While account reconciliation errors are rare, they do occur. In 2014, two Kenyan enterprises appeared before a court of law where the accused faced a tax assessment based on an analysis of their bank statements. The investigation revealed errors between reported sales and actual bank credits. This led to tax demands amounting to over Ksh 87 million, exclusive of penalties and interest.
Though it may seem history, 2014 is still a fresh reminder of how easily accounting errors occur and the serious consequences they can bring.
Why it Can Happen Again
Even though your accounting team generally works hard to get things right, mistakes can still happen. So, big or small, your financial institution could face a similar situation.
The reasons are many:
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Human Error
It’s possible for your team to make mistakes while entering data or simply processing transactions. A simple typo is good enough to cause consequential issues.
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Complex Transactions
With multiple transactions going on every minute, things can easily get mixed up. This can happen if many accounts or types of transactions are to be managed.
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Inaccurate Records
If your records aren’t kept properly, it can be difficult for your team to explain the differences between the financial statements.
The Consequences?
Just like in the 2014 case, you could find yourself facing huge demands that can even lead to court cases or fines, loss of trust of customers, and distraction from the smooth running of the business.
Accurate reconciliation is key. Even minor errors are detrimental down the line:
- Regulatory compliance risks
Inaccurate financial statements can lead to non-compliance with regulations. The result is fines and reputational damage.
- Misleading financial health
Errors can obscure the true financial position of the institution. This can lead to misguided strategic business decisions.
- Loss of Customer Trust
Consistent errors in financial reporting can erode trust among your customers and the regulator.
Who is Responsible for Reconciling?
Reconciling your accounts is the collective responsibility of several key persons.
First, the accountants manage daily financial transactions. Theirs is to ensure all records match.
The internal auditor regularly reviews the reconciliation processes. This thorough examination helps identify any inconsistencies that may require further examination.
For a finance manager, supervising the institution’s overall financial health is the apex role. This includes the reconciliation process itself.
These are just a few mentions of who does what to ensure your books are okay. The goal is to ensure integrity, accuracy, and accountability.
So, What Needs to Be Reconciled?
- Accounts receivable
- Balances
- Cash
- Accounts payable
- Tax
- Credit card statements
- Fixed Assets
- Commission
- Sales
- Payroll records
- Employee Benefits
- Loans and financing statements
- Inventory records
- Reimbursements
- Purchasing
etc.
Common Reconciliation Challenges
Reconciling your accounts has its set of challenges:
- Manual intensive process
Reconciling those accounts can be a headache. The headache is extreme when the process involves a lot of manual work.
For instance, apart from just downloading data from different sources, your team has to spend hours organizing and matching the same data.
To worsen the situation, the team must again sift through mountains of paperwork or spreadsheets to find discrepancies. This is time-consuming and tedious.
- Too many accounts to reconcile
Still, the team often has to extend into the night just to balance all accounts before the general ledger closes. This entails even looking at those accounts with little or insignificant transactions.
Managing all these accounts is often overwhelming.
- Little time left for investigation/analysis
A lot of time is spent gathering and organizing data. And little is left to examine any issues. The team may spend more time ensuring numbers match. This leaves no room for digging deeper and understanding the cause of errors. Thus, it’s easy to miss underlying problems that could impact the business.
- Unclear reconciliation protocol
With no clear guidelines for reconciling accounts, the team is forced to rely on own judgment regarding what needs to be checked and reported.
The result is inconsistencies, which makes it even harder to ensure accuracy.
5. Manual follow-up and communication
Manually chasing of overdue items results in a lot of back-and-forth. This can lead to confusion about what has been completed against what still needs attention.
Resolving Reconciliation Challenges
- Establish Clear Procedures
You need a standardized reconciliation process that defines every manual and automated reconciliations. This helps you to minimize errors and ensure that everyone follows the same protocols.
- Use Technology
Use a reconciliation tool that automates the process for you. An automated reconciliation tool highlights any discrepancies, reduces human error and saves your team’s time.
- Regular Training
Provide ongoing training for your team on industry best practices in reconciliation and accounting. Keeping your staff updated will help avoid common reconciliation errors.
- Monitor for Timing Differences
Timing differences are a common source of discrepancies. You should ensure that your team is aware of recent deposits that may not yet be reflected in the bank’s records.
Also, keep a record of checks issued but not yet cashed to reconcile accurately.
- Review for Data Entry Errors
A survey by the American Institute of CPAs found that 57% of accounting professionals identified data entry errors as a leading cause of reconciliation discrepancies.
Encourage data entry procedures or practices that reduce errors.
What a Modern Reconciliation System Does
- Easy onboarding of new modules or accounts
- Built in email function to facilitate communication and notification
- Realtime integration with your Core Banking System, with automated syncing of ledger entries and balances
- Manual reconciliation for unmatched items
- Real-time reconciliation and report generation
- Ingests data from any system
- Processes any data (Excel, PDF, Flat files, etc.)
- Supports Multi-Currency
- Automatic loading of transactions in real-time basis by replication from Core Banking selected tables.
- Multiple extractions of reports other than account. For example, one can spool all USD exceptions
at once as opposed to going through them individually. - Auto-File Movers: SFTP and Email Sniffing Capability for Third Party Files, ensuring minimized
- Latest Recon Reporting templates with Aging Analysis and Balance Proofing
- Loan and account charges reconciliation to detect leakages
- Records automatching robotics and machine learning
- Scheduled automated generation of reports at end of day.
- Administrator to add and amend matching criteria to minimize number of unmatched items. Flexibility in choosing allowable variance in matching.
only should be matched in cases of Nostro. - Reconciliation with one or more files that do not involve ledger transaction reconciliation
- Review and reversal of matched transactions in case of incorrect references
- Direct uploading of files not available to users in csv format
- Configurable access rights to enhance security.
Transforming Your Reconciliation
(Standardize, Streamline, Automate)
A proper reconciliation system goes a long way in streamlining your team’s accounting practices.
How can NLS Help?
NLS Tech Solutions has developed Ntellicheck, a modern system for real-time account reconciliations.
Ntellicheck automatically matches thousands of bank data daily, on any criteria, predefined in a configurable and intuitive rule engine module that leverages industry-best practices and technology.
Specifically, our reconciliation system’s flexibility has greatly reduced our clients’ reconciliation challenges. For instance, the system increases reconciliation efficiency by over 90%.
The result is ease in obtaining reports at month or period ends, among other features.
Let’s Talk
To help you through your journey, reach out to us on:
Phone: +254 701 -122 -281 Email: sales@nlske.com
