CLEARING AS A MEANS OF SUSTAINING BANK AND SUPPRESSING FRAUD
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CLEARING AS A MEANS OF SUSTAINING BANK AND SUPPRESSING FRAUD
CLEARING AS A MEANS OF SUSTAINING THE BANK AND SUPPRESSING FRAUD
of order to carry out this project, a survey was conducted, and the clearing department was identified as a profit-generating department of a banking institution.
This study was conducted to uncover clearing as a technique of sustaining banks and combating fraud. The study’s population consists of all 98 employees of United Bank for Africa PLC’s (UBA) Enugu main branch. The study’s sample size was 79 employees.
To determine whether clearing as a technique of supporting banks and decreasing fraud in banking institutions, hypothetical statements were employed. These were about determining whether the clearing department truly contributes to the profit of the banking institution,
as determined by the questionnaires distributed to the staff. Based on the results of the analysis, it was concluded that the clearing department should be known as one of the profit-generating departments in banking institutions in general, and United Bank of Africa PLC Enugu main branch in particular.
INTRODUCTION TO CHAPTER ONE OF CLEARING AS A MEANS OF SUSTAINING THE BANK AND SUPPRESSING FRAUD
1.1 BACKGROUND TO THE STUDY
One of the functions of commercial banks in Nigeria is cheque clearing through the Central Bank of Nigeria.
The process of confirming the authenticity of a cheque before the collecting banker assigns value to it is known as cheque clearing.
According to Nwabufor (1998:12), cheque clearing is required because some dishonest individuals issue cheques when they do not have sufficient funds in their accounts to back up the cheque. He believes that as a result of this,
banks must devise a method for verifying whether a cheque is actually backed up by deposits in the account of the person issuing the cheque, as well as that the cheque is properly drawn before crediting the account of the person depositing the cheques (drawee).
This process means that the cheque, when deposited, must be sent to the drawer’s bank where the drawer has an account for verification. Only the bank can validate whether there is enough money to cover the cheque by checking the customer’s ledger account.
They will also ensure that the cheque is correctly drafted. He contended that if the bank is satisfied that there is enough money in the drawer’s bank account before the bank can get the value of the cheque.
1.2 STATEMENT OF THE PROBLEM
This role of cheque clearing is mostly performed by the clearing division of the current account department of funds transfer unit, as many banks may call themselves. Every commercial bank that writes and receives checks must perform the cheque clearing function.
Aside from notes and coins, debts are settled between parties through the use of other mechanisms such as an order, bill of exchange, travellers cheque, dividend warrant, promissory note, cheque issue, and bank draught.
All of them are negotiable instruments, and when such instruments as those listed above are placed into bank accounts, the clearing department of the receiving bank is obligated to compose those instruments according to specifications and transmit them through the channel of payment.
According to Anyanwaokoro (2001: 75), the operations involved in cheque clearing use single words, hence interbank settlement was done directly between banks at the beginning of banking history.
He stated that if a customer of one bank receives a cheque from a customer of another bank and deposits the cheque into his bank’s account,
his bank will take the cheque immediately to the bank of the customer who issued the cheque or the drawer of the cheque. The drawer’s bank will clarify whether or not he has sufficient funds in his account to cover the cheque. If there is money in the drawer’s account,
they will credit the account of the presenters of the cheques bank or the drawee’s bank, and the drawee’s bank will credit the drawee’s account; this process is too time-consuming and difficult;
for example, if there are up to thirty commercial banks operating within a locality and several cheques were received by one of the banks, it will cost that bank too much time and money to go to all of these banks one after the other
1.3 GOAL OF THE STUDY
For this reason, the central bank came to their aid by establishing a clearing house where all banks came together to clear their cheques each working day. Each bank presents to the central bank the cheques written by their customers and paid into it by the payee bank.
The banks’ accounts will be debited and credited correspondingly. Payment through the use of negotiable instruments is made easier for banks, and costs are reduced.
According to Barley (1998: 62), banking institutions profit from clearing activities by charging a commission on each cheque cleared. He stated unequivocally that banks located in areas with Central Bank branches clear their cheques through his Central Bank Clearing System.
This approach allows cheques to be used to settle debts between clients who bank with different banks. He also stated that the banks’ check clearing mechanism provides a cheap and convenient means for them to exchange cheques.
He also stated that there are various steps that a bank must follow if it want to clear cheques through Central Clearing Houses.
1.4 OBJECTIVES OF THE STUDY
CHEQUE CLEARING PROCEDURE THROUGH CENTRAL CLEARING HOUSES.
(i) The bank will first accept cheques drawn on other banks but paid in by its customers.
(ii) The cheques will be listed by the banks by maching.
(iii) The cheques will subsequently be sent to the bank’s clearing department.
(iv) The following day, when the cheques have been received and processed, the bank personnel deliver the cheques to the Central Bank for clearing.
(v) The cheques will be swapped for those presented by other bank representatives; that is, bank A will collect from the banks that brought bank A’s cheques and present to them all of the cheques belonging to them that they received from their clients.
(vi) Presentation forms are filled and debit and credit entries are made by the representative of each bank that comes to the Central Clearing House for clearing.
(vii) Cheques transported from the bank’s clearing house are sorted and delivered to the respective branches of the same bank on which they are drawn.
(viii) Cheques are processed in the branch offices.
1.5 THEORY OF RESEARCH QUESTION
1. Is a clearance department required in the banking industry?
2. Do you actually waste time at the clearing house?
1.6 STUDY THEORY
1ST HYPOTHESIS
Ho: The clearing department does not create enough income for the banking institutions.
HI: The clearing department creates enough profit for the banking firm.
II. HYPOTHESIS
H0: Fully computerising the clearing department will not shorten the time it takes to clear cheques.
HI: Complete computerization of the clearing department will shorten the time it takes to clear checks.
This study’s fundamental assumptions are as follows:
(1) Every banking institution in the country has a clearing division.
(2) All banking institutions in the country are affected by the problem of clearing house delays during cheque clearing.
The primary goal of conducting this research, as indicated earlier, is to identify and discuss the major activities of the clearing department in Nigerian banking institutions, as well as their contribution to the profit of these organisations.
This research study also intends to recommend strategies to improve the operations of clearing departments in Nigerian banking institutions.
1.7 SCOPE
This research is concerned with the clearing departments of Nigerian banking organisations and their cheque clearing. It will be restricted to employees of (UBA) United Banks for Africa PLC Enugu main branch.
1.8 THE SIGNIFICANCE OF THE STUDY
The conclusions of this study will be of enormous advantage to bakers, their customers, the government, and the country’s economy in general, as the improvements to the clearing system suggested in this research would lessen the delays and frustrations of the clearing exercise.
This will speed up bank activities, resulting in higher profits for the banks. Furthermore, before receiving their money, bank clients will be cleared and certified,
as they will be done as soon as the cheques are presented in clearing operations, thereby enhancing the banks’ capital base and profit.
The government will gain from the greater profit of the banks by taxing the increased profit and generating more revenue for the government. When the government invests this revenue, there will be more money in the economy and more firms, resulting in lower unemployment.
The researcher encountered a number of issues and limits while writing this report. The lack of international literature on the subject is the most significant challenge faced in this bank’s research study; additional issues encountered include the expense of materials and transportation.
1.9 DEFINITION OF TERMS
(1) Banking Institutions: All forms of financial institutions that provide banking services to customers. Central banks, commercial banks, development banks, and agricultural banks are examples of these institutions.
(2) Central Bank: This is Nigeria’s apex financial institution, in charge of printing and issuing Nigerian money. They also handle cheque clearing for commercial banks. As a result, cheque clearing is handled by the Central Bank of Nigeria.
(3) Commercial Loans: These are the banks that accept customer deposits and provide bank credits to them. Customers’ cheques are received and cleared through the Central Bank of Nigeria.
(4) Clearing Department: This is a commercial bank department where cheques are compiled, sorted, and arranged for delivery to the clearing house, where they are shared with the owners’ banks.
(5) Cheques Clearing: This is the procedure of checking the authenticity of a cheque before the collecting banker grants it value.
(6) Profit generating Department: Any department in an organisation that adds to the organization’s profit.
(7) Profit: Profit can be described as the surplus that accrues to the business’s owner or owners as a result of a successful trading season.
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