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ABSTRACT
This research was basically aimed at examining the relationship between the successful implementation of cheque truncation system (CTS) in Nigeria and the rate of cheques returned due to insufficient funds in account balances of bank customers in the Nigeria financial system. Cheque truncation system is a process whereby clearing cheques are exchanged between banks by scanning the images containing the MICR line data through an intermediary (i.e. the Nigeria Interbank Settlement System, NIBBS) to the paying banks and getting values back via the same means resulting into a shortened clearing cycle from the previous 3days required before its implementation to the current 24hours clearing cycle. The research was carried out using data from clearing center clearing register and national deposit insurance company (NDIC) annual report for 2012 and 2013.The choice of 2012 and 2013 was based on the fact that as at 2012, the traditional clearing system which requires clearing cheques to clear in 3 working days was still in place (i.e. pre-CTS era) while 2013 represent the year that cheque truncation was successfully implemented in all Nigeria banks. The result of the study showed that; the rate of the total number of clearing cheques returned for various reasons before the implementation of cheque truncation system had drastically reduced by 72.9% after the successful implementation of cheque truncation in 2013, It was established that the successful implementation of cheque truncation system has helped to reduce the rate of dud cheque issuance (i.e. the act of issuing cheques on unfunded account) by 82.3% from 2012 to 2013. It can therefore be inferred from the research, that financial loss due to fraud due to clearing cheques with emphasis on the presentation of forged cheques dropped from 405million naira loss recorded in 2012 (before cheque truncation implementation ) to 18million naira representing a 95.56% decline. Accordingly, it was recommend that the Federal Government And Central Bank of Nigeria should ensure further reduction of clearing cycle from the current T+1 clearing days to T clearing days and Fraudulent transactions reporting by commercial banks should be enforced by Central Bank of Nigeria. This will enhance the availability and integrity of data collation, judicial prosecution of anyone caught engaging in the criminal act of issuing dud cheques. It was concluded that the successful implementation of cheque truncation system has not only helped in reducing the rate or frequency of issuance of cheques on unfunded accounts (or insufficient account balances) but has also helped considerably to stem the tide of cheque frauds in the Nigeria financial system.
