This is a timely study and being a victim that have suffered from this debit- without- pay problem of ATM in many different occasions, many like me are interested in measures towards addressing the issue. I would suggest that policy that will stipulate payment of damages to affected bank customers will make banks improve on their ATM Services.

Good Luck!

Thanks  Christopher Anierobi for your recommendation. We shall include it in our recommendations 

First off, there should be an investigation to find the cause of the error.

That said there should be a commit or rollback provision in the software (and this is supposed to be a part of the basic function of a reasonably modern database.)

At a high level (and skipping some steps that don't play a role in the very simplified model), a customer initiates a withdrawal transaction (we will assume away security checks, balance checks etc.) The ABM will then go to the cassette and request the notes, the notes should be checked and any unfit notes should be rejected (sent to the "divert" bin.) It would be best if all notes dispensed at that time are rejected (and a suitable record made). The ABM should send a cancel transaction instruction to the server and then the request should be run again.

Yes, sometimes it more efficient to reject just the bad notes but in some cases this may cause another issues and I suspect this is not being done and causing some issues.

There are other concerns as well, the divert tray is sometimes not as well secured and a torn bill will usually still be accepted by another party (i.e. a clerk in a store.) Sometimes it is better secured but the issue is that the bills heading there are often torn/damaged and if that isn't accounted for the bill may jam. It should be noted that anyone who has access to the divert, has had to go through several layers of security. First, the divert should not be accessible from the front (client facing) portion of the ATM. Second, the rear of the machine should be in a well secured area with good camera coverage. Lastly, your cash solutions provider (the person/firm filling the ATM) needs to be properly vetted by you. Yes, you can have bank staff do this as well and there are pros and cons to this as well. I'll leave it up to you.

The quality of a bill should be checked at the cash centre before it is deposited into the ABM and the ABM should use notes that are in reasonably good quality.

There are individuals who may simply file a false claim of loss to get their funds back. In these cases you need to have the right type of an ABM with the correct security (usually good camera) placement. In this way the bank can dispute any false claims. Since we're dealing with money we should consider that the client may team up with another provider (i.e. a 3rd party ATM) to conduct a fraud in which case you as a bank may not have access to all the information. In this case things may come down to your agreement with the 3rd party.