This is a classic case of how people interact with technology to overcome the operational issues. Let us first understand the relationship between %u201Cpeople%u201D, %u201Cprocess%u201D and %u201Ctechnology%u201D factors to deal with operations.
It is the %u201Cpeople%u201D factor, which directly deals with operations. The %u201Cprocess%u201D factor deals with %u201Cplanning%u201D part and the %u201Ctechnology/system%u201D factor deals with compliance and auditing measures.
In this case each factor has got some gaps to fill in. Lets start with the %u201Cpeople%u201D factor and try to understand the following questions:
1) What motivates people to mislead systems? 2) Why they are motivated? 3) How they are motivated? People mislead systems (in this case by giving false cheque information) when they find organizational strategy is not directly linked with operational shortcomings. %u201CThe ability to do late payments%u201D is an operational shortcoming, which is not directly linked to the incentive system for a branch. There is an interesting point in the case, which states %u201CNon-collection was not as important a performance measure as revenue targets%u201D. If the non-collection becomes a parameter in the appraisal process, people will be de-motivated to take it further. An enterprise incentive system must track these issues and link it with the growth of a branch. Another point to highlight here is a gap in organization communication. The pressure on %u201Cworking capital%u201D because of late payments should be properly communicated to all branches of Trustworthy Securities Ltd. A well-communicated plan on penalty as well as rewards linked to this cause should be part of the agreement clause between the company and its different subsidiaries. Coming to the %u201Cprocess%u201D factor the penalty as well the reward system need to be well laid out. This system should be measurable and be directly proportional to the pressure on the working capital from %u201Cadditional interest%u201D point of view. If the branch is accountable for 10% of total late payments, the penalty will be to reduce the branch%u2019s exposure limits by the same percentage i.e. by 10%. The additional interest that the organization will have to bear to fund this 10% of late payment should be treated as an additional fine to be charged directly to a branch. In the same lines, those branches, which do not contribute to the late payments, need to be rewarded in terms of additional exposure limits and bonuses to the team responsible for the collections. Now discussing on the %u201Ctechnology%u201D side, systems should cross-validate the various input points. An interesting point highlighted here is %u201C people used to upload the cheque details, without having cheques in hand%u201D. The tool should make it mandatory that the authorized user who is specifying the cheque details should also have to upload a scanned copy of the cheque at that instant (tracking the branch id). For those deposits of another cheque (with a different cheque number) an alert should be sent to the branch manager as well as the head office. From the entry of the cheque to its deposit, the cheque number should be validated and tracked to its origin. The system should consolidate a report on these non-matching cheques and the late payments branch wise and send on every fortnight to the headquarters as well as a copy to the respective branch. So a combined approach on these three fronts will give a long-term solution for mitigating risk at Trustworthy Securities Ltd. -sabyasachee_panda@yahoo.com
- Training of branch staff to familiarize them with head office RMS - Imposing heavy penalties on branch managers or franchisees who give misinformation - Charging higher interest for the late payments
Training can change a lot. Then penalise the defulters. -
Ensure that all cheques are scanned and a copy saved when entering the details. Keep a check on entering duplicate cheque numbers , dates and bank details.Enter bank slip details of cheque deposits.
Please ensure that all your clients have online banking facility. Let them link their respective bank accounts to the trading account. Let the buying of shares be possible only if they hold the required amount in their banking account. This can be done as a software check before placing the order. If the condition of having required amount is met, deduct the amount from his banking account immediately. This will ensure that you will not be a victim of under recoveries. Hope my suggestion will solve your problem in long term perspective.
Varun Agarwal Student, Amity International School, NOIDA varun747@rediffmail.com varun747@gmail.com
10th March 2007
To, Mr. Deepak Mehta Vice President, Risk Management and Surveillance Systems Trustworthy Securities Ltd. Mumbai
Subject: Suggestions and comments on Capital shortfall.
Dear Mr Mehta
The suggestions by your crack team are good but sadly, not complete. Even though they account for most of the key points, necessary for ending the problem, they are not completely thought over or can be improved upon greatly. Please do read the below mentioned points:
%u2022 Branch manager%u2019s performance appraisal report should mention non-collection. Non-collections should be placed as an important evaluation criterion in these reports. A good way would be too only consider the difference between achieved revenue targets only. %u2022 The total amount of non-collection, if present, could be taken out of the salary of that all the branch members at a percentage that ensures collection of the non-collected money. This will ensure two things, firstly collection of lost money. Secondly, this rule will keep the employees vigilant for wrong doers and non-collection. %u2022 Another method is to introduce a system of prepaid stock options. Just like in case of mobile phones, there could be a system in which a client puts his money into a 6-7% (this percentage could be decided by the company) minimum-yield account held by our company. This money now can be used effectively by the customer to buy stocks and commodities without fear of non-payment and the hassle of cheque collection and fraud detection processes. This method can, or rather should be, introduced with proper incentives and offers to attract clients into using this option. %u2022 With the same purpose as above, net banking and credit card usage should be encouraged and promoted fiercely. Teaming up with a bank on this issue can yield massive long-term benefits. %u2022 RMS system should be strengthened to check and verify each and every amount irrespective of its price. %u2022 The RMS system should be restructured to make it more user friendly, but yet more explicit in stating rules and demanding correct punching of values. %u2022 People responsible for incorrect information should be penalized. %u2022 Branches which represent the few %u2018rotten apples%u2019 should be put under strict scanner and their branch managers put on alert and a warning. %u2022 There should be a grading system to grade branches every second and list all branches with respect to their position on the internet visible only to the employees. The grade should be decided upon money input, trade frequency, and should take strictly into account monetary loss because of non-collection. The purpose of this grading system is to keep managers and employees on alert. According to this data, incentives should be provided to both the branch and its employees of top performing branches. %u2022 When a cheque is issued, its scan should be taken and run on a small program which checks the authenticity of the cheque as well as the signature. Thus the scanner reader software can successfully evaluate cheques and verify details that are punched in. %u2022 Employees and clients whose actions result in unnecessary revenue loss should now be put under a monitor. Their actions monitored and freedom under check for future transactions. %u2022 The RMS department has (or, must have) employees whose single purpose is monitoring the money flow. The RMS system should be such that it monitors the earlier defaulters with much care. If these defaulters (both employee and customer), or a new customer make a transaction which the computer software decides (according to set rules) it gives the power to cancel or with hold the transaction, to the employee in the RMS department. %u2022 Making of the system %u2018remisers%u2019 legal. They could be inducted into the service structure under a commission basis. Thus, this will phenomenally increase the clientele base of your company. With set rules on how these remisers work, the chance of them causing a hitch may be lessened to near-zero proportions, if they are a part of the structure itself. By offering them commission (even, higher) if only and only if, their account is clear, that is there is no non-collection from their side. They will now act as many small branches rather than problem causers. This may also help the company reach into towns and villages where setting up of a branch is too uneconomical. %u2022 There should be a system of monthly low interest loan system. It is just like a when you buy an expensive product like a car you have monthly deposits. Thus in the same way, for customers with low cash rather than them not paying at all your company could charge them a low interest monthly payment option according to the transaction they want to perform. %u2022 We can encourage and fund to have employees whose sole purpose is to pick up cheques and to deliver them. As you make a transaction, in half an hour the cheque is received and confirmed. Thus even when the transaction is made, and the employee goes to receive the cheque and does not receive it. It is only a matter of minutes thus the transaction can be cancelled. For this short a time, this system may confirm a low-risk system of transaction making. %u2022 RMS System should be actively maintained and updated to cope with the latest of problems. An annual report on vulnerability of the RMS and the system as a whole, to new threats and as well as its sterility to old ones, should be made. This report done on a confidential and priority basis and even can be done with the help of external companies. %u2022 Regular and constant- %u2018change%u2019 and %u2018improvement%u2019- in all spheres are essential for the success for any enterprise. Only thing constant in this world is change. So the RMS department should be employed and structured such as to adapt to regular change. The RMS department should always be optimistic and ready for challenges.
I have included what I thought would help your company on this particular issue. Please do tell me of the positive effects of my suggestions if they are implemented. Please do contact me if I could help on any other issue.
RE:POSSIBLE SOLUTIONS
by on Mar 12, 2007 04:04 PM Permalink
Varun, I have been offered a MBA seat in Amity international school Noida. I need your advice since I have heard: 1. Fees is low in first year and very high in second year. 2. No placement offered and encouraged by management 3. AICTE does not recognize the degree/diploma imparted by institute. They have sent me offer letter wihout taking any test. Please advice whether I should take admission? Thanks Arindam Banerjee
RE:RE:POSSIBLE SOLUTIONS
by EDITOR on Mar 12, 2007 05:10 PM Permalink
Hey Arindam,
dont consder admission at AMITY.Ypu neither get a brand name , nor a placement.This place isjust for rich brats who cant make it to a good business school.Because of their parenst influence they will get some or the other job.
1.First thing for improving the recovery is don't allow your customer to trade on the unavailable funds. 2. Make sure you make two catergories Available funds and funds in clearing. Don't allow your customer to trade on the clearing funds. If the cheque is not cleared the funds are uncleared. 3. Only allow your customer to trade on your Available funds. 4. Reward your franchise and branch manager on managing the funds ratio. 5. Without your own employees concerns customers can't go and trade. so make sure you train your franchise and staff well on your situation and reward. 6. Reward your customer on timely managing the funds and give them some loyalty exposure in this way you will make loyal customers over the year. 7. In terms of your exposure margin stocks available under your clients name also consider to be the collateral. Don't charge your customer but make your systems foolproof so nobody can play around. 8. Making sure you implement the above points you will be able to create a pool of loyal customers and increase your business.
As a policy trading should be permitted against cleared funds (ch received deposited and cleared in the bank)Principally this will be for buying.Obviously in this case trading limit will be restricted to funds available. Clients can be given interest on call deposit rate. This will eliminate the entire process of credit to client Cleared funds can be allocated for trading. For online trading such deposit and allocation can be done online instead of cheque deposit.
Cheques in transit or deposited but not cleared should not be permitted for trading.
In case of sale of security by the client, he may allowed to buy against net funds that will be availabe on T 2 days.
Above process will eliminate credit to client and risk will be eliminated. There will be no collusion and there will be no need for penalties
NOW A DAYS BANKS ARE PROVIDING THE CMS SLIPS IN WHICH THE CLIENT CODE AND THE CHAQUE DETAILS COLUMNS ARE PROVIDED WHICH THE PERSON WHO IS DEPOSITING HAS TO FULFILL.THE BRANCH OR CP CAN SENT THE SCAN COPY OF THE CMS SLIP WITH THE BANK STAMP ON IT WILL BE THE PROOF THAT THE CHAQUE AGAINST CLIENT IS DEPOSITED AND ON WHAT DATE. WHICH WILL GIVE US THE EXACT PICTURE WHETHER THE STAFF OF BRANCH OR CP ARE PUTTING THE CHAQUE IN TIME OR NOT. THE SOFTWARE CAN DEVELOPE WHICH WILL ALLOW ONLY THE HEAD OF BRANCH OR AUTHORISED PERSON TO ACCESS THE PAYMENT DETAILS. THE SCANNED COPY OF CMS SLIP CAN BE ATTACHED AGAINST THE CHQ ENTRY FOR PARTICULAR CLIENT.THE REPORT GENERATED FOR THIS PARTICULAR ENTRY WILL GIVE THE CLEAR PICTURE OF THE MALPRACTICES DONE AT WHICH SIGHT.
ALL THE ABOVE PROCEDURE SHOULD BE MONITOR BY ACCOUNTS DEPT. AFTER GETTING THE SCAN IMAGE IT SHOULD KEEP THE TRACK OF GETTING THE PAYMENT CREDIT IN ACCOUNT AND ALL. THE DETAILS SHOULD BE PROVIDED TO THE RMS DEPT EVERYDAY BEFORE TRADING HOURS SO THAT IT CAN SET THE EXPOSURE ACCORDINGLY. A STRICT FOLLOUP AND ACTIONS CAN BE TAKEN FROM RMS DEPT AT THE TIME OF TRADING. ABOVE ALL RMS DEPART SHOLD BE GIVEN RIGHTS TO TAKE ACTIONS AGAINST CULPRITS. PRADEEP JOSHI
The main reason behind all this is man made error where the manager did not want to lose his incentives and inturn created this chain of events that led to the whole confusion.
The solutions that I suggest are: 1. Fix incentives based on collection targets along with revenue targets. Ex: For meeting X revenue target and Y% of collection the manager is eligibile for A amount of incentive. This can be also modified in another way where in the managers incentive is directly linked to his collection amount where he will be eligible for x% from the collection as incentive. This can be made the main parameter for all future appraisals and promotions as well. So here you are linking a managers performane to his meeting revenue as well as collection targets. 2. Fix a minimum collection and revenue target that a manager has to achieve every week. This also will be taken into account for all future appraisals and promotions. If the manager is not performing then penalize him for his performance by issuing verbal and written warnings in teh iniital stages and then deducting percentage of salary for underperformance. 3. Include a minimum qualification for the employees and have a 1or 2 day induction cum training program to the new joiners which will educate them about the whole process and what can happen in case of malpractice. At the end issue a certificate stating that the person has undergone training and aware of the whole process which is duly signed by the manager as this can be used as legal evidence in case of malpractice. 4. This whole business is money and even a rupee matters. There should not be a minimum outstanding amount. All outstandings need to be recovered. Targets can be fixed on this as well. Ex: Outstanding of 1 week minimum time to recover is by X date. This also should be linked to the managers performance. 5. As we saw in this problem that it was only 0.2% who had done this malpractice. so there is no point in penalizing the rest by heavy interest rates but a nominal interest rate has to be fixed for all late payments. Ex: Even a slab system can be worked for this where in x days = A% as interest, y days = B% intrerest etc., Dealing with Remisers should be done once duly signed by the client where in in this case the client will be held responsible if the remiser is found as a defaulter which can result in late payment charges and legal action. Being a manager is all about taing responsibility for his actions and at the same time a system has to be devised keeping in mind the manager is made responsible if he is not. This is my view of the solution. Thanks!
1. The account shall be linked with the any online bank account. so whenever a client go purchase, the required amount can be put on hold till the settlement is done. 2. the trading details shall be entered using password and id at branch office and daily report shall be vetted by branch manager, so that employee and brach manager shall not be absolved for his responsibility and in case of repeat of such incedent suitable punshment shall be given. 3. the appraisal of staff shall be based on NET collection. 4. If cheque collection is allowed, then there shall be online system to scan the submitted check and online reading of checque number. bank code and amount, the system shall check number and bank code to its previous data so that resubmission of checqu should not occure.
