Some of our viewers have requested a video that provides detailed instructions on how to reconcile their bank accounts. The biggest reason we do not have a reconciliation video is because we do not recommend someone who is not an accounting professional do their own reconciliations. There is a certain amount bookkeeping that the average business owner can do on their own, especially with the powerful new tools that are coming out daily. Even with all the advances in technology there are still some things that are better left to a professional.
Joe Woodard put it best in a recent webinar to a group of Woodard Group leaders: If they came out with Quick Auto CAD, that would not mean that everyone had enough knowledge of engineering to design and build their own home. To attempt to do so would result in buildings falling down right and left. It is the same with accounting, and this is one of the primary reasons why businesses fail. Regular oversight is a necessity, and the reconciliation process is part of this oversight.
One of the big concerns with bringing reconciliations in house is that, almost instantly, the business’ risk for fraud goes up. Many business owners want to save a few dollars by having an employee review and reconcile their accounts. This creates the opportunity for that employee to commit fraud against your business, as the checks and balances are no longer in place to prevent that opportunity. If there is a single person managing accounts receivable, accounts payable, and bank reconciliation, it becomes very easy for them to hide money that is being taken out of the business. Always remember that trust is not an internal control! As much as you trust that staff member, you don’t want to give them that much access to your finances.
For more information on internal fraud, check out the Polymath Blog on this topic.
The reconciliation is often where we catch external fraud. Do you and your staff member know what to keep an eye out for? Can you tell if a payment to a government office is legitimate or fraud? These are the kinds of things that you need a professional to assist with.
Often the only time we get the opportunity to look at our clients’ books is when we reconcile their bank accounts for the previous month. Reconciliation keeps your bookkeeper in the loop with what is going on and allows an opportunity for that much-needed oversight. Then they can bring any important questions to your attention. Are all checks clearing the bank in a reasonable amount of time? Does something look fishy? Did a regular bill from a vendor suddenly jump by a hundred dollars? What don’t you know? Your bookkeeper cannot help you if you do not let them review the monthly activity.
For more information on external fraud, check out the Polymath Blog.
It is important not to shut the bookkeeper out of the picture. A small monthly investment on real professional services will save mountains of time, money, and frustration in the long run.