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Rod SmithThis month we’re revisiting a previous topic we’ve covered – reconciliations. In addition to my article, please see our guest column written by University Cash Manager Brett Kenney and Keyana Kimbrough, Accountant of Accounting Services.

Internal controls come in various forms and reconciliations are a very important part of this process. For instance, institutional records of purchase or return can be verified when conducting a bank reconciliation against the bank’s records. It is a necessary and important tool in preventing and detecting errors and even fraud.

I wanted to share ten important points related to reconciliations:

  1. Know the history and activities of the transactions that you are reviewing. Don’t let preconceived thoughts influence or cloud your understanding, but use these as a benchmark.
  2. Reconciliations should tell a story that is easily understood and followed. If it doesn’t make sense or you are unable to follow the data and connect it to the sources, find out why.
  3. Ask questions. If you engage in conversation, you keep folks accountable and it lets them know you understand the material and facts about the data, and you establish a tone – a mutual understanding that accurate and timely reconciliations are a priority.
  4. Review, research, compare, analyze, test, and evaluate the reconciliation with intention. By meticulously dissecting the material, you will be able to forecast, predict and make better informed business decisions.
  5. Report and present on reconciliations. The more familiar you and your unit are about reconciliation processes and the stories behind the reconciliations, everyone becomes inherently involved and knowledgeable. When something doesn’t seem right, more than one person will notice it or detect it.
  6. Have a backup plan. When someone is out, ensure others are involved to carry out the mission – training and timing is valuable.
  7. Have reconciliation discussions during your monthly calls or meeting. Sharing updates and even sharing information about subjects such as reporting timeliness, reconciliation challenges and common errors will be beneficial.
  8. Have deadlines and ensure those are met or exceeded. There need to be consequences for not remitting timely and accurate reconciliations so that people are held accountable.
  9. Attitude is contagious. If it is important to you, it becomes important for everyone involved.
  10. Act quickly. If there is an error or concern, you should act on it quickly – no delays.

A real-life story: A former colleague contacted me when I was with another organization. The person was recently promoted to a new position that conducted quite a few of the organization’s reconciliations.  As I had many years of experience with managing reconciliations and even leading large groups of training programs on the matter, we became accustomed to bouncing ideas and matters off each other. During one of our discussions, my colleague shared that they were concerned about a unit’s averages and account balances in comparison to previous and historical reports. As we met and studied the reports, we noticed many errors, corrections, and what appeared to be forced reconciliations. We also noticed the rapid speed in which their supervisor signed off on reports. It did not take us long to uncover falsified records and we were able to unfold a scheme that occurred over a six-to-eight-month period and had gone undetected for several months.

We determined the misconduct happened when a former manager from another region was given responsibility for reviewing their unit’s completed reconciliations and attesting that they were complete, accurate and done in a timely manner. However, this person never truly reviewed and combed through the reports as they should have. This person basically received the reconciliation in their in-box and submitted their approval with a digital signature within seconds after opening the report. The approver was acknowledging that they understood the data on the report, that they ensured the accuracy of the reconciliation and that they approved it – without actually doing their job. This allowed a person in their department to falsify reports and cover up a multi-thousand-dollar scheme.

Needless to say, the fraudster was quickly relieved of their duties as well as the person that attested to reviewing the reconciliations. During our interview, the fraudster shared that the environment created the opportunity for the scheme. They shared that the manager did not make reconciliations a priority and never asked questions. When early errors were covered up, the fraudster was never questioned or asked for accountability. The fraudster spotted the weakness and it was the gateway to the start of their scheme.

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