Your Bank Reconciliations Are More Important Than You Think

With tax season over but financials fresh on our mind, we were reminded of a client of ours who ran into a little trouble. By all accounts, they were a terrific client and were ready to jump on board with a new multi-year plan.

When we were planning out the initial stages and getting the information we needed to move forward, we hit a snafu (and a rather large one): the client had not updated all of their bank reconciliations. Of the five bank accounts they possessed, several had not been reconciled ever, and for others, it had been more than a year.

As it turns out, the client’s internal bookkeeping fell behind at some point and rather than reach out for the help they needed, ended up leaving the bank reconciliations to the wayside. We see this problem in organizations that are experiencing rapid growth. And while bank reconciliations sound like a minor issue, they play an important part of keeping track of your business financials by doing a few things:

• They catch instances of fraud. Illegitimate checks such as those that have been duplicated or issued without authorization directly affect your bottom line. Reconciliation also helps keep track of any unauthorized transfers or withdrawals from your account.

• They catch and prevent problems. One of the most basic functions of the bank reconciliation is to ensure you know how much money is actually in your account. You’d be surprised at the number of mistakes that are made out of an assumption that cash flow is working as intended. Other problems that affect this flow include bounced checks, bank fees, outstanding checks, and bank errors.

We advise checking on a few items to understand the status of your reconciliation process. For one, do you know when your bank reconciliation gets done every month? It should be a goal to do it on the first business day of the month.

Second, do you know what to look for on your bank rec? What items are important and which are business fees or other automated expenses? What is currently outstanding?

Finally, who is responsible for your bank reconciliations? There are significant internal control issues if this is not segregated appropriately from those that open the mail and pay the bills.

If you aren’t 100 percent sure about the answers to any of the above questions, it might be time to take another look at your processes. Let us help! Shoot us an email at info@quincycfo.com and tell us about your issues. We’ll lend our expertise and experience to point you in the right direction.