business banking, because a friend mentioned it who banks online all the time. Heck, I can't remember which bank it was though. It definitely wasn't Chase. I'll find out and come back to you on that. Sorry, my memory fails me. :)

    ETA This article explains more generally how it works. Hers may well have been one of these. http://www.bankfox.com/blog/2009/07/22/deposit-checks-online-computer/
     
    #13 Kay, Oct 7, 2010
    Last edited: Oct 7, 2010
  14. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,578
    Likes Received:
    1,163
    Scanning cheques like that would be a great time saver and I can see how it would reduce risk. I don't believe the service is available from any of the main Irish banks yet, but I'm sure it's only a matter of time. Thanks for informing me about that moogle1979, you learn something new everyday.
     
  15. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    I love constantly learning and keeping my mind working. I do not want to lose my mind by not using it. One of the hardest things for me is since my work is on my personal computer is separating work/personal. In fact I just got some money to upgrade my computer for work related purposes.

    This week in class we are dealing with Fault tolerance related to disk shadowing or mirroring and an end user security policy.
     
  16. docahk

    docahk
    uix_expand uix_collapse
    New Member

    Joined:
    Oct 7, 2010
    Messages:
    4
    Likes Received:
    0
    I just started my risk management course at school. I am having difficulty answering two of the problems given to us regarding insurance company losses and hedge funds. The questions are as follows:

    1) An ins companys losses of a particular type are to reasonable aproximation normally distributed with a mean of $150mill and standard deviation of $50mill. (Assume) no difference bw losses in risk neutral world and losses in the real world.) The one year risk free rate is 5%. Estimate the cost of the following:
    a) A contract that will pay in one years time 60% of the insurance companys costs on a pro rata basis
    b) A contract that pats $100mill in one years time if losses exceed $2mill

    2) A fund of funds divided its money bw 5 hedge funds that earn -5%, 1%, 10%, 15%, and 20% before fees in a particular year. The fund of funds charges 1 plus 10% and the hedge fund charges 2 + 20%. What is the overall return on the investments? How is it divided bw the funds of funds, the hedge funds, and the investors in the funds?

    Any help is very much appreciated. Also if anybody has any books or materials they could recommend that may help life easier in this class, it would be very helpful. Thanks
     
  17. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    I wish I could be of help, figuring out numbers like this is something I am not the best at. I am sure there are people here that would be able to help you easily.

    I would like to welcome you to Business Advice Forums and hope you find the help you need among the forums. As far as books, my risk management class contains the books The Management of Network Security: Technology, Design, and Management Control, Disaster Recovery: Principles and Practices, and Disaster Recovery Planning: Preparing for the Unthinkable.

    Good luck in your journey through school.
     
    #17 moogle1979, Oct 7, 2010
    Last edited: Oct 7, 2010
  18. docahk

    docahk
    uix_expand uix_collapse
    New Member

    Joined:
    Oct 7, 2010
    Messages:
    4
    Likes Received:
    0
    Thanks for the info! Ill look into them. Do you have any suggestions at to which forum to post the questions?
     
  19. moogle1979

    moogle1979
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 29, 2010
    Messages:
    12
    Likes Received:
    0
    This is the right forum in the Business Advice Forums from my understanding of the forums so far for this question, just give people time and you will get responses.
     

Share This Page