Quick Action Helps CU Mitigate Potential Fall-Out From Error

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On Aug. 11, 2008, Credit Union Journal online reported a story regarding San Diego Metropolitan Credit Union's delay in processing payroll for the City of San Diego, our primary sponsor group. Below is an effort to clarify the day's events and provide what may be helpful advice to other credit unions finding themselves in similar situations.

First, some background, SDMCU processes all ACH payroll on behalf of the City of San Diego, as well as agencies we serve. On Friday, Aug. 8, an internal error was made in processing approximately 7,500 city employee payroll deposits. Electronic payroll deposits are processed on behalf of approximately 11,000 city employees. Of those, 3,500 have direct deposits to the credit union. A remaining 7,500 employee deposits were not made on time due to the delay in the process of ACH between the credit union and 120 other financial institutions. As part of the credit union's internal controls, two employees are required to sign off on funds disbursement before it can be sent. One of the employees signed off, but the other did not provide appropriate authorization until 8:10 a.m. Friday-too late for the automatic deposits.

The SDMCU team confirmed that approximately 7,500 city employees had not received their paychecks directly deposited into their accounts. The City Employee Payroll Origination file failed to be transmitted properly and timely, causing unavailability of deposits at their usual expected time of 9 a.m. on Friday, August 8th.

We understood the magnitude of this error for both SDMCU and our partner, the City of San Diego, and quickly enacted efforts to work with city employees. We assured city employees this error was caused by SDMCU, and determined that in no way should our error reflect negatively on the City of San Diego.

An Immediate Call To The Federal Reserve

Immediately, we called the Federal Reserve Bank to discuss the timeliness in which we could re-originate the file.  We determined that the deposits would be available to post within two hours of origination; however, the financial institutions would not receive financial payment until Monday. Typically, the payroll deposit and financial payment occur on the same day, which means financial institutions had the ability to retrieve and post the late employee payroll origination file if they chose.

Our next plan of action was to amass a list of financial institutions to make personal phone calls asking them to retrieve and post the origination file for their members. Also, an e-mail was sent to all SDMCU employees describing the incident. All of this occurred within a 30-minute timeframe, from 8 a.m. to 8:30 a.m.

SDMCU routinely updated the city on the progress of the situation-including a personal visit by me to the Mayor's Office at approximately 10:00 a.m., as well as phone conferences at 2:15 p.m. and 4 p.m. We included updates to the city as to what financial institutions were working with SDMCU and those who would not work with the credit union to get the employees their payroll deposit. This list was made public to all key parties so that employees would know if they would or would not be getting their pay immediately.

For those employees who did not receive their pay, SDMCU made the decision to honor "hardship advances" for non-members for up to $300, but allowed manager discretion if the amount needed to be increased. SDMCU branches were open later, until 6 p.m. on Friday and SDMCU staffed up for Saturday in the event non-members needed further assistance. All funds were available to all employees no later than Monday morning.

Lastly, I drafted and distributed a letter of explanation and apology, which was available to the city as well as to the media. It appeared in the online edition of the Union-Tribune on Friday. Key representatives were also available for comment on the situation.

Because of our team's quick response and proactive approach, we were able to confirm the magnitude and scope of the situation, outline a plan of action, and resolve the problems in a timely matter. In addition, in order to avoid hardship that may have been felt by city employees due to the fact that they lacked the funds to their accounts, we provided contingent plans such as hardship funds available to them until the situation could be resolved and kept branches open later for assistance. We educated our team members and were clearly communicative with key parties and media outlets.

Joseph Schroeder, CEO

San Diego Metropolitan Credit Union


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