Accounting and Reconciliation
Some organizations get into quite a mess by not doing their reconciliations. Take a look at a couple of recent news reports to see what I mean:
Other concerns raised by the assessment include … errors that were discovered while trying to perform a bank reconciliation.
“It turns out that the discrepancy to the bank ledger is so vast that we couldn’t reconcile it,” Wanat said. “What that means is on your general ledger, you do not know if you have revenues due; you don’t know if there are expenses that are outstanding; … you don’t know your financial position.”
Despite recommendations from the IMF for the administration to restore financial control and accountability … government is failing to conduct regular reconciliation of its bank accounts … the continued lack of bank reconciliations is a “matter of serious concern as they are a detective control measure to identify potential misappropriation or loss of public money.”
Source govt risks another cashgate
Simply completing your reconciliations correctly puts you into the comfortable position of knowing your financial position. Conversely, not reconciling means that you don’t know your financial position. There’s a world of difference between the two.
I once took up a position as Controller at a business that had not kept going with its reconciliations. The most recent bank reconciliation was almost a year old and cost only three or four days and a couple of thousand dollars to correct.
There was a much worse problem in the revenue recognised on long term contracts: the accumulated value in the general ledger wasn’t reconciled to the project detail spreadsheet. The spreadsheet totalled to a figure about $350k smaller, which led to a far more uncomfortable adjustment to the accounts. (The spreadsheet itself also had errors, which of course made the problem worse.)
Fortunately for me, although I delivered the bad news I didn’t have to carry the can for it because I’d just arrived. The impact on the CFO was… well, let’s just say a lot more significant.
Uncover any problems in the accounts as soon as possible when taking up a new position, so they can’t be seen as your fault.
Make reconciling a habit so that all sources of information are made to correspond and your financial position is known.
Rule of thumb – expect accounting errors always to adjust the results in the same direction – downwards.