The Balancing Act of Account Reconciliation and Online Banking
Convenience Doesn’t Make Up for Inaccuracy
We are continuing our financial literacy discussion with something we all know about … or do we? We’re talking about online banking and its effect on our reconciliation habits (or lack thereof). In our daily routines, with our phones and computers easily assisting us with deposits, automated payments, and Zelle transfers, do we ever think about good old bank account statements and the ever-important task of regular bank account reconciliations? My guess for many is no.
Most of us happily “live” online. Our online lives provide convenience and speed like we’ve never known before. Simply, they provide what we all crave – instant gratification. As a society, we have become accustomed to having all of the information we need with the click of our mouse or a swipe on our smartphone. Dare I say, we tend to get a little lazy, not to mention, annoyed, when we don’t have instantaneous satisfaction. Everything from groceries to dinner delivery to setting appointments to virtual doctor’s appointments to online banking just helps make our lives easier. And we’re all for it.
With regard to online banking, being able to find out your balance, arrange for a payment, and make a deposit all from the palm of our hand is wonderful … in certain situations. However, in many instances, people are becoming far too reliant on this online information and forgetting about some of the basics, such as bank account reconciliation.
In the Days Before Online Banking
Once upon a time, long before online banking became a regular part of our lives, the standard practice for both personal and business checking accounts was to reconcile a check register to a monthly bank statement. You remember those days (or you should) – when you received your bank statement in the mail (yes, the actual mailbox, not email) and then you’d open your checkbook and go through line-by-line check-marking away to make sure each transaction was accounted for? Well, there was a reason for that. You need to know which transactions have cleared and which haven’t, so you can accurately determine how much is in your account (which, in reality, is not always what the number on the statement says).
Yet, when accounting professionals adopted online banking into their processes, organizations tended to forgo the discipline of maintaining a check register as part of their reconciliation processes. In the interest of increasing efficiencies, and feeling as if the ends no longer justified the means, reconciliation became an “obsolete” practice. But should it have? Absolutely not.
A Common Conversation
The following is a typical conversation I’ve had when consulting with clients on accounting process improvements:
Accounting professional (with a bundle of unsigned checks): “This is our process for obtaining check signatures.”
Me: “How do you know you have enough money in the account to cover these checks? What is your procedure?”
Accounting professional: “I checked the balance online this morning.”
Me: “Where is the reconciliation to the check register? How do you know that all of the uncashed checks will not deplete the entire balance?”
Accounting professional: “I know there are not that many outstanding checks.”
Me: “When is the last time you reconciled the account?”
Accounting professional: Answers range from “a year ago” to “I do not remember” (not good) to “yesterday” or “a month ago” (which is good).
Finding the Right Balance
I am not saying there aren’t times when viewing online balances without going through the reconciliation process is appropriate, but it’s not the final reconciliation resource. It’s okay to use online banking as an effective tool to manage your daily cash flow, but it requires the extra effort of being connected to a cash reconciliation process that is properly maintained and reviewed periodically. Without accurate and consistent reconciliations, your organization is at risk of fraud, unauthorized withdrawals, or bank errors. If left unchecked, these issues can quickly lead to cash flow issues that will hurt business operations and stifle growth.
Let’s avoid those situations with an experiment: If you are a CEO, President of a company, or a Finance Chair of a non-profit, ask the accounting department for the latest bank/cash reconciliation of the operating account. Ask specifically for these documents:
- The bank reconciliation
- A copy of the bank document to which it was reconciled
- The Balance Sheet balance to which it was reconciled
(Note: Publicly traded companies, financial institutions, insurance companies and other regulated industries have to maintain reconciliation procedures, so if you are in charge of one of those, regulation will take care of this.)
If you are bold enough to move forward with this call to action, my experience tells me about 50% of you will get a reconciliation completed in the last 45 days. If you get one and do not know how to review it, schedule time with me for a free, no-obligation checklist that will guide you through a high-level review.
If you do not get a reconciliation, and, in fact, get a blank stare from your accounting person, contact me to complete a review of your cash procedures and processes. You may have plenty of cash flow today, but how do you really know without a current reconciliation? Don’t risk finding yourself in a position where you cannot meet your basic financial obligations. “Cash is king” is a cliché’ for a reason – it’s true!