AUTOMATION OF THE CHEQUE CLEARING SYSTEM

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 CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The cheque clearing system is the means whereby bank exchange

cheque drawn each others through clearing system. Clearing system on the

other hand is the medium through which proceeds of cheques and other

payment instrument are transferred from the paying bank to collecting bank.

The Nigerian automated clearing system (NACS) which book-off on

October 21, 2002 as a result of the time function that affects clearing system

i.e before cheque is cleared. It involved much stretch in which cheque is not

cleared at when needed.

The Central bank of Nigeria (CBN) act No 24 of 1991 empowers the

apex bank to facilitating the clearing of cheque and other payment

instruments. As a movement forward on the execution of the mandate (CBN)

issued the Nigeria banker’s clearing house rule on January 2, 1995. In

November 1995 (CBN) governor announced a plan for a dratie overall of the

clearing system monetary transaction in Nigeria were largely based on cash

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and as such had inherent problems, such as security volume of paper its

transport, currency sorting changing.

This state of affair creates the moving member of the public to non –

cash payment instruments was hampered by the clearing processes, which

was largely manual, the services to the customer was prior and cheque based

on transaction were use prone to fraud “the clearing circle look between 5 to

15 working days”.

The clearing process was very rowdy with too many banks

participating on clearing. The process was frequently late in balancing the

book and prone to human awor.

This made it very difficult for central bank of Nigeria (CBN) to

calculate and advise on the net settlement figures on time after the days

clearing. Although many of the instrument had magnetic character

recognition (MICR) code them the lack of automated meant that MIC code

lines and infrastructure would not be used.

This meant a waste of consideration investment made in the form of

magnetic link character recognition (MIRC) code line information

processing infrastructure to fund solution to the problems a committee was

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set-up its report formed the basis of the banker’s committee decision on June

16, 1996 which approved the automated of the clearing process to more zone

within the country with Lagos having more zones” reduce the number of

clearing days to buster consumer confidence and encourage. The uses of non

cash instrument also reduce number of clearing bank to make the process

number of clearing bank to make the process more manageable, faster it was

reasoned that automated would make used of [MICR] technology possible,

which would further bring speed and efficiency into clearing processing with

the potential to reduce the clearing float that introduce networking between

the parties involved in clearing these was expected in unlock the benefit of

electronic banking for Nigerians.

1.2 STATEMENT OF THE PROBLEM

The problem of this study is to fund out empirical analysis basically

on applied research aim of solving an immediate practical problem such as

research question like:

* Nigeria automated clearing system protects can improve payment

system.

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* Is it comparable with foreign country?

* Does it have effect on value of money and time lag.

* How many banks will be a participant, these statements of the

problem of this particular project?

1.3 PURPOSE OF THE STUDY

This project particularly is the following purpose irrespective of the

actual study undertaken.

* To produce the number of clearing banks

* To make process more manageable faster efficient.

* To cut the number of clearing day to boiter, so that consumer will

have the confidence and encourage of the uses of non-instrument.

* It’s designed to eliminate these identities difficulties and encourage

development and integration of other electronic payment and settlement

product.

* To achieve effective control, through tracking reconciling physical

item or activities database alone enquires e.t.c.

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* It enable the exchange of data and information between financial

institution that whether to had no direct ink to one another clearing system

have patience security feature that can minimize it has help to stabilize

banking system and align cheque processing in Nigeria with the

international standard.

1.4 SIGNIFICANCE OF THE STUDY

This study has important value to the academic it helps the student of

Banking and Finance, Business Administration, Marketing, and Economics

in our various institutions to have knowledge about the automated clearing

system as part of their course or study when they get to the field so that it

would not be strangled to them.

Community:-It helps people in community especially those who enjoy

banking services by providing quick and faster service for them for instance

when a cross cheque is drawn to any bank, the customer of collecting bank

enjoy quick and faster payment.

Society:- The introduction of (ACS) growth and economy development in

which society are the beneficiary.

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1.5 DELIMITATION OF THE STUDY

The study is limited to some banks such as Community. etc the study

“Universal Trust Bank Plc” is one of the participant which focus on

INTRODUCTION PROGRAMME FROM NEW EXECUTIVE

ASSISTANT

Universal Trust Bank Plc

Clearing within flexible environment to suitable suggestion

1.6 LIMITATION OF THE STUDY

To carry out this project is not an easy task due to circumstances that

warrant it such as;

Time Factor:- time factor is the major factor that hinder the investigation to

be carried out is due to the academic situation because daily academic period

involved information to complete the project.

FACTOR

Capital constraint which make it difficult to buy the material and

collection of appropriate data for the project.

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 CHAPTER TWO

2.0 LITERATURE REVIEW

The automated clearing system is being co-ordinate by the Central

Bank of Nigeria in collaboration with Nigeria Inter-bank settlement system

(NIBSS) and the banking industry in one of the most ambitions project

aimed at improving efficiency of the banking system in Nigeria. The

objective of project are in line with the vision statement of the Central Bank

of Nigeria to be a one of the most efficient and effective among the world’s

Central bank in promoting and sustaining economic development. According

to Banking law and Regulation by Mr. Kunle Adewoyin and Miss Taiwo

Adegbami, investigation revealed that with the present global event and

development, the current manual clearing system cannot support the

sophistication of new technology being introduces by various banks and

could collapse due to obsolescence at it may be everywhere by the pressure

of increase volume of clearing activities from available record in year 200

the banking industry generated about 25,000 clearing instrument daily with

total value of about N6 billion which approximated N1.2 billion.

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 In automated clearing system Nigeria Inter-bank settlement system

(NIBSS) will serve as zonal clearing center and the brain center of clearing

activities on each zone, It will also co-ordinate admission of members, the

process of which should be fair equitable and transparent. All banks are

expected to participate either directly or indirectly approved direct

participating banks will have access to zonal clearing center, through the

established local clearing centers equipped with Radio link to virtual Private

Network (VPN) which will also accommodated indirect participating banks.

The direct members are also expected to process and clear instrument for

indirect members.

As a means of control direct participating bank will be required to

pledge a minimum of N25 billion treasury bills. This is to provide collateral

and for risk inherit in clearing operations the collated could also provides

respite risk is associated with the inability of one or more system

participants to meet their payment obligation within the clearing system or

may result in any orally of the other automated clearing participants belong

unable to meet their respective settlement obligation in addition the clearing

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audits subject to Central Bank of Nigeria and other regulators authorities

guideline.

2.1 THE BANK CLEARING SYSTEM

Inward clearing cheque:- These are all the cheque receive from Central bank

clearing house they include our cheque given out by our various customer

and presented on us by different bank and other banks cheque returned

unpaid.

Outward clearing cheques:- These are all cheque of their banks deposited by

our various customer to be sent to Central bank for collection, they also

include our (VTR) cheque initially collected from (CBN) now returned

unpaid.

CLEARING SESSION/SAYS

It is no more new that universal clearing centre (V.C.C) clearing stand

at clearing days. While the local clearing stand at clearing days inclusive of

the day cheques deposit.

PROCESSING OUTWARD RETURN

The clearing center posts the cheques, Dr Customer A/c.

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The system wills automatically CR END POINT LOCAL OF UPCOUNTY.

Cheques sent to clearing center outside your and point branches are advised

not to part the cheque into customers account because the presentation and

maturity dates are outside their control. “The clearing center will post on the

teller screen”.

CR OFFLINE LOCAL CLEARING (212605020) the system will

automatically.

DR. end point Local: or upcountry on maturity on maturity the clearing

center wills roster the following entities.

CR. OFFLINE OUTWARD A/c 110113100 [OF BRANCHES]

DR – CR OFFLINE LOCAL CLEARING

OFFLINE UPCOUNTRY CLEARING

DR CLEARING OUTWARD A/c

But if this cheque was returned the clearing will post cheque through the

teller screen.

DR. CR. OFFLINE LOCAL CLEARING

[LOCAL CHEQUES]

OFFLINE UPCOUNTY CLEARING

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 This system wills automatically CR.END POINT LOCAL OR

COUNTY.

Then forward the outward returned cheque to branch involved.

BRANCHES

DR. CUSTOMER A/C (FOR RECORD PURPOSE ONLY) INWARD

CLEARING PROCESSING

“Processing of fresh items”

THE CLEARING CENTERS

DR. CUSTOMERS A/C

The systems will automatically CR. End point local or up county.

NOTE: Use inward clearing data enties menu-on teller screen.

Processing of inward returned cheque to credit the customer account

bank, it is only the authorizer of the inward returned cheques to do the click

on the settlement on. Host Inward Clearing scan inward clearing, pass

transaction insure the customer account in the account number navigator and

the cheques number navigator and click O.K.

After running the outward processing for the day provided the above

is done property the system will automatically.

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CR, Customer A/C

DR. End point local “or” Up County.

CBN CURRENT ACCOUNT AND CLEARING ENTITIES

PRESENTATION FORMS ENTRIES.

Entries to be raised from presentation from coming back (CBN)

clearing house.

INTER.

DR. End point up county (Inward cheque total)

CR. End Point County (Outward cheques total)

DR. “or” CR. CBN current

Branches A/C and not H/Q, A/C

Entry of statement from CBN.

After receiving clearing confirmation and statement of account from

CBN clearing center should raise the entry as it appears on the statement.

DR. CBN A/C (Branch A/C)

CR. Current A/C Current (Branch A/C)

DR. CBN Current A/C (Headquarter A/C)

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The outward clearing cheques posted today for clearing the next day should

not be reserved to CBN account.

2.2 EFFECT OF AUTOMATED CLEARING SYSTEM

(1) Effective and efficient clearing instruments based on electronic data

could help to reduce clearing days.

(2) It could also enhance the standard of clearing procedure

communication and quality of clearing items.

(3) It could also promote effective control through tracking and

reconciling items with related electronic data which would ultimately result

in reduction of fraud cases.

(4) It would make bank account to be accessed online which will enhance

teurnely position adjustment.

(5) Storage of data and vital information for a considerable period will

also be possible.

(6) The success of the automated clearing system will reinforce interest

banking and ecommerce which are beginning to blossom in Nigeria.

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(7) It will also create room for tremendous business and system benefits

are accruable to all financial institutions in the country as well as their

respectively customer.

2.3 DIFFERENT BETWEEN AUTOMATED CLEARING AND

SPECIAL CLEARING SYSTEM

The presentation of the proceeds on the cheques is done personally in

special clearing i.e through a clerk while in automated clearing system in an

on-line process presentation in special clearing system communication i.e

from a collecting banker to the paying banker. While in automated clearing

system the communication is passed form the collecting banker to the

paying banker through computer technology.

Special clearing system consume time before the banker can answer

the customer’s request while in Automated clearing every process is already

known in the computer and can be seen in the system special clearing does

not need the supplying of magnetic ink character system there is need for an

adequate supply of (MICR0 equipment that would support interface to

automated clearing system.

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2.4 BENEFIT OF AUTOMATED CLEARING SYSTEM

Auto generation of caution notices:- Capture and storage of cheques

graphics unto and real time posting of account entries, paying bank, barring

stops, cheque barring, reduce overall cost of processing a cheque, using

image technology will result in productivity increase and labour savings,

reduction in cheque processing fees (for non-participating banks) improve

response to achieve electronic information and customer services, increase

in product profit margins introduction of new product or corporate and

correspondent customer.

Better fund management: - Electronic transaction from branch the same day

into clearing Reduce Operation Staffing: - The short term benefit effort and

cost of manpower and the time sent by bank representative attending daily

clearing session at the central bank. The long-term benefit includes the

availability of new services by the commercial banks to customers.

Audit trails / users trace: - Users are traced for every single action that they

do in the system

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 CHAPTER THREE

3.1 RESEARCH METHODOLOGY

Most of the material that formed the substance of this project work

were derived from personal interview, questionnaire, textbooks relevant and

publication. The data used in the course of this project are divided into two

primary and secondary data.

Data collection instruments

1. Primary Data: - Data adopted in this project are personal interview

and questionnaire it was adopted collected necessary data and information

needed for writing this project, this brought us in contact especially with the

bank manager, the staff and some selected customer just to mention a few

and of course it enable us to act primary data and first hand information

about the actual facts and figure from the respondents. And interview with

some banks officials they said the system has really changed the habit of

customer and that due to the change it has increase the number of customer

patronizing them.

2. Secondary Data:- For secondary data instrument that are used includes

textbooks, relevant publication the use of textbook has really helped in this

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project work and some publication which are made by past researchers this

particular project.

3.2 DATA COLLECTION SOURCES

The study was conducted among the bank officials of universal trust

bank Plc, Ibadan branch oral interview were also conducted with officials of

this bank and the bank customers well as making a personal observation on

the field of study.

3.3 ADMINISTRATION OF QUESTIONNAIRE

The researcher administers the questionnaire using face-to-face

method. Each respondent is given a copy of the questionnaire for

completion. I took the pain to explain the questionnaire to the respondent

Universal Trust Bank Plc, Ibadan branch. The researcher allows the

respondents a time-log of two weeks before completed questionnaire are

collected.

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 THE QUESTIONNAIRE / INTERVIEW OVERVIEW

CUSTOMER

1. For how long have you been patronizing this bank (a) Less than 1 year

(b) One three years (c) Four-Five years (d) Five year above.

2. How do you see the use of automated clearing system (a) Satisfied 9b)

Family satisfied (c) Not satisfies.

3. What type of account did you operate in this bank?

(a) Current account

(b) Fixed account

(c) Saving account

4. Did you have any addition or subtraction about the introduction of

automated clearing system YES / NO.

BANK

1. Do you agree that customer enjoy your service by the use of

automated clearing system

2 What are the feelings of your customer about the used automated

clearing system.

(a) Excellent

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(b) Very Good

(c) Partially Good

3. Did you have incensement in the number of customer patronizing

your bank since the introduction of the system YES / NO.

4. If yes, how many numbers of customers did you have in a month?

(a) Less than 10

(b) 10 – 20

(c) 20 above.

CHAPTER FOUR

4.1 INTRODUCTION

This chapter deals with analysis of data collected from the respondent

through the questionnaire and content analysis. The data collected using the

percentage method of facilities clear and proper analysis. The information

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given by the respondents (customer and bank converted into simple

percentage in order to understand answer to the question).

4.2 DATA COLLECTION

A total of 100 questionnaire were distributed out the bank officials and

customer in the ratio 40:60 respectively at all by the bank official 60 copies

were sent to the targeted customer and which 48 were properly completed

but returned and the remaining 4 copies not returned.

4.3 DATA ANALYSIS

TABLE 1

(CUSTOMER) ANALYSIS OF ADMINISTERED QUESTION

QUESTIONNAIRE RESPONDENT PERCENTAGE

Properly completed and 4 80%

returned
Not properly complete 8 13.3%

but returned
Not returned at all 4 6.7%
Total 60 100

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 The data above reveal that 80% of the administered questionnaire

were properly completed but return and 6.7% of the administered

questionnaire was not returned at all.

TABLE 2

For how long have you been patronizing the bank?

Variable Frequency Percentage

Less than 1 years 12 25%
One-three years 8 16.7%
Four-five years 10 20.8%
Five years above 18 37.5%
Total 48 100%
The data above shown that 37.5% of the customers have stayed with

the bank for over five years, 20.8% have been their customer the past four

and five years, 16.7% of the customers have been their customer for the past

one-three years while 25% have been their customer for less than a year.

TABLE 3

How do you see the use of automated?

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Variable Frequency Percentage
Satisfies 48 100%
Fairly satisfies - -
Not satisfies - -
Total 48 100%
The table above shows that 100% of the customers were satisfied with the

use of automated clearing system while 0% is fairly satisfied and not

satisfied

TABLE 4

What types of account did you operate in the bank?

Variable Frequency Percentage

Current account 28 58.3%
Fixed account 13 27.1%
Saving account 7 14.6%
Total 48 100%
The table above show that 58.3% operate a current account 27.1%

operates forced account and 14.6% operate saving account.

TABLE 5

Did you have addition or subtraction about the new system?

Variable Frequency Percentage

Yes - -
No 48 100%
Total 48 100%

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The table above shows that 100% of the customer of enjoys the services of

the bank and that they don’t have anything to say above the system while

0% has something to say.

TABLE 6

Do you agree that customer enjoy service by the use of automated clearing system?

Variable Frequency Percentage

Yes 48 100%
No - 0%
Total 48 100%
The table above show that 100% of customer enjoys the service of the bank

through the introduction of automated clearing system did not enjoy their

services.

TABLE 7

What are the feelings of your customer about the use of automated clearing system

Variable Frequency Percentage

Excellent 40 83.3%
Very good 8 16.7%
Partially good - -
Total 48 100
The table above shows that 83.3% of the customer says that is excellent,

16.7% of the customer say that is very good.

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TABLE 8

Did you have incensement in the member of customer patronizing your bank since the

introduction of the system?

Variable Frequency Percentage

Yes 48 100%
No - -
Total 48 100%
The table above shows that is increase in the number of customer

patronizing the bank.

TABLE 9

If yes

Variable Frequency Percentage

Less than 10 13 27.1%
10 – 20 28 58.3%
20 above 7 14.6%
Total 48 100
The table above shows that 27.1% of the customer are less than 19 and

58.3% of the customer are increase within 14.6% of customers in increase

from 20 above.

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 CHAPTER FIVE

5.1 SUMMARY

The good of every operation staff is to deliver quality services and in

the process exist the customer through their information, it is obviously seen

that automated clearing system in Nigeria has improved payment services,

which many bank and regarded as customer inconvenience. With

introduction of (NACI), level of fraudulent act is reduce because user are

trace for every action made through the audit frail, clearing circle of 5 to 15

working day, no-cash payment instrument was curbed late in balancing the

book and prior to human error in foregone.

A bank automated clearing system existed its customer statement are

timely delivered, that the operation staff are on the alert and caution always

that the balancing services is always decent and efficient that agreement

reached nite customers are not unilateral breached, I that customer request

and instruction are carried without delay, the errors in account are

eliminated, that fraud are non-existent in customers transaction and that

efficient of the customer at all twies and at all levels.

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 Moreover, this research project base on current banking situation in

Nigeria economy also it is theoretical approach with reference to financial

textbook, financial report, and financial magazine e.t.c.

Finally, the formulated hypotheses tasted in this research work are

positive, which shows that automated clearing system has great impact on

banking sector and economy as a whole.

5.2 CONCLUSION

The job of the clearing officer is multi faceted. He is a relation

manager, transaction processor and the bank representative at CBN clearing

house, asses custodian e.t.c, he is also in constraint interface with customer

and non customer alike and is expected to perform exceedingly, It is

imperative on every clearing officer to acquaint himself, with all tools

necessary for the discharge of his function. This is the foundation for

excellent service delivery.

Also, Nigeria automated clearing system will achieve truncation in

good time given continuous, improvement and amelioration in good time

given continuous, improvement and amelioration of the technical and

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operational challenges of the system sustained support of all the share-

holders a clear and workable blue print, as well as sustained and effective

monitoring and management to the agreed mile stores within a supportive

legal environment.

5.3 RECOMMENDATION

Nigeria automated clearing system has achieved a very excellent start

(NACS) has yet to make the second step of a possible six-step journey

according to information derived from questionnaire, considering (NACS0

has been only a year, consider it major success story.

However (NACS) must not go through all the success story ones.

Each participating bank clearing center (PBCC) should design the blue point

by the (PRCC) should be aggregated to from the national blue print for

cheque clearing in Nigeria achieve these thing must put in place such as:

* To educate our banking public and also the operation of the clearing

infrastructures on the banks.

* Forum needs to come together and share opinion about progress and

challenges of the system so far, this needs to be done as quickly as possible

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because genuine feedback is important for sustenance of the success made so

far.

* Each PBCC is advised to carry out a value of being a PBCC is worthy

all the expresses in other words are there any major benefit that will be lost

if bank is not a PBCC? Then a business choice is mode between being a

PBCC and being an indirect participant.

* The development act approval of appropriate electronic transaction act

for our payment system need to be pursed vigorously.

NOTE

If all above recommendation can be put in place. Nigeria automated

clearing system will be more effective that ever also complete with foreign

countries clearing system.

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BECHAM J.O (1990) The monetary and financial system London Bitman Publishing.

BPP (1989): CIB studies text in investment London BPP Publishing Ltd.

BUSINESS NEWS: CBN (2001) Magazine 23 November 2003. Annual brief, Billion
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CBN (2003):The Nigeria banker and banker News.

DAVID C.X (1990) Success in Element of banking in London, Job Murray (Publisher
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