Saturday, April 18, 2009

Application Problems,SAFE DEPOSIT TRACKING SYSTEM



Introduction

The First National Bank of South Miami is a full-service bank and a member of the Federal Reserve and the Federal Deposit Insurance 
Corporation. At the close of 1983, the bank had assets totaling $1SS million, capital of more than $19 million, deposits of $113 million, and a loan has of $37 million. Rated the 37th safest bank in the United States, First National has a highly successful management team and 119 employees in a single-story building in the heart of downtown South Miami.


The bank operates two remote automatic teller machine (ATMJ locations and a drive-in facility. The original orientation was toward the community, serving the people in the immediate area. Although still primarily it community hank, First National is becoming increasingly commerical as more industrial firms move into South Miami, especially around a major university where the bank is located. Available are complete banking and trust services ranging from NOW accounts and money market certificates to commercial, installment. and auto loans to safe deposit box rentals.

The Organization Structure--Safe Deposit

In 1978, the bank's safe deposit department anticipated a sharp increase in demand. The safe deposit department is in the lobby area and operates under the operations department. It is staffed by there customer service representatives and one security guard (Exhibit 7-1J. Although no single individual in the department has been given the official title of supervisor, in practice, one of the employees is in charge. Denise Aguiar, the "supervisor," began working in August 1981. Since then she has made several improvements in procedures as we shall discuss later. Dorothy Garrison and Linda Hoppe are the other two safe deposit clerks. They began employment in June 1981 and March 1983 'respectively. None of the three women has prior computer experience. Humberto Tamayo joined safe deposit in January 1982 as the vault security guard. The bank currently has 6,195 safe deposit boxes and the capacity to increase the number to more than 10,000.

The 'safe deposit boxes range in size from 3 by 5 inches to 38 by 21 inches and are rented on an annual contractual basis. Exhibit 7-2 list the most recent schedule of service charges by box size. Although rental charges are fixed, in practice the depal1ment must keep track of three fee schedules. First, the safe deposit box lessees whose contracts have not yet expired are charged by the older rental fee schedule. A second schedule holds for some current customers who are unhappy with the hefty price increases and have large account balances, borrowings, or utilization of other bank services. These customers are enticed into keeping their boxes by various discount allowances that are approve by u vice president. Third, the employees are offered safe deposit box at the old fee rates less $10, making the 3 by 5 box free account balances, borrowings, or utilization of other bank services. These customers are enticed into keeping their boxes by various discount allowances that are approve by u vice president. Third, the employees are offered safe deposit box at the old fee rates less $10, making the 3 by 5 box free. 

Data Collection

The data collection process began by examining the safe deposit department's Manual of Instructions and Procedures and sample documents. To gather more information about the department and investigate some questions raised, staff members were interviewed at bank. Denise provided most of the data. A tour of the facility offered firsthand look at the layout of the vault and lobby area where business conducted. A systems flowchart of procedures was drawn up based the Manual of Instructions and Procedures and the rules and regulations booklet (Exhibit 7-3). This helped to clarity the information indicate where changes might be needed. Any further questions were readily answered by the supervisor or a member of the board of directors who is quite familiar with the bank)s operations. There WL::' a g deal of communication between the bank and the project team­ phone, in person, and in writing. Management's encouragement enthusiasm for the project were extremely helpful throughout the feasibility study.

Following data collection, the department's policies and procedures were analyzed by looking at improvements that had already b implemented and identifying existing problem areas. The department has recently instituted several improvements in its operations. E example, a previous problem involved the absence of security measures when the keys were sent to the locksmith for changing the lock aft customer discontinued the box rental. These keys were never record and could ,be missing, causing a potentially large security problem Denise established a new procedure that required the constant monitoring of the whereabouts of all keys.

Another area in which changes have occurred is record-keep and documentation. In the past, vital documents such as birth a death certificates, court orders, and records on customers and payments were not always readily available. Denise has organized I information and filed It so that it can be obtained more easily.

A new problem arose when the department was questioned regarding a purported loss of cash from a customer's safe deposit box; which spurred an investigation into the procedures of its operations. There was one instance where a change in a contract's terms regarding the rental of a box was improperly recorded. Consequently, a new procedure was established whereby contract changes are now immediately recorded as a new contract'. The old contractual agreement on which the change is noted is filed as a duplicate contract. A situation that requires such action, for instance, would be a change in rental by two individuals to a single lessee. Furthermore, a manual of procedures was compiled. As shown in Exhibit 7-4, it specifies and documents the procedural requirements and information necessary for opening new accounts, conducting daily operations, and collecting delinquent rentals. The guidelines improve efficiency and minimize legal liabilities.

 The Problem 

Despite these recent procedural changes, problems still exist for safe deposit that indicate the need for further, more dramatic changes in the current system. The main problems center around the present labor-intensive manual record-keeping procedures. All filling and record-keeping are done manually by several people. Consequently, documents are easily lost or misfiled. The enormous volume of paperwork generates inefficiency and disorganization. Because the department has grown so large and the nature of the manual work is so tedious, the potential for errors is great. As stated by one employee, "the idea of future growth under this system is frightening."

Problems with financial record-keeping also attribute to the manual system, particularly with accuracy in the present billing method. One person is solely responsible for pulling contracts due for billing and for typing up the bills. This, along with manually noting payments on contracts, leaves room for inaccurate reporting and misfiling. One re­ su'lt, for example, is that delinquent accounts sometimes go unbilled.

Another area of concern with the present system is incomplete and inaccurate documentation. This is evident in the difficulty of tracing misplaced documents. Similar documents are not necessarily filed together and standard forms are not prenumbered. These all contribute to filing problems.

Documentation problems were found to stem from the Manual of Instructions and Procedures. First, there is no description of which files exist, how they are organized, what is kept where, and how often each file is updated. Second, box prices are somewhat arbitrary. Only one of the four pricing schedules is documented. Third, there are no formal job descriptions or recorded assignments of duty.

Related to record-keeping deficiencies are inventory procedures. Neither auditing nor safe deposit knows exactly how many boxes there are. Discrepancies exist between the two departments (auditing and safe deposit) records. Boxes are manually counted. Their numbers do not follow a logical sequence corresponding with locations in the vault. In addition, some of the boxes cannot be matched with a contract, and some contracts are missing altogether.

Finally, two important security deficiencies have been identified. First, contracts filed in the vault are not locked up, which means they are accessible to' customers in the vault at any time. Second, past-due contracts are filed in the lobby in an unlocked desk that is not fireproof. These conditions jeopardize the interests of both the customer and the bank.

In summary, specific deficiencies with the present system have been identified in areas such as manual record-keeping and filing procedures, incomplete and inaccurate documentation, and inadequate security. Despite recent procedural and policy changes, a computerized safe deposit tracking and billing system could result in significant improvements. Such a system would provide needed up-to­ date information, improve accuracy and file organization, and increase security by making errors more readily detectable. With a user's manual and a more specific policy manual, documentation would be complete.

The Alternatives

In determining feasibility, the first step was to evaluate to what extent current needs can be met and problems solved. A quick search of existing software packages revealed specific improvements, including:

   a. Improved billing accuracy and efficiency.
   b. Provision for updated box tracking.
   c. Reduction of record misfiling.
   d. Elimination of monthly manual check. for box occupancy.

After various microcomputers were reviewed, it became obvious that an IBM PC would be appropriate. For a relatively low cost, such a system would meet the department's immediate needs, has enough memory capacity for expansion, and is flexible enough to be used for other functions such as word processing, general ledger, payroll, and financial analysis. The system has an excellent reputation for performance and maintenance and could later be networked into a large sys­ tem. Even though department personnel are completely unfamiliar with computers, the system would not be intimidating and can be installed with limited training. Politically, the IBM PC would be a good choice. The vice president in charge of accounting had a three-day seminar on the system with a previous employer. His biases could not be overlooked.

The first major task undertaken was a search for a software package that is capable of meeting the user's needs, keeping in mind the following:

   a. Automated billing.
   b. Box tracking.
   c. Online" safe deposit maintenance.
   d. User-friendly documentation and easy training.
   c. Loading the software 011 the IBM Pc.

Although one option was to do the programming, it was soon found that time and cost would be prohibitive. After various directories of , financial software packages were searched, a package was found to fit the overall requirements.
 
The Package

There were three limitations concerning the proposed safe deposit package:

a. There was no provision for a history card file to keep track of the present and previous customers of each box for reference.
b. The package handles a maximum of 8,000 boxes on the PC and 32,000 boxes on the XT (hard disk) model.
   c. Being less than two years old, the package has flaws such as limited editing capability and poor documentation.

To compensate for these drawbacks, the history card file problem was solved by setting up a dBASE II file on the PC to work in conjunction with the software package. The capacity constraint was settled when it was learned that management does not expect SDC to exceed that limit in box rentals before 1990. In the long run, this would be more cost effective with the PC than underutilizing an XT system. Finally, the vendor assured the bank that all program flaws will be eliminated in a forthcoming updated edition.

Costs and Benefits

Computerizing safe deposit operations will involve new costs that can be justified by saving one full-time clerk and substantially improv­ ing custorner service and overall performance. Listed here are the costs and savings associated with the candidate system:

Hardware/software                                                                                                  
             Hardware
IBM PC with 64K memory.                                                                             $2,630
 Three 64K-byte memory chips                                                                             490
Monochrome display and printer adapter board                                                    335
Monochrome display(screen)                                                                                 345
Epson printer-letter quality                                                                                  1,100
                                                                                                                            ----------
                                                                                                                              $4,900

Software
DOS 2.0 operating system                                                                                        65
dBASE II                                                                                                                 385
 Safe deposit tracking/billing system                                                                       950
 Maintenance (one-time fee)                                                                                    150                                                                                  
 Supplies Idisks, paper, etc.)                                                                                     250                                      
                                                                                                                               --------
                                                                                                                               $1,800

                                                                                                                               $6,700
                                                                                                                              ----------


Direct savings

One full-time employee (salary + 25% benefits)                                                $16,750
Net direct benefits $16,750-6,700= $ 10,050
Break-even point 6,700/16,750=40 percent or 4.8 months

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