Bank Reconciliations

Bank Reconciliations

24 Sep 2015

Performing regular bank reconciliations is critical to ensuring the accuracy and accountability of all cash transactions that occur in a school district. With the 2% tax cap and reduced State aid, it is imperative that a district continually monitors the available funds in order to make sound fiscal decisions and ensure actual expenses and revenues are in line with budgeted amounts. The comparison of the district’s and bank’s records performed during the bank reconciliation ensures that both sets of books are consistent and correct. It is a good business practice to have someone other than the person who prepares bank reconciliations review and approve them. Many districts have several bank accounts so performing the reconciliations can require district staff to dedicate significant time to ensure the district’s cash flow is properly stated. With reduced staffing in many business offices, the risk of not performing accurate and timely bank reconciliations can be increased. Here’s why it is important to perform routine reconciliations:

Detect Errors:

Even if your district implements strict control measures in the accounting department, the potential for human error exists. Without routine bank reconciliations, internal and/or external accounting errors, such as mathematical errors or misplaced checks, may go undetected, may be more difficult to determine, and may be costly.

Identify Bank Errors:

Yes, even banks make mistakes. Tellers might transpose numbers, record wrong check amounts, record the correct amount to the wrong bank account, omit an amount, or record duplicate transactions. Monthly reconciliations can highlight such errors and enable the district to work with the bank to correct the discrepancy in a timely manner. The Uniform Commercial Code states the discrepancies must be presented within 30 days from the bank statement to hold the bank liable.

Track Fees:

Each month, the bank may apply monthly fees, penalties or interest payments to the account including overdraft fees, interest, or other fees for stop payments of checks. Any fees or interest earned should be properly captured and recorded in the district’s general ledger, keeping the district’s accounting records consistent with the bank’s statements.

Detect Fraud:

Bank reconciliations can help you identify any payments made to unauthorized employees/ vendors, for illegitimate business purposes. By reviewing the distributed checks with the cleared checks on the bank statement, a district can detect if a check was fraudulently amended. Having someone independent of the bank reconciliation process review the detailed reconciliations is critical to preventing an employee from continuing to falsify records.

Transaction Status:

Keeping a list of outstanding checks is essential as uncashed checks can create the appearance that there is more in the account to spend if looking solely at the bank statement. Further investigation may be warranted to determine if there is an error in the remittance address or if a payroll check is not cashed in a timely manner. Paychecks that are not claimed for 3 years are considered dormant and must be returned to the Comptroller. It is important to ensure the status of check is reviewed against the bank statements, and not just online records, if there is a request for a replacement check. Note that many banks do not maintain detailed history of transactions online past 6 months.

This article was also featured in our newsletter Lesson Plan Vol. 13