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BANK ACCOUNT RECONCILEMENTS Long Version - BAC long version

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BANK ACCOUNT RECONCILEMENTS Page 1
BANK ACCOUNT RECONCILEMENTS
A system of internal control may be implemented in many different ways. Because political subdivisions vary in purpose, size and complexity,
no single method of internal control is universally applicable. However, the five internal control components should be present and functioning in all political
subdivisions.
Questions have been accumulated for all five internal control components. This document includes questions pertaining to various
noncompliance issues regarding bank account reconcilements. These questions can be used to aid in designing a proper system of internal control over
bank reconcilements that will allow incorrect bank reconcilements to be prevented or detected and corrected in a timely manner. It is not necessary to
address all questions in this document. These are only suggestions and ultimately it is up to the unit on how they implement it. The internal control system
as a whole has to be designed and implemented appropriately in order to allow errors made on the bank reconcilement to be prevented or detected and
corrected in a timely manner.
Components of Internal Control:
Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring
Control Environment - Sets the tone of the unit and influences the effectiveness of internal controls within the unit. It comprises the integrity
and ethical values of the unit and is set by the governing board and management. The standards, processes, and structures which form the
control environment pervasively impact the overall system of internal control.
The questions in this section are divided by questions that pertain to the governing board, management and both the governing board and management.
Governing Board: YES NO
1) Does the governing board oversee the unit’s internal control system over the preparation and review of the bank reconcilement?
2) If considered necessary, did the governing board establish an oversight committee and appoint members with high ethical values,
excellent communication and problem solving skills?
3) Does the unit have a mission statement, objective and goals?
4) Does the governing board convey periodic messages of expectations to all employees?
5) Are there written policies documenting internal control procedures over the preparation and review of the bank reconcilement? If
yes, do these written policies outline the authority and responsibility for the preparation and review of the bank reconcilement within
the unit and require bank reconcilements to be performed monthly?
6) How involved is the governing board in understanding the unit's bank reconcilement process, overseeing the effectiveness of internal
controls over the preparation and review of the bank reconcilement, and evaluating whether the accounting records that support the
bank reconcilement are correct? For example, is the governing board’s involvement limited to attending board meetings, or does the
board oversee other things such as unit controls, accounting practices, etc.
7) Does the governing board have a complete listing of all bank accounts?
8) Did the governing board develop an organizational chart? If yes, is the organizational chart current and accurate?
9) Have job descriptions been created outlining specific duties? Is yes, do these duties address responsibilities required for the
preparation and review of the bank reconcilement
10) Has fiscal authority been formally delegated to specific management personnel?
11) Did the governing board develop a formal employee evaluation system to set the intervals in which employees will be evaluated? If
yes, does the formal evaluation system include disciplinary action that will be taken if an employee does not meet the expectations
noted in the evaluation system?
12) Does management provide documented processes regarding the preparation and review of the bank reconcilement to the
governing board for review?
13) How does the governing board oversee the activities of management that are related to financial reporting? What oversight does
the governing board give on the accounting records?
14) Are accounting department employees required to take vacations?
15) Has the governing board developed and implemented an ethics policy? If yes, does the policy address potential conflicts of
interest? Is there a system of annual acknowledgment in place where either through e-mail submission or manual documentation,
each official and employee attests that they have read the policy and will adhere to the policy?
BANK ACCOUNT RECONCILEMENTS Page 2
YES NO
16) Are there regular meetings of the governing board to set policies and objectives and review the entity’s performance?
17) Are the minutes of such meetings prepared and signed on a timely basis?
18) Are confidentiality agreements required for employees who come in contact with confidential information?
19) Are policies regarding personal use of computer equipment and software clearly stated?
Management:
1) Does management develop and maintain documentation of the internal control system regarding the preparation and review of the
bank reconcilement?
2) What procedures did management put in place for the preparation and review of the bank reconcilement and review of cash and
investment balances?
a. Does management assign responsibility and delegate authority to achieve a correct bank reconcilement and ensure it is
prepared monthly?
3) Have all bank accounts been reported to management?
4) Does management establish an organizational structure, assign responsibility and delegate authority in order to achieve a correct
bank reconcilement in a timely manner? If yes, did management establish and document the organizational structure of each office
and department? Examples of items to incorporate into the structure could include: an organizational chart, outline of specific
duties, designation of responsible persons for each part of the accounting process, documentation of internal control procedures over
specific accounting areas, etc.
5) Does management ensure compliance with the unit’s personnel policies and procedures concerning hiring, training, promoting and
compensating?
6) Does management check credentials and references for new employees?
7) Do employees who are involved in the preparation and review of the bank reconcilement receive continuous or periodic training? If
yes, what kind of training do employees receive to help them maintain their accounting and financial reporting competencies?
a. What background, education, and experience do accounting personnel have that assist them with their duties?
8) Does management reward employees for following good internal control practices through promotions or increase in
compensation?
9) Is turnover of key fiscal personnel relatively low?
10) Does the workload of accounting employees facilitate the preparation of reliable accounting records?
11) Does management evaluate performance and hold individuals accountable for their responsibilities? If yes, what action is taken
for employees not performing their responsibilities?
12) Is cross training completed to ensure that more than one employee is knowledgeable about the bank reconcilement process?
This cross training would allow more than one employee to be aware of potential design deficiencies in the internal controls or of
noncompliance with internal controls.
13) Do accounting supervisors frequently prepare reports or reconciliations to verify the accuracy of financial transactions?
14) Does management take an active role in the financial reporting of the unit?
15) Is management actually involved in supervision of the various functions?
16) Does management ask employees for their suggestions on how to improve processes?
17) Has management given a high priority to its internal control structure?
18) Does management emphasize meeting the budget and/or financial and operating goals?
19) Is management willing to adjust the financial statements for misstatements that approach a material amount?
20) Does management discuss internal controls at management and other staff meetings?
Governing Board and Management:
1) Does the governing board and management stress adherence to policies and procedures?
2) Is there a clear assignment of responsibility and delegation of authority to deal with such matters as organizational goals and
objective, operating functions and regulatory requirements?
3) Is the entity meeting its financial obligations?
BANK ACCOUNT RECONCILEMENTS Page 3
Risk Assessment - Risk is the possibility that an event will occur and adversely affect the achievement of objectives. Risk assessment is the
process used to identify and assess internal and external risks to the achievement of objectives, and then establish risk tolerances. It is the
basis for determining how risk will be managed.
Control Activities - The actions and tools management establishes through policies and procedures that help to detect, prevent, or reduce the
identified risks that interfere with the achievement of objectives and to respond to risk in the internal control system.
An integral part of the control activity component is segregation of duties. However, in very small governmental units, such segregation may not
be practical. In this case, compensating activities should be implemented which may include additional levels of review for key operational processes and
random and/or periodic review of selected transactions. In smaller units, these reviews and testing of processes might be performed by governing boards
or other elected officials.
There is an expectation of segregation of duties. If compensating controls are necessary, documentation should exist to identify both the areas
where segregation of duties are not feasible or practical and the compensating controls implemented to mitigate the risk. Clear documentation should be
maintained for continuity as well as ease of communication to outside parties.
YES NO
1) Does management identify, analyze and respond to risks regarding the preparation and review of the bank reconcilement?
a. What areas have been identified regarding the preparation and review of the bank reconcilement that may be exposed to risk?
i. Risk factors may include non-compliance with statutes, changes in management or employees, competence and experience
of personnel assigned to the bank reconcilement process, findings reported in prior audits regarding the bank reconcilement,
new accounting system, new technology allowing alteration of documents, volume of receipt and disbursement transactions,
susceptibility of fraud occurring in receipting and disbursing activities (including both misappropriation of assets and fraudulent
financial reporting), bank errors and various fees not investigated timely, nonsufficient checks received and no timely follow up,
insufficient documentation, interest and finance charges, unauthorized access to accounting applications, override of system
controls, etc.
b. Does management analyze the identified risks to determine the effect of risk on achieving a correct bank reconcilement? For
example, does management consider how likely the risk will occur, if the risk is based on complex or unusual transactions, if the
risk is based on fraud, etc.
c. How has management addressed risks associated with using computerized accounting records, such as unauthorized access
to applications or data, potential loss of data, and reliance or inadequate systems that may adversely affect internal control?
d. How has management responded to identified risks? For example, management may accept the risk and take no action,
choose to eliminate certain processes to avoid the risk and/or institute proper internal controls.
e. When needed, does management go back to the governing board to enact or modify policies that will that will clearly define
these areas?
2) Does management clearly define proper procedures for the preparation and review of the bank reconcilement to enable the
identification of risks and to define risk tolerances? Written procedures should be clear and address items such as who will be
involved in the bank reconcilement process, how a correct bank reconcilement will be achieved and when will proper bank
reconcilement procedures be in place.
3) How does management prevent fraud and errors in the accounting records, which are used to compute cash and investment
balances? For example, are important internal control procedures in place such as approvals, regular preparation or review of
reconciliations, review of supporting schedules or reports, etc.?
4) Is management continually aware of changes, both external and internal, that could affect a correct bank reconcilement? If yes,
does management determine any modifications needed in the internal control process to adopt to these changes?
5) Did the governing board or management incorporate external requirements, such as state statutes and Uniform Compliance
Guidelines?
6) What procedures are in place to ensure that the information reported on the bank reconcilement is correct and reflective of the
accounting records and the bank reconcilement is performed monthly?
7) Are employees involved in the bank reconcilement process bonded?
YES NO
1) Is there a system of checks and balances (segregation of duties) to ensure a correct bank reconcilement?
a. Are responsibilities for reviewing the bank reconcilement segregated from those preparing the bank reconcilement?
b. Are responsibilities for preparing the bank reconcilement segregated from those involved in receipting and disbursing activities?
c. Are responsibilities for preparing a reconcilement between the receipts ledger and the credits to the bank account segregated
from those involved in the receipting process?
d. Are responsibilities for preparing a reconcilement between the disbursements ledger and the debits to the bank account
segregated from those involved in the disbursing process?
BANK ACCOUNT RECONCILEMENTS
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Page 4
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Information and Communication - Relevant information from both internal and external sources is necessary to support the functioning of the
other components of internal control. Communication is the continual process of providing, sharing, and obtaining necessary information.
Monitoring – Activities that allow management to assess the quality of internal controls over time and make adjustments as necessary. Proper
monitoring ensures that controls function properly.
YES NO
2) Does management present the bank reconcilement to the governing board for review and approval?
3) Did management design the entity’s information system and related control activities to ensure the proper preparation and review of
the bank reconcilement?
a. Did management implement control activities through written policies?
b. Is access to the bank reconciliation applications appropriately controlled by user logins and passwords?
c. Do individuals involved in the bank reconciliation process share their user id and password?
4) Are bank statements received directly by the appropriate level of management or another appropriate person and reviewed prior to
routing to the individual who performs the bank reconcilement?
5) Does management or a designated individual review and check the accuracy of the bank reconcilement by comparing it to
supporting documentation used and verify the bank reconcilement was performed monthly? If yes, is this review documented as
evidenced by initials, tick marks, etc. indicating procedures performed?
6) Are canceled checks examined to ensure vendors are recognized, signatures are by authorized signers and endorsements are
appropriate?
7) Are bank statements and cancelled checks examined to ensure checks are not issued out of sequence?
8) Is the individual authorized to oversee the bank reconcilement knowledgeable in the bank reconcilement process?
9) Does the individual authorized to oversee cash and investment balances understand the unit’s recordkeeping system?
10) Is there a checklist for the preparation and review of the bank reconcilement that includes the following?
a. Employee names with their responsibilities and duties
b. Deadlines for completing the bank reconcilement
c. Detail of supporting documentation required
d. Supporting documentation required for all reconciling items
11) Is there a periodic investigation of checks outstanding for a considerable time?
YES NO
1) Are procedures established to ensure that proper communication and documentation exists for internal communications between
offices, departments, management and the governing board regarding the preparation and review of bank reconcilements?
a. How does the unit internally communicate information to employees regarding the preparation and review of the bank
reconcilement, including responsibilities for internal control? Are records maintained to document this communication?
b. Are procedures established to ensure that the communication requirements are being followed and necessary information is
being communicated properly?
c. Are procedures established for feedback on and clarification of the information provided?
2) What procedures are in place to collect the information needed to complete the bank reconcilement?
a. Does management use the most current information available to ensure the bank reconcilement is correct?
YES NO
1) Are procedures in place to ensure that appropriate personnel perform their required duties sufficiently and adequately follow the
policies and procedures of the unit regarding the preparation and review of the bank reconcilement?
2) Are internal controls over the bank reconcilement process evaluated for weaknesses on a regular basis? For example personnel
changes, newly elected officials, new technology, etc.
a. What follow-up action is taken for identified problems or weaknesses in internal controls regarding the preparation and review of
the bank reconcilement?
3) Are monthly reports detailing receipts, disbursements, cash and investment balances and appropriations of the funds provided to
the appropriate department to review for accuracy and reasonableness?
4) Are monthly reports detailing receipts, disbursements, cash and investment balances and appropriations of the funds provided to
management to review for accuracy and reasonableness?
5) Are monthly reports of receipts, disbursements, cash and investment balances and appropriations of the funds provided to the
governing board to review?
6) Does a confidential reporting system exist so that individuals may report suspected fraud and abuse of the unit’s policies?
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Completed 8 June 2020

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