Who should reconcile a consultancy's bank account
Who should prepare a consultancy's bank reconciliation, who should review it, and how an outside accountant can act as reviewer with the right access.
By Achekam · · 4 min read · For Consulting businesses in South Africa, Nigeria, Kenya
In a small consultancy there is often one person who "does the finance". They capture supplier invoices, load payments on the banking app, chase clients, run payroll and, at month end, reconcile the bank. The partners trust them, often with good reason, and the reconciliation is signed off as complete.
The trouble is that a reconciliation prepared by the person who also makes the payments is checking their own work. If they make a mistake, they are the least likely to see it. If, in a bad year, they are tempted, the reconciliation is the one control that should catch them, and they are the one doing it. The question is not whether that person is honest. It is whether the firm has arranged things so that it does not have to rely on anyone being perfect.
Reconciliation is the control that catches what slipped through
Investopedia identifies reconciliation, comparing two sets of data, as the most important detective control, with corrective action taken when material differences are found. A bank reconciliation compares what the bank says happened with what the books say happened. Every payment that should not have gone out, every receipt that never arrived, every duplicate and every transposed figure shows up as a difference somewhere.
That only works if the person comparing the two sets of data has no reason to explain differences away. For more on how reconciliation fits with the other controls, see preventive and detective controls for a consultancy.
Why the person who pays should not reconcile
AccountingTools states that no single person should control authorisation, recordkeeping and custody of assets for the same transaction. Its guide to segregation of duties explains how to divide those three functions, and what to do when a small business does not have enough people to divide them fully.
In a consultancy, the three functions around a supplier payment look like this:
| Function | Who does it in a well-run consultancy |
|---|---|
| Authorisation: approving the bill and the payment | Engagement partner or managing partner |
| Recordkeeping: capturing the bill and payment in the books | Finance officer |
| Custody: releasing the payment from the bank | A partner with banking authority, or two signatories |
The bank reconciliation is a check across all three. If the finance officer captures payments and also releases them, someone else should at least review the reconciliation. ACCA describes the underlying idea as internal check: arranging accounting procedures so that no one person has absolute and independent control, with each person's work complementing another's on a continuous, day-to-day basis.
A reviewer who did not prepare it
Where there are enough people, the cleanest arrangement is a preparer who does not handle payments and a reviewer who did not prepare the reconciliation. Where there are not, aim for the second half at least: someone other than the preparer reviews and signs it off.
ICAEW's recommendations on controls over cash flow reporting support this. ICAEW advises reconciling reports to bank and creditor statements, showing when they were prepared, having them reviewed by someone other than the preparer, and reconciling them to profit and loss and balance sheet movements. Applied to the monthly bank reconciliation, that means:
- the reconciliation is dated, so the reviewer knows it was done on time;
- a named person other than the preparer reviews it;
- the bank balance in the reconciliation agrees with the balance sheet;
- unusual movements are traced to the income statement.
Using the outside accountant as reviewer
A consultancy may already have an outside accountant who prepares annual financial statements and tax returns. That firm can also be the monthly reviewer, which gives the partners an independent check without hiring.
In Achekam, a business appoints its accounting firm by the firm's Achekam address or firm code, as accountant, auditor, tax practitioner, payroll provider or adviser, with an access level, and the firm accepts or declines. Choose the access level to match the job:
- Review access is read-only. The firm can look at the bank reconciliation and the ledger but cannot change anything, which suits a reviewer who should not be posting entries.
- Bookkeeping access covers the accounting, but not the business's users, settings or payment gateways. That suits a firm that also prepares the reconciliation, in which case a partner inside the consultancy should review it instead.
What the reviewer sees is the reconciliation as Achekam records it. Bank lines are proposed as matches and a person accepts each one. A bank line with nothing in the books becomes a suggested journal, which a person must approve. The reconciliation can only be completed once the difference is nil or every line left over carries an explanation. Those explanations are where a reviewer should spend most of their time. The arrangement of roles between several firms is covered in appointing firms in different roles.
What the reviewer should look at
A review is more than initialling the last page. A short list:
- Leftover lines and their explanations. Is each one plausible, and is it new this month or carried forward from months ago?
- Suggested journals approved this month. Who approved them, and do they make sense?
- Payments to unfamiliar names, and any payment to a person rather than a business.
- Round amounts and repeated amounts to the same payee.
- Timing. Was the reconciliation done within days of month end, or weeks later?
- Agreement to the balance sheet at month end.
Record the review: who did it, when, and what was queried. How often to reconcile is a separate question, covered in how often to reconcile the bank.
This month, name the preparer and the reviewer for each bank account in writing, and make sure they are not the same person.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
