Internal Control Accuracy

Internal Control in Account Reconciliations – Accuracey

“Ha,” you just said to yourself, right? See how easy it was to catch the misspelling of accuracy?

Don’t you wish you had a “spell check for numbers”? Wouldn’t it be great if somehow your systems knew when a manually-input figure was incorrect? Or better yet, when a system-generated figure was incorrect.

The AICPA, in its Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement report, states “Generally, IT provides potential benefits of effectiveness and efficiency for an entity’s internal control because it enables an entity to: Enhance the timeliness, availability, and accuracy of information.”

In the following paragraph however, the AICPA cautions on the overreliance on IT as it poses risks with the possibility of inaccurately processing data and unauthorized manual changes.

There are always exception reports. But, as the AICPA points out, the user of the report should know the policies and procedures pertaining to the review and should be able to ascertain the accuracy of the information in the report.

In the November 2014 142-page audit of the EPA, one of the items they were cited for was not properly reconciling accounts receivable. “When the agency cannot accurately reconcile the accounts receivable subsidiary ledger to the general ledger and correct differences, the agency cannot ensure financial statements are properly stated.”

Obvious, right? When you have thousands of accounts to reconcile, nothing is obvious.

The EPA was also cited for one system not reconciling to another system, leading to the inaccurate depreciation of an $80,000 piece of equipment.

In many cases, it appears as though an account reconciliation system with checks and balances in place that produces reports and builds transparency into the processes might have helped prevent many of these issues. A knowledgeable staff always helps, but this is where policies and procedures come into play.

While there does not appear to be a “spell check for numbers”, there are some simple things you can put in place to help with accuracy.

1. Bring in the reviewers. Ideally, reviewers are separate from preparers in function. For example, have someone not in accounts payable review the work completed by the accounts payable team.
2. Ensure your account reconciliation policies and procedures are in place, are current and are accessible. The account reconciliation preparers and reviewers need to know what to do when questions arise in order to minimize risk of error.
3. Set up a dashboard to track reconciliations, variances and close tasks. Meetings work but having visibility without having to disturb others for a status update is optimum.

It may feel that when ensuring these three changes are in place that you are just adding more work to the already nearly insurmountable list of tasks that need to be completed in the account reconciliation and financial close process. In reality, you are establishing safeguards against internal control weaknesses, the potential for fraud and nasty old errors.

One relatively simple thing you can do to build accuracy into your account reconciliation and month-end close processes is to implement an account reconciliation automation solution. You’ll find that most solutions automate much of the manual work and in turn set up a workflow with built in segregation of duties that separates preparers and reviewers and also requires policies and procedures to be readily available. And since all account and close activities are going through one system, good solutions provide customizable dashboards allowing real-time statuses, variances and other information to be seen with the click of a mouse.

SkyStem’s account reconciliation and financial close automation solution, ART, helps you strengthen processes and internal controls, therefore helping ensure accuracy in your reporting. See how here.