Washington State Auditor’s Office Third Party Receipting Presented to Washington Public Ports Association June 2016 Peg Bodin, CISA

Washington State Auditor’s Office Overview This session will cover use of third party vendors, including:  Risks  Requirements  Solutions

Washington State Auditor’s Office 3 Receipting CashiersEmployeeCounterCash, checkReceipt reportThird party vendorNon-employee Website, P.O. Box, drop box Check, credit cardRemittance report

Washington State Auditor’s Office 4 For third party receipting status, the relationship with the vendor involves more than simply receiving the payment. Government – vendor relationship

Washington State Auditor’s Office 5 Risks Customer Receipting interface Credit card system Vendor’s bank account Public depository

Washington State Auditor’s Office 6 Risks: Evaluate the legal agreement

Washington State Auditor’s Office Risk summary The risks involved in third party receipting include:  Multiple vendors, multiple solutions (even with the same vendor), each with its own risks  Legal Agreements (standard or customized)  PCI non-compliance fees  Data breach  Theft / loss of funds  Redirecting funds to other bank accounts  Bank or vendor default  Cyber theft

Washington State Auditor’s Office 1.Where do you accept payments through a third party vendor? 2.What risks are you concerned about in your environment? 8 Small group discussion questions

Washington State Auditor’s Office Requirements Third party receipting involves two primary requirements: 1.Timely and intact deposit in a PDPC approved public depository 2.Contractual compliance

Washington State Auditor’s Office Timely deposit 10 Deposits that go through a vendor’s bank must meet timeliness requirements.  Best practice: Direct remittance from the credit card system to the local government’s PDPC approved depository  OK practice: Remittance from vendor’s bank account to local government’s PDPC approved depository within one day, or five days if the treasurer authorizes an exception  Service and receipting provider exception: Up to a month

Washington State Auditor’s Office 11  Service is primary purpose  Digital Signatures  Collection Agencies  Food Service Permit Testing  Also performs receipting Service and receipting providers

Washington State Auditor’s Office 12 Merchant services agreement Local government Customer Vendor Receipting interface Credit card system Public depository Vendor agreement Merchant services agreement

Washington State Auditor’s Office 13 Payment facilitator Local government Customer Vendor Receipting interface Payment facilitator Credit card system Payment facilitator's bank Public depository Vendor agreement Payment facilitator agreement

Washington State Auditor’s Office 14 Vendor Local government Customer Vendor Receipting interface Credit card system Vendor’s bank account Public depository Vendor agreement

Washington State Auditor’s Office 15 Reserves, in most cases, are not allowable.  Withholding  Unauthorized accounts Intact deposits

Washington State Auditor’s Office Reserves and withholding contract language Selected sections from the standard PayPal agreement:

Washington State Auditor’s Office 17 Payment card industry standards

Washington State Auditor’s Office Group discussion questions 18 The nature of your third party vendor agreements contributes significantly to your risks. 1.Does your local government have any vendor agreements where the funds are deposited in a third party vendor’s bank account? 2.Does your local government complete a PCI SAQ (PCI Self Assessment Questionnaire)?

Washington State Auditor’s Office Solutions 19 Ways of addressing the risks with third party vendors include:  Contractual language  PCI compliance verification  External reviews  Insurance, bonds  Oversight and monitoring

Washington State Auditor’s Office 20 Controls Customer Receipting interface Credit card system Vendor’s bank account Public depository PCI security compliance PCI self assessment questionnaire Independent third party review Cyber security insurance Contractual language Insurance, bonds Independent third party review Remittance review

Washington State Auditor’s Office Contracts 21 Contracts have three areas of inconsistency or concern: 1.Remittance of proceeds 2.Payment card industry (PCI) compliance 3.Reserves

Washington State Auditor’s Office 22 This is not a substitute for legal advice. Please consult your legal advisor! Here are a couple of examples of language that could be used in a contract with a vendor:  Vendor shall be responsible for establishing and maintaining an information security program that is designed to (i) ensure the security and confidentiality of Customer Data, (ii) protect against any anticipated threats or hazards to the security or integrity of Customer data.  Customer shall be responsible for maintaining security for its own systems, servers, and communications links as necessary to (a) protect the security and integrity. Sample contract language

Washington State Auditor’s Office 23 This is not a substitute for legal advice. Please consult your legal advisor!  Vendor shall cause a Third Party review of its operations and related internal controls to be conducted annually by its independent auditors. Vendor shall provide to Customer, upon request, one copy of the audit report resulting from such review.  Vendor shall maintain for its own protection crime insurance coverage for its personnel. Sample contract language (continued)

Washington State Auditor’s Office 24 This is not a substitute for legal advice. Please consult your legal advisor!  …during the term of this Agreement and at its expense, acquire and maintain in full force and effect, a fidelity bond that ensures that every officer, director, Subcontractor or employee who is authorized to act on behalf of the vendor for the purpose of receiving, processing and depositing funds pursuant to this Agreement shall be bonded to provide protection against loss. The bond must be signed by an approved surety (or sureties)… Sample contract language (continued)

Washington State Auditor’s Office 25  Reconcile remittance reports to bank deposits.  Monitor reasonableness of remittances received. Are you getting everything you should?  Monitor banking fees. Are they appropriate? Management oversight Activity must be monitored regardless of contract language.

Washington State Auditor’s Office 26 What types of controls are you using to address the risks associated with third party receipting vendors? Solutions

Washington State Auditor’s Office 27  For further guidance, please consult the following resources:  Local Government Performance Center – Third Party Receipting: ss?mid=6&rid= ss?mid=6&rid=18501  GFOA Best Practice: Accepting Payment Cards and Selection of Payment Card Service Providers (GFOA, October 2009): payment-cards-and-selection-payment-card-service- providershttp:// payment-cards-and-selection-payment-card-service- providers Resources

Washington State Auditor’s Office 28 Questions

Washington State Auditor’s Office 29 Contacts Peg Bodin Local Info Systems Audit Manager (360) Kelly Collins Director of Local Audit (360) Website: