Ask an auditor where one is likely to find problems during the course of an internal or external audit and the answer is likely to be "un-reconciled accounts". It is not uncommon for unresolved balances to be carried from year to year in even the most well run companies with only sparse explanations being recorded to explain away the differences.
Leaving general ledger accounts un-reconciled for a lengthy period of time is generally a bad idea - peoples' memories fade over time and tracing errant transactions making up reconciliation differences can be onerous and unrewarding. Yet few companies have a documented policy and programme of review, leaving them exposed to risk of error and nasty surprises at the year end.
The issue is even more critical for those organisations caught by Sarbanes Oxley (SOX) legislation or in heavily regulated industries, such as financial services and the professions. Nowadays, non-compliance can lead to hefty fines and reputational damage.
It is a problem familiar to Trintech plc, a company that specialises in the development and application of reconciliation software. Anthony Rafter, a business analyst at Trintech told FSN, "It's not unusual for companies to reconcile just one in fifty general ledger accounts."
Naturally, not all general ledger accounts need reconciling on a regular basis and clearly any regular programme of review should ideally be risk based in order to optimise the use of scarce accounting resource. But certain accounts are prone to error and can give rise to material accounting adjustments if left un-reviewed for any length of time. The problem isn't just confined to general ledger accounts with high transaction volumes such as bank accounts and other forms of control account. Inter-company accounts and depreciation accounts can be just as risky, particularly when magnified on a divisional, regional or group-wide basis. So if reconciling accounts is so important why do so many companies leave it to chance?
For many organisations the sheer scale of the task is off-putting and the administrative effort is burdensome. Identifying the accounts for review and setting up a rolling programme of reconciliation in a matrix based organisation is time consuming. Furthermore, keeping an eye on progress usually relies on manually intensive processes. The result is that many organisations simply neglect important reconciliations hoping that other management controls will compensate.
Another problem is that reconciliations are almost by definition idiosyncratic. Bank account reconciliations are the exception because they lend themselves to a routine approach, but the position for other general ledger accounts is less obvious. The manner in which more unusual accounts are reconciled can be highly individual and often relies on the knowledge of key individuals within the organisation. The methods used often go undocumented making it difficult to move staff from the reconciliation of one account to another. For many it is a question of trying to 'make do' based on previous period's working papers. Furthermore, as reconciliations are often effected through standalone spreadsheets, management often lose visibility of the entire process.
However recent developments in technology mean it is now possible to take a more systematic, controlled and robust approach to the task of reconciling general ledger accounts. Trintech, for example, has developed a product called AssureNET GL which is specifically designed to allow companies to gain control over the reconciliation process.
The product comes with pre-built reconciliation templates to aid the standardisation of more common reconciliations but for the more specialised accounts management can embed its own reconciliation methods in account maintenance. By imposing this level of standardisation management can be sure that reconciliations are carried out in an appropriate way and to an acceptable standard. Also by documenting the procedure it is easier to move reconcilers from one account to another with the minimum of training effort and disruption.
A key benefit of the AssureNet GL product is that it turns reconciliations from a haphazard management effort into a dependable process. Using the system, management can assign responsibility for reconciling and reviewing accounts to individuals throughout the company. Deadlines can be set for account reconciliations and integration with email and workflow capability means that reconciliations when completed can be routed automatically to reviewers for approval and electronic signature. Task lists for both reconcilers and reviewers encourages timely reconciliations and resolution of problems.
Dashboards within the software allow those involved to have complete visibility of, for example, percentages of reconciliations started, competed or late, allowing management to take remedial action to bring reconciliations back on course. Comprehensive statistics of, for example, the number of accounts reconciled or reviewed on time can be derived at management's option, for a segment of the general ledger or for a single company, division or geographical segment. In this way, the system encourages continuous process improvement and promotes efficiency as well as a 'tighter ship'.
Similarly, the software allows management to prepare and monitor the progress of Quality Assurance Reviews and provides complete oversight of unassigned accounts, delinquent reconciliations and pending changes. Importantly, the functionality is available over the web so that management can enquire on progress from anywhere in the world and take action as appropriate.
Another major benefit of AssureNET GL is that supporting electronic working papers can be filed with the reconciliation and review so that all relevant documents evidencing the work that has been done can be stored in one place. For accounts with high transaction volumes, such as bank accounts, AssureNET GL integrates with Trintech's sister product, ReconNET (the transaction reconciliation system) so that fully documented reconciliations can be stored in AssureNET GL.
The task of reconciliation may be at the unglamorous end of management processes but few companies can afford to ignore the perils of un-reconciled accounts. Timely reconciliations are vitally important to an effective governance, risk and controls environment. In the past, the lack of systems support has been a significant handicap but the arrival of applications such as AssureNET GL has created the opportunity to turn a neglected area of activity into a robust process. The application will be broadly welcomed by companies struggling with the rising tide of regulation or simply seeking to improve their operational efficiency and financial control.
