CLEARING AS A MEANS OF SUSTAINING BANK AND SUPPRESSING FRAUD (A CASE STUDY OF U. B. A. MAIN BRANCH ENUGU)
THE NATURE AND CONCEPT OF CLEARING AND SUSTAINING
This chapter contains the theoretical issues and discussions on the areas of the study. The chapter has the following sub-headings. Theoretical review. This covers the opinions, experiences, and information and theories of relevant authorities on the issues related to the cheque clearing exercise.
The bulk of the theoretical framework was sourced form textbooks thesis, projects and seminar papers.
Empirical framework, which covered information on recent students on cheque clearing exercise.
- ECONOMIC PROBLEMS OF CLEARING AND SUSTAINING
MILESTONES IN THE DEVELOPMENT OF THE CLEARING SYSTEM AN OVERVIEW
Nwosisi (1998: 115) refers to all the machinery and institutions involved in the collection and clearing cheques. He noted that cheques and other prescribed negotiable instruments used to obtain money from bankers go through the clearing system. He also noted that involvement of this central bank in the clearing exercise is a development that evolved over time. Nzeni and Agu (1998: 221) divided the origin of cheque clearing into periods; they include:
- The clearing in stage of periods (1771 – 1773) which begin in England between the periods mentioned above, at an inn in Lombard street, where clerks of private banks used to meet for refreshments. This later became a convenient place for the clerks also to exchange cheques with each other.
- The direct clearing stage or period when the process of clearing involved a collecting banker going from one bank to another to exchange cheque deposit by customers. At this time when there was no Central Banks, a banker wanting to collect a cheque or other credit instrument for his customer will take it direct by hand or by post to the paying banker who has to make necessary verifications and advice the banks on the fate o such cheques and other instrument.
- The clearing house stage or period which started from the establishment of the bank of England as a Central Bank in 1844 with the establishment of the bank of England (Central Bank) the clerks of the existing commercial banks began to meet at a place arranged by the bank of England along to meet at a place was designated the “Banker’s Clearing House”.
The bankers’ clearing house has now become a limited liability company. In Nigeria, the Central Bank of Nigeria at present provides a common meeting place for bankers in each clearing, are to meet for the exchange and settlement of clearing instruments
- PROBLEMS OF THE MANAGEMENT
Izunna (1999: 114), according to him, the various cheques deposited for collection into the hands of bankers are classified into an in-house ad out –house cheque (or other bank, cheques. The banks usually have a separate cashier at the counter who receives cheques and other instruments, while other cashier at the counter receives cash; those cashiers that receive cheques and other prescribed instruments only are called “contra cashiers” or “dry counter” (Soneye 1998).
- In house cheque: the clearing techniques Nwosisi (1998: 16) defined any “in house” cheque as any cheque paid into the account of a customer with the same bank upon which the cheque is drawn.
A good example of it is where two customers of the same bank are involved one issuing the house cheque to another for settlement of debts or other obligations. These types of cheques do not need to be sent to clearing house for clearing. According to Odoh (1994: 222) the method of handling the cheques depends on whether the two accounts are kept in the same branch of the same bank or whether the accounts are kept at different branches of the same bank.
Where both accounts are kept in the same branch, the process of collecting the value of the cheque is very simple, the drawer’s ledger account is brought out for verification, which may be one manually or called up from the computer if the branch is computerized. If the cheque is properly drawn and there is sufficient amount in the account, the cheque is paid (Adigwe, 1997: 302) on the other hand, when an in-house cheques is drawn on another branch of the same bank, cheque is cleared through an internal settlement process. This type of cheques received at the collecting branch is added to similar cheques received through the clearing house and forwarded to the paying branch (where the drawer’s account is kept) by means of sending letters. When the cheque gets to the drawee branch (or paying branch); the branch usually verifies the cheque by calling for the drawer’s ledger. If the cheques are properly drawn and there are sufficient funds in the account, the cheques are paid (Chukwu 1999: 62) the settlement of the amount is accomplished by debit and credit notes sent to the bank’s head office treasury department. By these, the colleting branch is credited, while the paying branch is debited (Izundu, 1998: 131) where a bank operates on-line computerized system, there is usually no need for settlement letter (sl.), the drawer’s account is automatically debited by the computer which also credits the payee’s account. Under an on-line system, cheque drawn on one branch can be paid at another branch, Iwquchukwu (1999: 142), they include
- Local cheque, which include those cheques and other instruments drawn upon another bank or bank branch that is located in the same town or locality with the collecting bankers. For instance, the United Bank for Africa PLC, Enugu Main Branch cheque is at Union Bank of Nigeria PLC Enugu. It is a local cheque because both the paying banker and the receiving banker are in the same town or locality. At present, such cheques take five working days to clear.
- Intra-state cheques, which are those cheques drawn on banks that are in the same state or locality and cleared in the same area covered by Central Banking Clearing House.
- Inter- State or other state cheques are cheques drawn on banks located in another state outside the clearing area or state. For instance, a cheque drawn on Afribank PLC. Enugu but deposited at First Bank PLC Onitsha Branch is an Inter-State cheques. This type of cheque takes 12 working days to clear.
- THE VARIOUS METHODS OF CLEARING CHEQUES AND OTHER FINANCIAL DOCUMENTS.
There various methods or clearing cheques and other financial documents Chukwu (1999: 63) enumerated some techniques of clearing cheques; they are:
- Special Clearing or direct presentation this is applicable to cheques/financial documents drawn on banks in non-clearing areas.
- General or Bankers clearing methods, which in applicable to cheque/financial documents drawn on banks in the clearing areas.
- Correspondent bank clearing: The point to note however is that the clearing system is mainly concerned with the clearing of cheques or financial documents of other banks. In the clearing of cheques drawn on other banks and deposited with a banker for collection, the collecting baker can decide to clear the cheque by special clearing house or clearing through the correspondent bank.
- Special clearing or direct clearing: This is usually applied in situation where a customer wants to speed up the collection of his cheques, (Madu, 1998: 69). Special clearing system simply implies that the collecting banker will take the cheque, directly to the paying bankers to obtain the payment in respect of the cheque or to pay cash. In some cases they may decide to settle through the Central Bank or the Inter-Bank settlement company (Iwuchukwu, 1999: 143).
- General or Bankers’ clearing house: this method according to Izuanna (1999: 15) Involves the method by which the customer’s cheque is added to other cheques and jointly presented for clearing through the clearing houses.
In this case, no special attention is given to particular cheques and jointly presented for clearing through the clearing house since each cheque has to go through the normal clearing process. Each cheque has to wait until the required number of clearing days is completed. This method of clearing is more convenient since it saves times and resources for going from one bank to another