ATM Reconciliation: Challenges and Solutions

ATM are designed to perform the same functions as conventional human tellers. I will
imagine that these machines were designed and developed to reduce human effort and
provide higher availability than any other reason when they were first invented. The
availability of inter-bank electronic switches, however, introduces a dimension that makes
these ATMs do things that were not hitherto obtainable by human tellers, particularly the
ability to dispense cash to customers of other banks from another bank’s ATM.

These types of transactions are referred to in banking parlance as “not-on-us” transactions.
The converse of this type of transactions is those that occur when customers of the
reference banks withdraw cash from the ATMs of other banks. This type of transaction is
called “remote-on-us” transactions. Note that this capability is not in the exclusive preserve
of ATMs. In fact, this same type of transaction could have been done by human tellers
who have access to PoS terminals connected to the inter-bank switch thereby getting
authorisation from these machines before proceeding to dispense cash to customers of
another bank.

The use of ATMs is not totally new to the banking industry in Nigeria. A number of banks in
the past had deployed some of these machines, though in very low quantity to serve their
own customers only (behaving more or less like human tellers). ATMs have become more
common and more acceptable to the general banking populace with the implementation of
the first inter-bank financial switch by Interswitch, which now makes it possible for customers
to collect cash from just about any available ATM. Today individual banks have hundreds of
ATMs on their networks.

If ATMs have been available in Nigeria for many years before now, the challenges of
ATM reconciliation would not had been so much either because the challenges existed in
magnitudes that were too minute to notice, or they were not as pronounced as what we have
now. Now, it is posited that the total loss that the banking industry may have incurred may
be attributed to ATM issues are in the region of billions of naira. The magnitude of the ATM
cash reconciliation control has become more complex by the introduction of the switching
capabilities of these lovely machines.

It means that the challenges come in a two-prong manner: First, to ensure appropriate cash
control on the ATM, and second, to ensure complete and accurate inter-bank settlement of
transactions that may have occurred on the various ATMs nationwide. The sheer magnitude
of the transactions that occur daily on the network of a typical Nigerian bank on its ATMs
makes it impossible to carry out effective cash control and ATM reconciliation manually. This
automatically suggests the need to automate this process.

Now it should be noted that the two-fold challenges that come about by the use of ATMs
must be tackled in a concerted manner but if we are to achieve the best of success, the
strategy and tactics to be employed to tackle the challenges must reflect both sides of the
challenge. In other words, we cannot deal with one side and leave the other hanging.

Without gainsaying, the challenge of cash control on ATMs must be regarded in a similar
manner as the cash control measures banks adopt for conventional human tellers. Some

of these concepts include dual control, maintenance of transactions log, cash officer
responsibility that guarantees that an individual is made accountable for each till at any time
and of course daily cashier balancing exercises. In conventional banking operations, cashier
balancing is the final process that closes the job of any teller for the day and it attests that
all accounting entries have been posted correctly and there were no errors in either cash
disbursements or receipts.

If there is a problem with this process, then a call over of all transactions for the day is done
and compared with the sequence of cash disbursed or receipts until such differences are
resolved. This same measure is transferrable to ATM cash control conceptually with just
little modifications in practice. The other leg of ATM transactions control lies in the control
of the “not-on-us” and “remote-on-us” transactions, which must have passed through the
switch and hence are eligible for end of day settlement. The process of reconciliation can
only effectively control these transactions.

Let me take the liberty to define reconciliation in a simple manner to mean bringing to
agreement two independent parties. In accounting, reconciliation takes place to bring into
agreement records of transactions maintained by two independent parties. In other words,
the process of reconciliation seeks to authenticate the similarities in the records, and seek
explanations for any differences in the records maintained by both parties.

It is important to note that among other reasons, the process of accounts reconciliation is
aimed at safeguarding the assets and ensuring the propriety of liabilities of an organisation.
Since reconciliation involves two parties, it follows that the process must have access to the
records that were independently maintained by each party. In the case of ATM reconciliation,
the records required for effective reconciliation are first the records of transactions from the
host banking application of the bank, and secondly the statement of transactions supplied by
the switching companies, corroborated with their settlement reports.

In order to have effective ATM reconciliation transactions, it is important that records to
be used for the exercise must be correct and complete. There is only one way to ensure
these two conditions are met and that is to ensure the presence of control totals in the
records being used for the reconciliation. This is the reason why it will be impossible to do
any perfect ATM reconciliation in any bank except the records used for the exercise can
be traced to the host banking application where the closing balances on the appropriate
accounts can be used as control totals to ensure integrity of transactions.

Secondly, it is important that both records (host banking application and switching
company statement) must have mutually agreed unique references (unique references may
include card number, terminal identifications, transaction time etc) that describe individual
transactions. The way and manner the transactions are posted on both platforms must be
consistent and one must be a perfect mirror of the other.

There are several important structures, which must exist as conditions precedent to a
successful reconciliation of ATM transactions. These are timely and consistent availability
of required transactions records, availability of separate and individual ledgers for different
types of ATM transactions, proper definition and implementation of software interface
between the host banking applications and the switch front-end-processors, and individual

posting of ATM transactions to the respective ledgers on the host banking application on a
real-time basis, as well as availability of a sound automated reconciliation system.

The absence of any of these conditions is sufficient to create extreme difficulty in ensuring
proper reconciliation, if not completely invalidating the possibility of reconciliation of ATM
accounts and banks as well as Independent ATM Deployers (IAD) must ensure that they
have these structures in place if they expect to be in perfect control of their ATM business.

The reports that expected from a reconciliation exercise of ATM accounts are not
conceptually different from those of any other reconcilable accounts in the bank. The most
important thing about the reports is the ability of the reconciling officer to interpret them
correctly and take remedial actions in a timely manner where necessary.