Auditing payment gateway and M-Pesa clearing accounts
How to audit a client's card, Paystack, Flutterwave and M-Pesa clearing accounts: settlements, fees, timing and the balances nobody can explain.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
A customer pays by card on the client's website on the last day of the year. The sale is in the books that day. The money arrives in the bank three days later, less the gateway's fee, bundled with many other payments into one settlement. Between the sale and the bank sits a clearing account, and in many businesses that account holds a balance nobody has reconciled since it was opened.
For retailers, online sellers, schools and service businesses in Nigeria taking Paystack or Flutterwave payments, in Kenya taking M-Pesa, and in South Africa taking card payments through a gateway, clearing accounts are now a routine part of the balance sheet. They are also a convenient place for differences to hide. This article covers how to audit them.
Why clearing accounts hide differences
A clearing account is meant to be temporary. Sales go in on one side; settlements, less fees, come out on the other. At any moment its balance should equal payments taken but not yet settled.
In practice, three things go wrong:
- Fees are not recorded, so the account slowly builds a debit balance equal to all the fees ever charged.
- Refunds and chargebacks are taken from settlements without a matching entry.
- Unmatched items accumulate: a payment recorded twice, a settlement posted to the wrong gateway, a sale reversed in the till but not by the gateway.
Each leaves a residue. After a year or two, the balance is a mixture of genuine timing, unrecorded costs and errors, and the bookkeeper treats it as untouchable.
Settlements, fees and timing
Before testing, understand each gateway's settlement pattern:
- What is settled, and when? Daily, weekly, or on request; next business day or later.
- Gross or net? Most gateways deduct fees before paying out, so the bank shows a net amount.
- Where are the payout reports? The gateway's dashboard or export lists each payout with the transactions and fees inside it.
- How are refunds and disputes handled? Usually deducted from later payouts.
With that understanding, the expected year-end balance can be estimated: sales taken in the last settlement window, less any refunds, and nothing older. A balance materially larger than that is the first sign of a problem.
Reconciling gateway reports to the ledger and the bank
AccountingTools describes bank reconciliation as comparing internal records with the bank's and adjusting the internal records to bring them into line, so that the recorded balance is accurate. Investopedia calls reconciliation, comparing data sets, the most important detective control, with corrective action when material differences are found. A clearing account needs the same discipline, with a third record in the middle: the gateway's own report.
Test in three legs:
- Sales to gateway. Agree a sample of card or mobile money sales in the ledger to the gateway's transaction report.
- Gateway to bank. Agree a sample of payouts in the gateway report to receipts on the bank statement, and check the fee deducted against the gateway's statement of fees.
- Ledger to gateway at year end. Reconcile the clearing account balance to the gateway's list of transactions taken but not yet paid out at year end. Agree that list to payouts in the first days of the new year.
How Achekam records payouts and fees in the client's books
Where the client keeps its books on Achekam, every till sale that reaches the server posts a balanced journal in the same step, with each payment method going to its own account: cash, card and QR, EFT and M-Pesa are kept apart, and gateway payments go to gateway clearing accounts. That separation makes the auditor's first job easier: each clearing account holds one payment route.
Payouts from each payment gateway, including M-Pesa, are recorded against that gateway's clearing account together with its fees, either by hand or from Paystack's and Flutterwave's own payout lists. When payouts come from the gateway's list, the fee is recorded with the payout rather than left to accumulate. Where they are entered by hand, test that every payout in the gateway report appears and that fees were entered, not netted off. Our article on till cash sales covers the cash side of the same journals.
On the firm's side, the clearing account lines in the engagement's lead schedules trace back to the trial balance lines. Staff record an audit adjustment against the line with a reason where a difference must be written off or reclassified, and raise a finding from the working paper.
Old reconciling items and unexplained balances
AccountingTools advises that where an undocumented difference remains in a bank reconciliation, the accountant should go back through earlier periods' reconciliations to find when it arose, and notes that reconciling items carried from prior periods strongly suggest earlier reconciliations were not investigated in enough detail. It generally does not recommend simply booking a small unexplained difference, because even a slight variance could signal a major problem.
Apply the same thinking to clearing accounts:
- age the items making up the balance; anything older than the settlement window needs an explanation;
- roll back month by month to find when the unexplained balance first appeared;
- look for a pattern, such as a jump when a new gateway was added or a staff member changed;
- resist a write-off until the cause is known, especially where cash could have been diverted.
Findings to raise
Typical findings, in order of seriousness:
| Finding | Why it matters |
|---|---|
| Clearing account never reconciled | Errors and losses go undetected |
| Fees not recorded | Expenses understated, asset overstated |
| Refunds and chargebacks not recorded | Revenue overstated |
| Unexplained balance carried forward | Possible misappropriation or error |
| One clearing account for several gateways | Differences cannot be traced to a source |
Raise the control findings in the management letter, and evaluate any misstatement against materiality. See auditing bank and cash for the bank confirmations that close the third leg.
AccountingTools explains the bank reconciliation process step by step, including how to deal with differences that will not clear, and its approach applies equally to gateway clearing accounts.
At your next client with online or mobile money sales, ask for each gateway's payout report for the last month of the year at planning. If the client cannot produce it, the clearing account has probably never been reconciled.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
