MODELLING CHEQUE PROCESSING SYSTEMS SEARCH FOR EFFICIENCY 7 HELLEN NYAKERU GATHONI RESEARCH SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF THE MASTERS OF SCIENCE IN COMPUTER SCIENCE AT THE UNIVERSITY OF NAIROBI DECLARATION This project, as presented in this report, is my original work and has not been presented for any other institutional award. Signature: ... r ........... Date ...l GATHONI HELLEN NYAKERU Reg. No: P58/73335/2009 This project has been submitted as part fulfillment of the requirement for Masters of Science in Computer Science with my approval as the University Supervisor Signature: Date .......1 / Mr. Elisha Opiyo School o f Computing & Informatics / \ II \ 1 I ACKNOWLEDGEMENT I would like to gratefully acknowledge God for the far I have come; it took his grace for all 1 managed to do. I would also wish to appreciate the people who made this project a success, first my supervisor Mr. Opiyo who really made sure 1 understood the concepts behind the project and whose guidance made it a success. Thanks a lot Mr. Opiyo and the panelist of the group, God bless. Secondly 1 appreciate my family for a helping hand and also encouragement to undertake MSC computer science; it was not an easy Job but I thank God as its all now behind. Thirdly to my classmate Ronoh, who made sure I had all the materials I need for the class. Thanks a lot C ontents Chapter 1: INTRODUCTION.....................................................................................................1 1.01 Background....................................................................................................................1 1.02 Problem statement:.......................................................................................................4 1.03 Objective....................................................................................................................... 5 1.04 Significance of the study................................................................................................6 1.05 Limitation.................................................................................................................. 6 1.06 Summary.......................................................................................................................7 CHAPTER 2: LITERATURE REVIEW.............................................................................................8 2.0 CHEQUE SETTELEMENT SYSTEM......................................................................................8 2.01 INTRODUCTION............................................................................................................ 8 2.02 MANUAL/SEMI AUTOMATED /MICR CHEQUE CLEARING.............................................10 2.03 CHEQUE TRUNCATION.................................................................................................15 2.05 SIMULATION:.............................................................................................................. 26 Chapter 3 : METHODOLOGY."....................................................................................................28 3.02 SIMULATION................................................................................................................28 Chapter 4: ANALYSIS AND DESIGN.................................................................-...........................30 COMPONENT LIST:.......................................................................................... 30 INPUTS:-..............................................................................................................................31 PROCESS FLOW CHART....................................................................................................... 31 MICR CHEQUE CLEARING SYSTEM /SEMI AUTOMATED SYSTEM......................................... 32 RTGS (REAL TIME GROSS PROCESSING SYSTEM)................................................................. 40 ENHANCED CHEQUE TRUNCATION SYSTEM)...................................................................... 44 CHAPTERS: RESULTS.................................................................................................................51 CHAPTER 6: CONCLUSION AND FUTURE WORK.......................................................................... 56 v •» ' n t ' \ ' \ ,V 6.01 CONCLUSION.................................................................................................................. 56 6.02 LIMITATION:-.................................................................................................................. 56 6.03 Future work:...................................................................................................................57 7.0 Reference.............................................................................................................................59 Appendix.....................................................................................................................................61 \ V I t LIST OF FIGURE Fig.l cheque sample..........................................................................................................3 Fig.2 MICR clearing model...............................................................................................10 Fig.3 Semi automated clearing cycle............................................................................... 15 Fig. 4 Security features of a cheque................................................................................16 Fig.5 Sample of IRD...........................................................................................................19 Fig.6a CTC logic flow diagram...........................................................................................20 Fig.6b CTC logic flow diagram.......................................................................................... 21 Fig.7 CTC logic flow diagram.............................................................................................22 Fig.8 simulation studies: key stages and process............................................................26 Fig 9: cheque clearing process flow................................................................................. 31 Fig.10a dayT (semi automated) logic flow diagram........................................................33 Fig.10b day T+l (semi automated) logic flow diagram....................................................34 Fig.10c day T+2 (semi automated) logic flow diagram....................................................35 Fig.lOd day T±3 (semi automated) logic flow diagram................................ 36 Fig .llActivity diagram for semi automated clearing system.........................................38 Fig.12 RTGS logic flow diagram................................................................... .....................41 Fig.l3RTGS activity diagram................................................................................ '..........42 Fig. 14a proposed system logic flow diagram..................................................................45 Fig. 14b proposed system logic flow diagram..................................................................46 Fig. 14b proposed system logic flow diagram..................................................................47 Fig.15 proposed system activity diagram........................................................................48 Fig.16 computer model: semi automated cheque system..............................................52 Fig 17: computer model: enhances cheque processing model................................. 53 v / * \ ' ' VI 1.1ST OF ABBREVIATION BEJ: - Branch Electronic Journal CBK: -Central Bank of Kenya. CPC:--cheques processing centre CTS: - cheque truncation system. DMMU: - Domestic Money Market Unit. EJ: -Electronic Journal. EOD:- End of Day. IRD: - Image Returned Document J:--Journal/file. KBA: - Kenya Bankers Association. MICR: - Magnetic Ink Character Reader. T-is a clearing term used to refer to today. RTGS:-Real Time gross Processing ABSTRACT: Cheque clearing process takes a long time thus lagging behind the country's economy. This is even worse for cheques collected from Upcountry's and remote areas as clearing takes 10 and 14 days respectively. The existing cheque clearing system takes 4 days for a cheque to clear and 6 days for a dishonoured cheque to get to the presenting branch within the local areas and 15 days to 21 days for upcountry and remote areas respectively. This called for need to adopt cheque truncation that has been implemented in many countries. In Kenya the process will reduce clearing cycle to two from four days taken to process cheque issued in major towns and to 4 days from 10 and 14 days respectively the number of days for clearing upcountry and remote cheques [Kenya Bankers Association (KBA) chief executive Habil Olaka said in an interview]. This has called the need for an efficient clearing system that will reduce clearing days to 1 irrespective of geographical locations of bank branches within the country. Thus the project aims at modelling cheque processing in search for efficiency. To model a modified model to achieve efficiency the researcher used data gathering techniques such as document scan, interviews and observation to understand the existing processes from the time a cheque is deposited to the time its cleared or returned. Simulation technique was used to model both the existing and the modified model which was implemented using MATLAB simulation software