Account Reconciliation & Segregation of Duties
PURPOSE
Account Reconciliation is a comparison of the department’s monthly financial reports to supporting documentation, which is retained in the department. Reconciliation, verification and substantiation are essential for an effective internal control environment to ensure:
- The accuracy and validity of the entries and balances
- The records are accurately recorded
- Unauthorized changes/charges did not occur
- Resolution of discrepancies in a timely fashion
Objective: To provide policies and procedures on reconciling and reviewing departmental accounts for oversight of transactions and protection of University assets.
POLICY
Policy Statement
This policy governs reconciling, verifying and substantiating financial information used by University personnel for administrative and programmatic decision-making. A review and reconciliation of financial records should be performed on a monthly basis.
Accountability and procedures must be assigned and in place in each department to ensure that inaccuracies or incomplete financial information identified during the reconciliation or verification process are investigated and corrected in a timely manner.
Materiality, compliance risk, transaction detail volume, knowledge and experience of personnel performing analyses, and other factors should be considered in the design and implementation of account reconciliation and the subsequent review process.
University personnel must comply with the requirements of this policy to ensure that an effective internal control environment is maintained.
Internal controls are the practices performed by departments to provide management with reasonable assurance that assets are safeguarded and transactions are authorized, valid, complete and accurate.
PROCEDURES
Although departments must review their ongoing activity on the University's accounting system, a formal reconciliation of the accounting records should be performed monthly. A reconciliation of accounts consists of the following process.
- Compare departmental records with the current month's transactions (encumbrances, charges, and deposits) listed on the department's ledgers.
- Verify the end date and ensure that charges occurred within the allotted period.
- Ensure that all transactions appearing on the reports are supported by the department's records and are accurate and authorized.
- Sign and Date the account reconciliation.
- Provide the reconciled accounts each month for review to the department head or to designee, if designated in writing.
Retaining Documentation
Supporting documentation for detail items comprising the balance in the account should be retained. Supporting documentation for items relating to period activity in the account analysis should be kept in accordance with record retention guidelines. http://www.utdallas.edu/BusinessAffairs/records-retention.pdf
SEGREGATION OF DUTIES
Although a monthly reconciliation of the department's accounts is an excellent control, the oversight and control value of the reconciliation is greatly diminished when performed by the same employee who, for example, entered the transactions or processed the invoice for items purchased by the department.
Therefore the second important control in overseeing the department's financial records is the review and approval of the reconciled accounts by an authorized approver.
Review of the accounts reconciliation ensures oversight of all department funds. This review helps ensure that all financial transactions are appropriate, accurately described, and properly recorded. This review also provides management with information about the status of budgets under their control.
The Review and Approval Process:
The review and approval of the accounts is a broader and less detailed process than the steps involved in the reconciliation. Specifically, the approver should ask himself or herself the following questions:
- Do the transactions appear appropriate for departmental/University business?
- Are there any suspicious-looking transactions?
- Does it appear that the accounts have been reconciled (i.e. the reconciler has signed and dated the reconciliation and made notes, check marks or other indication of a thorough review)?
- Has the reconciler explained any unrecognized transactions?
The reconciled accounts should be provided to the department head or their designee for review and approval. The approver should have signature authority on the account, and should sign and date the reconciliation to indicate there were no unauthorized transactions. All monthly reconciliations must be signed by both the preparer and the approver.
DEFINITIONS
Comparison:
The process of examining financial information for similarities or differences.
Reconciliation:
The process of comparing information that exists in two systems or locations, analyzing differences and making corrections so that the information is accurate, complete and consistent in both systems or locations. For financial reporting purposes, the process includes comparing the local unit's record of financial information to the general ledger.
Review:
The process of examining financial information for accuracy and reasonableness. If determined to appear inaccurate or unreasonable, further investigation is warranted.
Verification:
The process of examining information contained in an account, report or system to ensure that it is accurate and complete.
Last Updated: July 8, 2011
