Challenges of Managing Corporate Bank Accounts in Nigeria

8/6/2019 Challenges of Managing Corporate Bank Accounts in Nigeria

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Challenges of

Managing CorporateBank Accounts in

Nigeria

ACC810 Assignment.

This paper presents the challenges accountants face to

manage corporate bank accounts in Nigeria. Data were

generated through a survey conducted among 80 workers

from telecommunications, manufacturing and SME

industry. The research identified some challenges of

managing corporate bank accounts in the country. Some

challenges were discovered from the research to affect all

accountants irrespective of the industry while some

challenges were industry-based. There was a common

consensus that reconciliation of the discrepancies between

the cash book and the bank statements poses the greatest

challenge of managing a corporate bank accounts in the

country.

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Challenges of Managing Corporate Bank Accounts in Nigeria

Abstract

This paper presents the challenges accountants face to manage corporate bank

accounts in Nigeria. Data were generated through a survey conducted among 80

workers from telecommunications, manufacturing and SME industries. The

research identified some challenges of managing corporate bank accounts in the

country. Some challenges were discovered from the research to affect all

accountants irrespective of the industry while some challenges were industry -

based. There was a common consensus that reconciliation of the discrepancies

between the cash book and the bank statements poses the greatest challenge of

managing a corporate bank accounts in the country.

Introduction.The economy of any nation depends on a number of factor s. Financial economy, which

serves as one of these factors, is regulated by some mechanisms. In the execution of

monetary policies, banks serve as agents through which government monetary policies are

implemented. The banks in any economy therefore serves as catalysts fo r growth and

development. Through loans and banking services that the banking industry extend s to

customers, money is generated. Banks are able to perform this role through their crucial

functions of financial intermediation, provision of efficient payment system and as an engine

room for facilitating the implementation of monetary policies. Overdraft is also allowed for

corporate accounts to temporarily finance some urgent transactions .In order to have access to the funds from the banks and to effect some transactions that are

not cash based, corporate organizations have corporate current accounts with banks of their

choice. Although there are different bank accounts, the current accounts are preferred to

savings accounts because of frequent access to funds on demand, through a variety of

different channels. Although, current accounts are meant neither for the purpose of earning

interest nor for the purpose of savings, but for convenience of the business; hence they tend

not to bear interest, but rather accrue bank/transaction charges. Also, banks offer

organizations different account packages with different incentives in order to get their

accounts. Some of the packages offer lower charges on transactions, lower interest rates for

loans etc.

Some of the transactions are cash based and does not go through the banks, but majority

are done through the banks. Banks get funds for the running of their operations through

these transactions, thereby making the relationship between the banks and organizations to


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be purely mutual. The accountant s keep track of all transactions using the ledger system

and recordings in the cashbook but some transactions go directly through the banks and

they are not captured by the accountant till the bank statement is gotten. This always lead to

some errors in the books of the accountant and he/she will need the bank statement to

correct this irregularity.

There are also some other issue s faced by accountants in the management of corp orate

bank accounts. They include:

Following- up to ensure that cheques issued to customers are thoroughly presented

and honored by the bank.

Following-up to ensure that all lodgments made into the banks are correctly credited

into the companys account.

Authorization of transactions , by making sure that it is only the signature of

authorized signatories that are recognized by the banks. Provision and proper execution of standing instructions/orders. This is required to

avoid the banks from removing the standing orders of other companies from the

companys account.

Reversals of errors made by wrong postings by the bank: The accountant must

report any error noticed after the preparation of the bank reconciliation statement and

this must reported promptly.

All the challenges highlighted above can be resolve d by a thorough bank reconciliation

between the cash book and bank statement. But there are still some challenges that cannot

be resolved by the bank reconciliat ion statements. Some of them include :

Frauds: data manipulations by bank officials and other st aff members to defraud the

company.

Inappropriate technology/software to input the transactions for proper storage

Lack of technical training and expertise to make use of the software even when they

are available.

Lack of trust in the financial capability of the banks. Every bank customer in the

country is aware of manipulation of the financial books /annual reports of the

commercial banks in the industry.

The motivation for this study arises from my research interest in establishing the challenges

encountered by accountants in the management of corporate bank accounts in our country ,

Nigeria in partial fulfillment for the award of Masters of Business Administration by the

University of Lagos.


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Literature Review:

A bank is a financial intermediary that accepts deposits and channels those deposits into

lending activities. Banks are a fundamental component of the financial system, and are also

active players in financial markets. The essential role of a bank is to connect thos e who have

capital (such as investors or depositors), with those who seekcapital (such as individuals

wanting a loan, or businesses wanting to grow).

Banking is generally a highly regulated industry, and government restrictions on financial

activities by banks have varied over time and location. The current set of global standards

are called Basel II. In some countries like Nigeria, banks have historically owned major

stakes in industrial corporations while in other countries such as the United States banks are

prohibited from owning non -financial companies. In Japan, banks are usually the nexus of across-share holding entity known as the keiretsu. In France, bancassurance is prevalent, as

most banks offer insurance services (and now real estate services) to their clients. The most

recent trend has been the advance of universal banks, which attempt to offer their customers

the full spectrum of financial services under the one roof. The oldest bank still in existence is Monte dei Paschi di Siena , headquartered in Siena, Italy,

which has been operating continuously since 1472.

Banks offer basically two types of accounts to their customers. They are:

1. Savings accounts

2. Current accounts.

Savings Accounts:

This is an interest-bearing deposit account. Withdrawals are, however, restricted, at the risk

of forfeiture of interest. It is exclusively an owner -operated account and therefore, has few

requirements. It could be operated singly or in a group, with one or more authorized

signatories. Some banks now incorporate some features of current accounts in some of their

savings accounts to entice customers. Such features include: cheque books, allowance topay-in dividend warrants etc.

Requirements/documentation required to open a savings account:

I. Four passport photographs

II. A completed application form


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III. A completed signature card

IV. Upwards of N2,000

A savings account must always have a minimum of N100 0 balance or even more in some

banks.

Current Account:

The current account is operated by cheque, which can be issued to third parties. Depending

on the balance, it may attract some interest payment, but lower than on savings account.

More often, however, a current account is a transactional account, which means interest -

yielding balances are of secondary importance.

There are two types of current acco unts: corporate and individual currents accounts. Each

can have more than one signatory. Zero balance is not allowed although there is no formal

minimum balance.

To protect the customer, the CBN requires thus from the banks:

y Statements of account shall be rendered promptly, to each current accountholder, on

a monthly basis and shall include the following:

Commission on turnover (COT); and

Rate of interest on overdrawn accounts, the amount and the period.

Requirements/documentation required to open current ban accounts:

The access of third parties to withdrawals from a current account, through cheques issued

by the accountholder mandates more stringent operational checks and documentation than

on saving account

Both categories: corporate and individual curr ent accounts-require;

I. A request letter

II. A completed application form

III. Two passport pictures per signatory

IV. Each signatorys international passport/drivers license for sighting and its photocopy

V. Two referees with current accountsVI. For a company, a copy of its certificate of incorporation.

An applicant must back the application with a minimum amount stipulated by the branch.


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METHODOLOGY

Sample Size Determination

Three different industries (Telecommunications, Manufacturing and Small and Medium Scale

Enterprises) will be used for this study. Assuming that the 3 industries can account for 30%

of the total industries in Nigeria, then the number of samples or questionnaires needed forthe study can be deduced from the formula shown below:

N= zp(1-p)

e

where,

N= Sample size to be determined

z= Standard(statistical) score of normal distribution

p=Proportion of industries used in the studye= maximum error to be accommodated.

If we want to be 95% confident that the result of the study will be correct to a maximum error

of 10% of the true proportion.

Then substituting,

z=1.96 (gotten from statistical table of normal distribution at 95% confidence interval )

p= 30%, and

e= + 0.1.00, since the maximum error to be accommodated is 10%,

N=80 samples.

Therefore, 80 questionnaires will be administered for this study to meet all the criteria

previously highlighted.


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Barchart

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Pyramidchart

: Industrydemography

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52.7

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Single Marrie Div rce Se arate

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20

25

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45

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48.6

25.7 25.7

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Manufacturing

SME


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Instrument

The study made use of questionnaires which featured a wide range of issues pertaining to

challenges faced by accountants in managing corporate bank accounts in the country. The

instrument has 14 items, which covered the major constructs addressed by the study ( A

sample of the questionnaire is shown in the appendix).

A pilot-test was conducted on questionnaire among ten (10) respondents. This provided

information on the appropriateness of the items. Based on the feedback from the pilot test,

some items were replaced with more objective assessment of the variables, while some

others were reconstructed in order to avoid ambiguity.

Results

The data analysis was done using simple frequ ency counts and the highest response is

taken as the majority.

On the respondents awareness of the challenges of managing corporate bank accounts ; the

results showed that all the respondents from telecommunications (48.6%) and

manufacturing industries (25.7%) were familiar with some of the issues in managing

corporate bank accounts, 5 out of the 19 respondents (6.8%) in the SME industry were not

familiar with the challenges in managing corporate bank accounts. These results confirmed

that some employees working in the account department of some companies are not familiar

with challenges in their department. This is because most bank related transactions areperformed by the owner of the company in the small scale industry.

On the major challenges of managing corporate bank accounts, the responses obtained

across the respondents showed that the problems with the authorization of transactions

(67.6%), ensuring that proper bank charges are deducted (51.4%) , ensuring that correct

standing order are honored by the bank (45.9%) and issues related to uncredited lodgments

(40.5%) are the most common challenges across the three industries used for the research.

These challenges can be adequately corrected using the bank reconciliation statemen t.

According to the study, other issues that affect the management of the corporate accounts

include: inappropriate expertise to manage technology/software required for reconciliation

(27.0%) and frauds (connivance of the bank officials with frauds ters to defraud the company)

(21.6%). These results show that companies are not training their staffs on the use of the


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latest accounting software to make the job easier for them. The major ways to combat frauds

also poses a challenge to accountants in managing the bank accounts of their

establishments.

Majority of the respondents (94.6%) commend the banks on fast pace at which errors are

corrected once they are reported by the customers. To most respondents, this is not a big

challenge. The only issue here is the expertise to detect such errors when they are made. A

good training on bank reconciliation and accounting principles will be necessary to detect the

errors very fast.

According to the respondents, the banks give at least one account officer to manage the

accounts of organizations, thereby providing a good channel for information flow between

the banks and the clients. This is another plus given to the banks by the respondents.

The above analysis confirmed that the main challenges faced by accountant s in managing

corporate bank accounts are the issues that can be adequately corrected by the bank

reconciliation statements. The other issues like fraud and speed of error corrections come up

once in a while.

The table 2 below shows the statistical analysis of the data gotten from the research

exercise:

Table 2: The results of the key items of the survey

S/ O ITEM RESPO SECATEGORY

YES NO

1

Authorization of transaction bythe signatories can be achallenge in managingcorporate bank accounts

50 24

2

Ensuring that all charges takenby the banks are appropriateand not arbitrary can pose aproblem to manage bankaccounts

38 26


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3

Ensuring that standinginstruction made by the entityare those honored by the bankand no other standinginstruction relating to anothercompanys can be difficult to

manage.

34 38

4

Checking that all lodgmentsinto the account from thecustomers have been dulyreceived by the bank into thecompanys account can poseissues to managing yourcompany's bank account

30 44

5

One of the challenges ofmanaging a corporate bankaccount is ensuring thatcheque issued to customer arethoroughly presented to thebank and honored by them.

32 42

6It is difficult to manage thesoftware required for bankreconciliation

20 54

7

Connivance of the bankofficials with fraudsters to

defraud the company can be avery big challenge in managingyour company's bank account

16 58

8Errors discovered in corporatebank accounts are instantlyreversed by the bank

70 4

9

A customer relation officer isrequired for the effectivemanagement of bankreconciliation

70 4

Source: Field survey, 2010.


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Discussion on findings

The findings from this study shed more light on some tropical issues faced by accountants in

managing the bank accounts of their organizations. The study demonstrated that small scale

firms in the country dont train their employees on latest d evelopment in their industry. Some

of their staffs are not even aware of the challenges they face in doing their jobs due tolapses on the part of the employees and employer . Accountants in telecommunication and

manufacturing industries are better exposed to latest technology to combat issues relating to

corporate banks accounts.

It is also obvious from the research that most of the challenges of managing corporate bank

accounts can be resolved by preparing an error -free bank reconciliation statement becau se

issues addressed by the statement are the major issues faced in managing bank accounts.

The bank reconciliation statement can be prepared by well trained accountants in the

account section or it may be outsourced to other companies for efficient results .

Fraud, which was discovered in the study as one of the challenges faced can also be curbed

by reducing the number of bank officials that have access to the information on transactions

of corporate organizations. The firms accountants will have to be confidential on some of the

information relating to all transactions. It is obvious from the study that the issues due to

fraud are very minimal, and that explains the reason why few of the respondents (21.6%)

see it as a challenge.

It is also evident from the research that most corporate organizations do not believe in

investing in recent technology/software to facilitate the preparation of the bank reconciliation

statements and other accounting statements/documents. They expect their staffs to use the

traditional methods which may be tedious and time consuming when transactions are large. .

To reduce the response time in correcting errors highlighted in the bank reconciliation

statements, banks dedicate account relation ship officers to each organization. This is a very

good step in the right direction. This was really applauded by a large percentage (94.6%) of

the respondents.


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Recommendations:

I. Corporate organizations should employ fresh graduates that will adapt quic kly to the

culture of the organization . This should not be limited to only the account department

but every department in the organization. Apart from increasing the efficiency of theworkforce, it will also reduce the risk of making severe mistakes that m ay cause the

company a lot.

II. The right set of people should be employed for the job, so that the company does

not need to start from the very beginning to train the staffs especially in the accounts

department.

III. The corporate firms must make sure that the b ank statements must be collected at

the end of every month in order to adjust the cash book of the company and to

prepare a bank reconciliation statement.

IV. The management must ensure that a good bank reconciliation statement is prepared

after receiving the bank statement. It must not be compulsory for the bank

reconciliation to be prepared by one of the staff of the organization if nobody is well

trained to do that. As earlier stated, it can be outsourced for more efficient results.

V. A percentage of the compa ny profit should be made available for investment in latest

technology and accounting software to effectively manage large transactions.

VI. Major information on the companys transactions and bank account information

should be made confidential and available to very few members of staff to reduce

fraud.VII. The bank should keep up the pace at which errors reported by customers are

corrected by continuing with the present method of allocating an account relationship

officer to every organization while other efficie nt methods are devised.


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References

1. Performance evaluation of the regulatory institutions in the management of distress

in Nigerian banking industry by Oladele, P.O., Asaolu, T.O., Oyesanmi, O.

2. Management and organizational behavior by Laurie J. Mullins, Eight edition, PrenticeHall, Financial Times, pp. 37 -38

3. Foundation of Accounting by Eddy Omolehinwa, Pumark Tertiary Series, pp 58 -78

4. European Journal of Social Sciences - Volume 2, November 2, 2006, pp 25 2-259.

5. The bank reconciliation by John W. Day, MBA

6. The Nigeria Banking Services Users Handbook, by Rose Umoren.

7. Restructuring the Financial System; Challenges; Business Concord, Tuesday, 11 th

and 25th January, 1996, by Kumolu, P.O.

8. Money and Banking, McGraw Hill Book Company, U.S.A, by Luckett, D.G, 1996.

9. An overview of the banking and financial environment in Nigeria; A paper presented

at the 19 th Annual Banking Seminar of the Chartered Institute of Bankers of Nigeria

(CIBN), 17th-21st Oct; at Nike Lake Resort Hotel, Enugu.


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Appendix

A. Sample of the questionnaire used.

CHALLENGES OF MANAGING CORPORATE BANK ACCOUNTS QUESTIONNAIRE:

Dear Respondent,

The short questionnaire seeks information about the challenges of managing corporate bank

accounts in Nigeria. I will be very grateful if you would give the following questions your serious

attention. It should not take more than a few minutes of your time as the questionnaire has been

designed to be quickly and easily answered.

There is no right or wrong answers, so please put down what you feel is correct for you. Your

individual feedback will remain confidential.

Thank you in anticipation of your help.

ABOUT YOU.This section of questions asks a little about youplease '' block which applies to you.

How old are you?

Below 20 [ ] 21-25 [ ] 26-30 [ ] 31-40 [ ] 41-50 [ ]

What is your sex? Male [ ] Female [ ]

Are you: Married [ ] Single [ ] Divorced [ ] Separated [ ]

Which of thefollowing bestdescribes whatsector your companyis in?

Telecommunications [ ] Manufacturing [ ] SME [ ]

Others [ ]:please state:


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CHALLENGESOFMANAGINGCORPORATE BANK ACCO NTS QUESTIONNAIRE:

Thinking about the challenges you face in managing your company's bank account.

Please tick Yes or No to portray your experience.

Yes NoManaging corporatebank accounts posessome challenges inNigeria

[ ] [ ]Can banks makemistakes in thestatements ofcorporate accounts.

[ ] [ ]

Are there possibilitiesof wrong credit anddebit by the bank incorporate accounts

[ ] [ ]

Errors made by thebank are corrected

very fast

[ ] [ ]Does everycorporate bankaccount requires abank relationshipofficer

[ ] [ ]

Authorization oftransaction by thesignatories can be achallenge inmanaging corporatebank accounts

[ ] [ ]

Arbitrary chargestaken by banks posea problem in themanagement of

corporate bankaccounts

[ ] [ ]

Ensuring thatstanding instructionmade by the entityare those honored bythe bank and noother standinginstruction relating toanother companyscan be difficult tomanage.

[ ] [ ]

Checking that alllodgments into theaccount from the

customers havebeen duly receivedby the bank into thecompanys accountcan pose issues tomanaging yourcompany's account.

[ ] [ ]


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One of thechallenges ofmanaging acorporate bankaccount is ensuringthat cheque issued tocustomer arethoroughly presented

to the bank andhonored by them.

[ ] [ ]

It is difficult tomanage the softwarerequired for bankreconciliation

[ ] [ ]Connivance of thebank officials withfraudsters to defraudthe company can bea very big challengein managing yourcompany's bankaccount

[ ] [ ]

Errors discovered incorporate bankaccounts areinstantly reversed bythe bank

[ ] [ ]A customer relationofficer is required forthe effectivemanagement of bankreconciliation

[ ] [ ]

Do you have any other comments concerning the topic?

Thank you for your time! This questionnaire will remain confidential.

Challenges of Managing Corporate Bank Accounts in Nigeria

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