Sep 10th 2009
Failure to reconcile bank accounts is one of the most common risks that small organizations face. This puts the organization at risk for many types of misappropriation of cash as well as increasing risk of accounting errors. Other risks associated with a failure to prepare bank reconciliations on a regular basis include, inaccurate financial and tax reporting, loss of deposited funds from bank errors and various penalties and fees associated with NSF checks or overdrafts. Reconciling the bank statements is essential for making sure that all cash transactions during the period have been completely and accurately captured in the accounting records on a timely basis and that the transactions are for actual activities that occurred during the period. Each month a reconciliation should occur between the bank balances and the book balances in order to ensure that all deposits and checks have been processed accurately. In order for this procedure to be effective it is important that someone other than those with cash receipting and disbursement responsibilities prepare the reconciliation. In many smaller organizations this level of segregation of duties may be difficult or impossible to achieve. One mitigating control that can be applied is to have the owner/manager receive the bank statements unopened and review the deposits, checks and any other miscellaneous transactions prior to reconciliation. One area where organizations can achieve additional efficiency in the bank reconciliation process is by using the reconciliation features built into most accounting software packages. Also many banks offer online banking features that allow reconciliations to be done daily to detect problems earlier.