PROTECTING YOUR COMPANY: BANK RECONCILIATIONS

Tax Question:

How does preparing bank reconciliations help to detect and prevent possible fraud?

Facts:

A bank reconciliation explains the difference between the balance in the bank account per the accounting records and the balance actually in the bank at any given time. The bank reconciliation should be prepared and reviewed monthly to analyze the differences and help detect errors or fraud. This internal control will also help deter fraud.

Discussion:

The bank reconciliation should be prepared monthly by someone involved in the record keeping for the company and reviewed monthly by an owner or the Chief Financial Officer (CFO).

The bank reconciliation report provides a list of the cheques and payments that have cleared the bank that month. These lists should be reviewed by the owner to ensure that there are no duplicates (no payment has been issued twice) and that all vendors appear legitimate and amounts appear reasonable. If an amount or vendor appears questionable, the cancelled cheque should be viewed and the payment investigated. The bank reconciliation report also provides a list of deposits and funds received that month. This amount can be compared to other internal reports such as customer receipts and cash and credit card sales to ensure it is correct. Furthermore, the bank reconciliation report lists outstanding deposits and cheques. These items should be reviewed for reasonableness.

Is it reasonable that those deposits had not yet been deposited as at the report date or should this be investigated as potential fraud? Are there any duplicate payments that need to be investigated? Dawn Loeffler, (Hons), CPA, CA Manager, Gilmour Group CPA’S

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