A bank reconciliation is a process in which the sums recorded in a company's bank accounts are compared and reconciled with the entries in their internal ledgers. This mechanism allows us to identify any differences, which can then be addressed accordingly, and thus constitutes a genuine and exhaustive check on the state of the company's accounts. As with any other process within the company, reconciliations must be audited at least once a year in order to verify their accuracy.
Internal audits are important in any company, to check whether a given procedure, system, project or product is sound. The same applies to bank reconciliations. But how do you audit a company's bank reconciliation?
In order to begin, we need a copy of the bank reconciliation of the month we wish to audit, a copy of the corresponding accounting records, and a copy of the bank statement for the month in question.
The fundamental first step is to begin with a triple check, comparing the balance on the three documents and confirming that it is correct. If a reconciliation process has been deemed necessary, we can assume that some difference between the balances given will be found, and this means we will have to check that this difference is justified and under control.
The next step is to review every transaction on the bank account and check them against general accounting records. To make this task easier, a check-mark can be placed against each item verified on the printed copies of both documents. It is worth noting that tools do exist to automate this process, or at least part of it.
When this process is complete, attention must be focused on items, that do not appear on both documents, in order to ensure that they appear correctly on the reconciliation document, along with a description of what they are. We may find, for example, deposits on the account that have been processed late, or cheques paid out that have not been redeemed by the bank.
Finally, we must check that the sum of the outstanding items from the reconciliation is equal to the difference between the final balance of the bank account and the final balance in the general accounting records.
Tools such as Captio, are available to automate this process: It automatically reconciles travel expenses paid for with company bank cards against the corresponding bank accounts, and provides information that can be integrated directly into the company's accounting system.