What is the Bank Reconciliation department?
The Bank reconciliation team is a key part
of the finance department. This team monitors the cash flow of the company both
in and out. Any person can get an understanding about the cash status of the
company by skimming through bank reconciliations. Bank reconciliations keep the
control on the company’s cash transactions & any fraudulent case or error
can be identified immediately. The bank reconciliation team will inquire about
the transactions any time & other departments are liable to provide
answers.
Scope of the Bank Reconciliation department
The scope of the bank reconciliation
department depends on the size of the company. Larger companies have a
substantial number of bank accounts and cash ledgers. Then the company may have
a separate team within the finance department & an assistant manager may
head it. When it becomes a middle or small business, there is no separate team
for bank reconciliation. In that kind of an instance, the company will use one
person or divide the reconciliation tasks among the existing finance team.
Managing the Bank/Cash Ledger
The bank reconciliation team will be the
keeper and responsible party for cash ledgers. This team should keep accounting
or push to account the manual cash transactions on time and update the reconciliation
to check the accuracy of transactions.
Assisting the auditors
Cash ledger is a main component in the
audit & auditors focus on a wider span on the cash ledgers. The bank reconciliation
team is the main responsible party to assist auditors, and they should
coordinate with other departments to provide anything auditors’ request.
Implementation of Internal controls
The bank reconciliation department is
responsible for suggesting & implementing better controls over the
processes.
Reporting
Bank reconciliation team should complete
the bank reconciliations Daily/monthly/yearly and sign off to keep the bank and
cash records healthy without error and fraud. The team may report to CFO or any
other internal party with the summary and detail reports. Also team will
provide reports to external & internal auditors.
Hierarchy of the Bank Reconciliation department
The Bank reconciliation team is always located
under the finance department. An assistant manager or a manager heads the team
and he or she will be reporting to the senior manager-Reporting or directly to the
Chief financial Officer (CFO).
Internal Controls Perspective
The Bank Reconciliation department is the
most important department in finance from the internal control perspective. Bank
reconciliation team can understand the issues in the processes of monitory flow
easily. Bank Reconciliation team has the authority to suggest & implement
process controls not only to finance department and other supporting departments, but also to
other operational departments.
Advantages of preparing Bank Reconciliation
- 1.
Can identify the unrecorded
transactions.
- 2.
Can identify errors.
- 3.
Can identify frauds.
- 4.
Can analyze and track
receivables.
- 5.
Can identify the expenses and
bank charges.
- 6.
Can keep financials updated
more correctly.
New Developments in Bank Reconciliation
New Software
Every company uses accounting software for bookkeeping.
Normally every accounting software has a bank reconciliation system embedded. Nowadays
that software has been developed bank reconciliation modules very much user-friendly
way and with more features.
Artificial Intelligence (AI) Reporting
Artificial intelligence is rapidly talking
topic nowadays and it is making a revolution in the world. AI is replacing people’s
jobs and bank reconciliation is also affecting by it. AI can recognize the
transactions and create the report easily with small time consumption. Also it
will be cost effective.
Shared Service Centers (Outsourced)
This concept is practically used in the
world nowadays. This came to practice in 2000s. Bank reconciliation is an indicator
of errors and fraud. Hence companies keep an eye every time on the bank reconciliations.
It is trustworthy always third parties prepare the bank reconciliations. Companies
can outsource their tasks including bank reconciliations. It is always liable
and cost effective.
Basics and the how
The reason for the bank reconciliation is
finding the differences between bank statement and the cash book. There are
four main reasons for the differences.
1.
Cash book debit issues.
- Direct deposits or transfers not recorded in cash book
- Dishonored checks (Deposited)
- Over/Under Receipting
- Human errors of not recording or over/under recording
2.
Cash book credit issues.
- Bank Charges not recorded in cash book
- Mobile or web payments not recorded in cash book
- ATM cash withdrawal not recorded in cash book
- Dishonored checks
- Human errors of not recording or over/under recording
- Standing Orders
3.
Bank Statement credit issues.
- Deposited checks not realized in bank statement
- Bank Errors
4.
Bank statement debit issues.
- Issued checks not presented yet.
- Bank Errors
There is no standard format for bank reconciliation. There are lots of formats used worldwide by people. As mentioned above, normally we compare the balance of the cash book and the bank statement to a specific date. When preparing the reconciliation, you can start with the cash book balance and end with bank statement balance. Also there are mandatory items to be mentioned in the reconciliation interface. Such as, Company Name, Bank Name, Account Number, Prepared By, Approved by etc.
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