If you are not the individual who prepares the bank reconciliations for some or all accounts, take over the task for one month. If you don’t look at the monthly bank statements, take a look at them and view the transactions. Ask questions.
When you have a level of comfort with the reconciliations, go back to your usual routine and consider spot checks throughout the year. If the staff member who does the reconciliations is leaving or has left the school district, take over the routine for a few months so you can better train the new team member.
Basic Reconciliation
The basic bank reconciliation formula is as follows:
Opening book balance
+ deposits
− expenditures
+/− reconciling items
= revised book balance
(should tie out to your general ledger cash balance)
Compare to:
Ending bank balance
+ deposits in transit
− outstanding checks
+/− reconciling items
= revised bank balance
Book and balance should agree.
Issue #1: You have deposits in transit that carry from one month to the next.
This should not occur. Was the deposit lost? (If so, it should have been taken care of within a few days of the reconciliation.) Did the deposit never take place? Was it a deposit recorded twice? Was it a deposit that went into the wrong bank account?
Go back to the month that the deposit in transit started and work from there. This issue should be resolved immediately and include an explanation to your auditors.
Issue #2: You have a large number of outstanding checks, some over a year old.
A best practice for outstanding checks is that any check over one year (or six months) should be declared stale, written off via board resolution, and replaced with a fresh check (if needed after investigation).
Going back to the purchase order will help you determine why the check is still outstanding. It could be something a simple as the check was written but is sitting in your business office safe awaiting paperwork.
Another explanation is that the check number on the outstanding list is the incorrect check number (this sometime occurs if you have many checks written for the same amount – transportation reimbursements are an example).
While there may be a large number of checks, and it could take time to research each check, the end result will enable the business office to report accurately to the board and the superintendent what occurred and how the matter was resolved.
Issue #3: Deposits are being recorded but they are not matching the bank statement.
If you have transactions that are mostly cash (food service, clubs, athletics), and you are finding that the deposit is not matching the bank statement, or the bank is calling you to say the deposit ticket is wrong, new procedures may be necessary to ensure accurate deposits.
For a short period of time, double count the deposit yourself before it goes in the sealed bank bag. If the deposit that you counted (and double counted) is still incorrect, speak to the bank. Together, you should be able to resolve the differences.
If the deposit you count is incorrect before it goes to the bank, then the difference could be human error. The deposit should tie out to a reconciling sheet that lists what is being deposited and the form of each deposit. An example would be a club deposit: 4 ticket sales at $20 each = $80.00. The deposit should tie out to $80.00. If it doesn’t, then the advisor needs to become involved to determine why the deposit does not match.
Item #4: You keep having penny differences.
Check your transfers—payroll and other accounts. Check your deposits to make sure what you recorded matches the amount on the statement. Look at your checks: Did they clear for the amount they were written for?
Sometimes you may never find the penny difference—which I theorize to be a rounding issue within the accounting programs. If that occurs, speak to your auditor about a journal entry or deposit of the cents difference to clear it up.
With the increase of fraudulent transactions, banks are taking multiple steps to ensure monies are not lost to bad actors. Sometimes these transactions still occur. If you realize you have a case of fraud, get your bank involved and document everything on your bank reconciliation. Here are two examples of account issues:
- Check was written to company xyz for $2,500. Check was cleared with the payee name changed, thefont spacing and font style “off” on the check, the signatures looked like they were cut/pasted.
- Check was received by correct payee. Check was paid in June 2023 and then was paid again inOctober 2023.
In both cases, the bank will need copies of all paperwork and should make all adjustments back to your account. These items will now be reconciling items on your monthly work and should clear within the next month.
If you notice many reconciling items that are not clearing out each month, research each open item and find out what needs to be done to resolve it (similar to deposits in transit).
Resolving Differences
Here are some helpful hints if you have differences:
If your bank reconciliation is out but your cash trial balance ties out, the issue is with an outstanding check or something that did/did not occur on your statement. If you are out, follow this check list:
- Tie out cash receipts to bank statement.
- Double check outstanding checks.
- Double check opening book numbers and ending prior month numbers—there may have been avoided check in the prior month that has changed your opening/closing numbers.
- Double check amounts paid on checks.
- Tie out payroll/agency transfers and any other transfers to actual disbursements.
Final note: If you have a treasurer who prepares bank reconciliations, prepare your own reconciliations as well. Having parallel books for your most important account, cash, is never a bad idea.
Being confident in the bank balances for all accounts of a school district is important. Business officials use these statements for forecasting, monitoring cash flow, and assuring board members, the public, and state agencies that the funds are accounted for. When this does not occur, the trail to resolve the issues can be long, painful, and expensive.