One of the most basic things in finance is reconciling the bank each month. This sounds like a no-brainer, but you would be surprised how often we find this is being missed as a regular process. The result being some very interesting accounts.
I will share a few examples from our School Accounts Ltd files. (Unlike the Teaching profession, we really do need to get some better work stories, I know!)
First here are some common scenarios we come across in general:
- The bank reconciliation has never been carried out regularly. It is not part of the standard procedures.
- The bank reconciliation report is being run monthly, but the actual bank balance is not verified against the software.
- The bank reconciliation report is being run monthly, but it doesn’t balance and has been this way for a while.
- The bank account balance in the accounting software reads the same as the bank balance, but there is this other figure showing as a difference. It has always been there.
- The bank account is out of balance, but it is out every month by a different amount and staff have no idea why.
- There are always transactions showing in the bank rec because income and expenditure is being dated back to the month that the bill or banking related to, as a form of accrual accounting. (Overall if the bank balance equals the actual bank, this is fine).
- Credit card bank reconciliations are not being completed because staff are still chasing up receipts from the card holders. Reports are run despite these being incomplete.
- Payment options like Pay pal or Stripe or Go cardless are not being reconciled against the portal reports/balances.
- The school fees software is not being reconciled against the takings in the bank each week.
There are several different reasons for the above scenarios, and this is what we love to look out for and provide guidance on. For example, in the case of credit cards, we need to emphasise these are real bank accounts and do matter! But let’s focus on imbalances for now.
Here are some common things to look for when your bank rec is out of balance:
- Post dated items. The classic is in January when dating December items to the current year when you meant last year. So, until December 2022 you are going to have weird stuff happen unless you find it!
- Bank transfers being coded off instead of treated as a transfer between bank accounts.
- Bank transfers being duplicated (transferred both ends so one reconciles but there is a second transaction sitting unreconciled)
- Not realising that your many attempts at reconciling a tricky banking breakdown resulted in more than one ‘receive money’ being created, and the unused ones are still sitting unreconciled.
- Coding an income item off when there was a sales invoice in the system that needed to be matched against it.
- Coding an expense item off when there was a bill invoice in the system that needed to be matched against it.
TIP: The above happens when the amount paid is slightly different to the invoice, so it doesn’t match automatically. These need to be part allocated OR the difference treated as an overpayment depending on whether it was over or under the correct amount.
Long term imbalances: 2 most common solutions
- The conversion balance for that bank account was entered incorrectly.
- There are missing bank transactions in the accounting software. When you have live bank feed set up this can be due to a bank connection one off error somewhere along the way, or due to missing data in the import process early in the software set up.
The Good News
There are two ways to mitigate ongoing bank reconciliation errors; training and external review.
Training the staff responsible for coding off your bank accounts is a worthy investment considering the time it saves those who need to fix it later, at extra expense!
External review by finance providers who are experts in the software as well as the very specific school accounting requirements, will bring a smile to your auditors and peace of mind for your management team.
All these things can be discovered and corrected with a robust review process in your accounts.
This is something that we love to do at School Accounts Ltd – train your staff, and review the accounts on a regular basis.
Contact us today to get help with coding your accounts the right way!