CPS AND THE YEAR 2000

What is the Year 2000 problem?

By now most of us will have heard the expressions, "Year 2000 problem", "The Millennium Bug" or "y2k".

Simply stated the y2k issue has arisen as a result of the almost universal practice of using only two digits to record the calendar year in many computer and other electronic systems. As the year 2000 approaches this practice may lead to a failure of electronic systems or inaccurate calculations when the two-digit year is encountered or used in an arithmetic calculation.

There is a large volume of information available on the reasons for the problem, what equipment and systems are affected and possible solutions. Readers are encouraged to visit some of the useful Internet web sites set out at the end of this statement. For further assistance the Australian Government maintains a y2k telephone helpline on 1800 11 2000.

CPS has adopted the British Standards Institution DISC PD2000-1 and DISC PD2000-1:1998 to define the Year 2000 conformity requirements. The Standards Association of Australia has a number of very useful publications available on the subject (SAA HB104:1997 and SAA HB120-1998). Both the BSI and SAA web sites are included in the list at the end of this statement.

The CPS Readiness Program

CPS has been actively engaged in y2k readiness issues since 1996. The Credit Union has developed and implemented a Readiness Plan approved by its Board, and set up a Project Team consisting of senior management to address and co-ordinate the readiness process. The Project Team meets monthly as a minimum or more often as required. The Board receives detailed updates on the readiness process monthly.

The object of the Plan is to identify and find solutions to potential y2k problems to ensure there will be no foreseeable disruptions to the operations of the Credit Union and the services it provides to its members.

The readiness program has involved a number of specific steps:

• Awareness – develop a detailed understanding of the problem, establish a Readiness Plan and Project Team

• Analysis – develop an inventory of all systems, processes, equipment, services and supplies for investigation of readiness issues

• Remediation – correction of problems identified, involving either repair, replacement, retirement or redevelopment of systems and equipment

• Testing – to ensure identified problems have been eliminated or rectified

• Contingency planning – extensive planning to provide alternative courses of action for disruptions to member services should problems occur.

Current status at 10 September 1999

Remediation process

The inventory developed by CPS in the analysis stage of the project identified a number of items requiring some remediation. These included the primary financial service software used by CPS, some internal equipment and software, together with some of the services provided by third parties. The only items remaining in the remediation category are minor and are not related to essential business functions.

The Credit Union has had in place for some time a policy of requiring y2k certification before any new hardware or software is purchased thereby limiting the possible proliferation of problems.

• Financial service software - One of the most significant components of the implementation stage has been the installation of a y2k ready version of the financial service software used by CPS for many years. The development was undertaken by Credit Union Services Corporation (Australia) Limited (CUSCAL), the owner of the software, and has been tested both by CUSCAL and more recently by the data processing supplier to CPS. This software was installed and became operational at CPS on 2 December 1998.

• ATM’s - A compliance survey of all of the CPS owned Rediteller ATM’s was undertaken in January 1999 and approval given to upgrade all machines to a y2k ready state. The upgrades were undertaken by the ATM manufacturer and completed in May 1999.

• Third party suppliers - A detailed analysis of the readiness programs of the various suppliers of services to CPS is underway including the provision of property, power and communications services.

• Other services - As a financial institution, many of the services that CPS provides currently require the application of dates beyond 1 January 2000. Remediation, where necessary, has been undertaken to these services as a requirement of current operations. Examples include:

a) ATM/EFTPOS cards with expiry dates beyond 31 December 1999 have been on issue since March 1998.
b) Term deposits and insurance’s with maturity beyond 31 December 1999.
c) The funding of loans with final payment dates after 31 December 1999.
d) The use of review dates beyond 31 December 1999 for loan and insurance products.

Testing

The testing stage of the Readiness Program has included the direct testing by CPS of computer hardware, software and other equipment and systems and also similar testing of equipment and systems operated by third party suppliers to CPS. Although the testing cycle of all critical components is complete, testing will continue to be carried out through to March 2000.

The more significant elements of this testing include:

• Data processing system – CPS is a shareholder in a company established solely by a number of credit unions for data processing purposes. This data processing company commissioned a separate computer system in October 1998, using identical hardware; firmware and operating system components utilised on its main production system. This test system was established specifically to undertake y2k testing for all components of, and those connected to, the data processing system together with testing of the financial service software used by CPS, electronic payments systems and EFTPOS/ATM links. There has been no major adverse results encountered from the testing.

• Financial service software – CPS commenced an extensive test program on its primary financial service software for several weeks in March 1999. This testing was undertaken using the y2k computer system established by its data processing company and the current database of the credit union. The testing involved the majority of day to day functions undertaken by the credit union. Testing dates ranged from 30 December 1999 to 7 March 2000. There were no significant adverse results encountered from the testing. A further round of testing will be undertaken in September 1999.

CPS has also participated directly with its data processing supplier in end-to-end testing for certain elements of the Australian payments clearing system. The internet site of the Australian Payments Clearing Association (APCA), listed at the end of this statement, contains detailed information on the various payment clearing systems in Australia and the y2k testing program coordinated by APCA. On 1 July 1999 APCA announced that industry testing of payments clearing systems for y2k readiness has been successfully completed, and that the testing program is being complemented by preservation measures to maintain y2k readiness of payments clearing in the period leading up to, and after, the commencement of Year 2000.

• Personal computers - Testing of the existing personal computers and other computer components within CPS has been underway for some time. As a result of the testing, all but a very small proportion of existing equipment is either compliant or readily upgradeable. Those few items identified as not compliant have been replaced.

Research and compliance testing of PC based software has been undertaken in conjunction with the computer testing. The critical software identified as non-compliant has been upgraded and standards introduced to ensure non-compliant software is not introduced at a later date.

• Other testing – Live testing has been successfully completed on a range of other equipment including, our PABX and telephone equipment, alarm, access and security systems.

Contingency Planning

An important element of the Readiness Program is the development of a Contingency Plan. The purpose of the Contingency Plan is to identify alternative courses of action should there be a failure of a critical element of the Credit Union’s operations, due either to an unforeseen failure of its internal equipment or systems, or the inability of a third party to maintain its service obligations to CPS. The Contingency Plan is constantly changing as developments in the readiness process take place and incorporates proposed alternative sources of supply where some doubt exists as to the readiness of critical services supplied to CPS.

The Contingency Plan is extensive and comprehensive. It identifies each function undertaken by CPS, and for each of these functions a range of additional information is provided including:

• Possible reasons for a disruption to, or failure of, the function;

• The potential impact of any disruption or failure;

• An assessment of the degree of risk given the importance of the function and the probability of any disruption or failure;

• Action that can be taken to mitigate potential problems prior to 31 December 1999;

• What readiness testing has been undertaken;

• Persons allocated to undertake mitigation action together with due dates and the current status;

• Methods used to detect potential problems post 31 December 1999;

• Specific actions to be taken should any disruption of service failure appear after 31 December 1999, together with a designated manager for the action;

• Estimated costs of undertaking mitigation or contingency actions.

Readiness costs

The determination of costs associated with the Readiness Plan is an ongoing process as significant milestones are reached or further developments take place. The costs include estimates for:

• The costs of staff engaged directly on management, assessment, remediation, testing, implementation and contingency planning etc.

• Direct costs of replacing or upgrading existing software.

• Direct costs of replacing capital items, such as computer equipment and embedded systems.

• Engaging consultants to advise or assist in the process.

The estimated cost of the program as at September 1999 is in the order of $122,000. Some $104,000 of that amount had been spent or allocated at August 1999.

Regulatory issues

Effective from 1 July 1999 the national supervision of Credit Unions was transferred from the Australian Financial Institutions Commission (AFIC) to the Australian Prudential Regulation Authority (APRA). APRA has continued with a range of measures introduced by AFIC for the prudential supervision of credit unions specifically related to Year 2000 including:

• Inclusion into the Prudential Standards for Credit Unions, specific references and requirements related to risk management.

• Detailed reporting on a quarterly basis.

• Reporting requirements for financial statements and disclosure of information to members.

• Requirements relating to contingency planning.

The APRA web site listed below includes information regarding Year 2000 and financial institutions.

Industry involvement

The Credit Union is affiliated with Credit Union Services Corporation Australia Ltd (CUSCAL), a corporation providing a range of services to credit unions nationally. CUSCAL is a primary service provider to CPS for services such as Electronic Funds Transfer (EFT) cards and settlement, central banking facilities, electronic transactions between financial institutions, retail financial services software and national product promotion.

CUSCAL has a y2k readiness, remediation and contingency program in place. The program includes the development of a y2k ready version of the retail financial services software for credit unions, and the co-ordination of efforts in end-to-end testing of EFTPOS/ATM transactions, the Credit Union Bulk Electronic Clearing System (CUBECS) and transfer of transactions through the Australian Payments Clearing system. CUSCAL is a member of an inter-bank working group charged with conducting Year 2000 readiness testing on the domestic payments clearing streams.

Readers are encouraged to obtain the booklet "Year 2000 Preparations in the Australian Banking and Financial System" published jointly by the Reserve Bank of Australia and APRA for more information on the testing program for the payments and settlement systems. The booklet is available for download from the Internet at http://www.apra.gov.au/.

Undertakings, warranties and guarantees

This statement provides an indication of the extensive efforts undertaken by CPS in analysing, remediating, testing and planning for the new millennium. These efforts will continue up to and beyond 31 December 1999. The Year 2000 readiness process is one of considerable complexity. It involves dealing with the assessment of processes, equipment and software internal to CPS and all of the numerous external links to other financial institutions and other suppliers. Where possible, CPS will test the statements and claims made by its suppliers of goods and services.

While CPS expects that there will be no significant foreseeable disruptions to its operations and the services it provides to its members as a result of its efforts, this statement is made in good faith and on a best-efforts basis. CPS is not in a position to make a definitive claim that full Year 2000 readiness has been achieved at any particular point in time, and this statement should not be taken as a representation, warranty or guarantee of Year 2000 readiness.

Member involvement

The services CPS provides to its members depend to a large degree on the ability of all businesses it deals with directly, and those further down the supply chain, to be y2k ready.

CPS encourages its members to become involved in the compliance effort by ensuring that they have an appropriate compliance plan in place for their own business should that be applicable. For those members who are employees, they should make appropriate inquiries of their employer to ensure that adequate compliance plans are in place, particularly in relation to the processing of payrolls and other electronic transactions into the financial system.

Members must decide what action they should take in relation to y2k, after making their own inquiries and obtaining appropriate information. Members should avoid acting on unqualified advice or from those who may advocate taking extreme and irresponsible actions.

Some members have asked us questions relating to the balances of their accounts, the safety of their funds and the availability of cash as a result of the y2k issue.

The response we give to members who may have these concerns is to endorse the comments made in a recent speech by the Governor of the Reserve Bank. The Governor gave a speech to the House of Representatives Standing Committee on Economics, Finance and Public Administration on 17 June 1999. The Reserve Bank Governor said that an important step in handling the y2k issue was to make sure banks, building societies and credit unions were communicating with their customers or members in clear language to reassure them that their deposits were safe. Some relevant comments made by the Governor included:

"Because the simple fact is that their deposits are safe and their records are not at risk from y2k related problems."

"All financial institutions have extensive back-up systems to ensure that each night they keep multiple physical records of all account information.

While some members of the public have expressed concerns for the safety of their deposits because they think their records might disappear, there is no basis for this type of concern. The safest place for people to keep their savings is in the financial institution that they are already with. Withdrawal and conversion to cash would expose them to a lot of unnecessary risks." he said.

The Reserve Bank Governor concluded that Australia’s financial system should be able to operate on a "business as usual" basis. The public should view the coming New Year as just another long weekend.

On the question of the availability of cash the Reserve Bank Governor said,

"Do not, for a minute, fear that you need to take out more cash because there may not be enough to go around. There will be. The Reserve Bank has printed, and is carrying in stock, a lot more notes than usual so that it can meet any increased demand".

The full text of the Reserve Bank Governor’s speech is available on the Internet at http://www.rba.gov.au/speech/sp_gov_170699.html. The CPS website includes an easy link to the speech.

The standard operating procedures of the Credit Union include a daily back-up of member transactions, balances and other data. Copies of all member statements are retained for future reference. The CPS contingency plan provides for additional hardcopies of member details to be produced in December 1999 and for statements to be provided to members at 31 December 1999. Arrangements are also in place to cater for any increased demand for cash by members during the December/January period.

Internet References

All of these sites include useful links to other y2k sites. In addition to these sites most, if not all, major suppliers of computer hardware and software have significant y2k information available on their own web sites.

September 1999

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