Bank Reconciliation Process

Employees in a county sheriff's department failed to perform the monthly bank reconciliation of a trust fund in a timely manner. The staff waited more than 90 days from the bank statement date to perform this routine task. To their dismay, they found that 28 bogus checks in the amount of $28,162 had cleared the bank. The government suffered this loss when the bank denied the claim because the staff filed it after the required deadline. It was a high price to pay and a hard lesson learned for neglecting a routine, but essential, review. This case remains unsolved because law enforcement officials haven't been able to identify the perpetrators, a common fate for such investigations. 

 

BANK ACCOUNT RECONCILIATION PROCEDURES 

In the July/August 2008 column, I discussed the bank reconciliation process that's essential to thwart the check fraud threat posed by outsiders. (For a brief review of these procedures see the sidebar on page 12.) I can't overemphasize the role of the independent reviewer or business owner in scrutinizing redeemed checks. He or she must determine if the organization actually issued all the redeemed checks and look specifically for check fraud, warrant fraud, and debit card fraud (that is, false transactions outsiders have created using the organization's bank account number). The reviewer must be aware that bogus checks might be practically identical to the original checks and also determine if all redeemed checks were issued to authorized employees and official vendors for a legitimate business purpose. 

 

We'll continue our discussion of bogus financial instruments in this column, focusing on the importance of reporting or filing claims on time. A missed deadline ensures you'll suffer a loss. Auditors and fraud examiners also should consider these requirements about the timely reporting of bogus checks, debit card transactions, and warrants. In any case, the organization should notify its bank immediately when bogus financial instruments are detected.