How to Audit Bank Reconciliation in Simple Steps

Bank reconciliation is a routine process for any enterprise. Without it, it’s impossible to align financial records with bank statements. 

However, errors like missing transactions, duplicate entries and uncleared cheques remain a problem even with regular reconciliation. This is especially true for enterprises that rely on manual reconciliation, which can lead to human errors. 

If you want to ensure the accuracy of your reconciliation ledger, you can start auditing your reconciled bank statements on your own. Our guide below walks you through a step-by-step process on how to audit bank reconciliation. 

What is a Reconciliation Audit?

A reconciliation audit is an added step to verify that the bank reconciliation is done correctly. Unlike a general account reconciliation, which focuses on the ledger as a whole, a reconciliation audit focuses on delivering accuracy for your cash book.

Bank reconciliation matches a company’s financial records to the bank statement to eliminate discrepancies. However, errors can persist even after the reconciliation, such as:

• Missing transactions
• Duplicate entries
• Incorrect amounts
• Uncleared cheques
• Bank fees & interest
• Timing differences
• Unreconciled differences
• Misclassified transactions and more.

A Gartner survey on accounting errors revealed that 18% of accountants make errors daily, a third make a few errors weekly and over half make several errors monthly. This further highlights the importance of auditing in reconciliation. The audit adds a layer of safety, ensuring that all entries are double-checked and corrected if necessary. 

Below, we have provided a step-by-step guide on how to audit bank reconciliation without missing key steps.

How to Audit Bank Reconciliation Step by Step

The auditing process is quite lengthy, which is why we’ve separated it into three stages. Here is how you can review bank reconciliation statements more easily:

1. Before the Audit

Before performing an audit, make sure you have all the necessary documents that require auditing. You’ll need bank statements, general ledger records, cancelled checks, deposit slips and outstanding cheques.

Here is a quick checklist to help you gather all the information you need before you start the audit:

• Make a list of all the bank accounts your enterprise uses to make business transactions. During the audit, you will have to review activity on all of them.
• Go over SOPs (Standard Operating Procedures) defined for performing periodic bank reconciliation. Then, verify when and at what frequency the bank reconciliation activity was performed and if it aligns with these SOPs.
• Obtain bank reconciliations for the last six months and verify whether they were consistently prepared. If not, you will also need to review these reconciliations to make sure you haven’t missed anything.

2. During the Audit

Once you start the audit, here is how to identify any unreconciled or unidentified discrepancies and adjust them:

• Retrieve original bank statements so you can compare them to the numbers in your ledger. If needed, request a bank balance confirmation directly from the bank or use online banking to retrieve the original statement.
• Match transactions from the bank statements with your journal entries to ensure all amounts, dates and descriptions are correct.
• Once you have finished with the bank transactions, finalise the bank statements by looking for any undocumented fees, charges or deductions and correct them.
• Check for any payments credited to the bank that have not been recorded in the books.
• Identify any outstanding cheques that have been issued but not yet cleared and assess their ageing. Do the same for cheques recorded in the books but not yet deposited into the bank. Finally, review cheques that have been deposited but not yet reflected in the bank account.
• Verify that interest earned on deposits and any other credits received are accurately reflected in the accounting records.

3. After the Audit

Once you have completed the audit, note down any discrepancies you found and how you corrected them. This will help you identify the most common issues in your reconciliation process so that you can make the right improvements. Then, create a report that summarises what you discovered and suggests ways to improve.

Automate Bank Reconciliation Audits With Aico

If you’ve ever reconciled on your own, you’re fully aware of how tedious, error-prone and time-consuming it can be. Even with the most diligent approach, human errors can slip through, leading to inaccurate financial records. 

As your enterprise grows, reconciliation becomes more complex – you manage multiple bank accounts, track outstanding transactions and handle hundreds of pending orders, making it difficult to prioritise. If this sounds familiar, you may benefit from account reconciliation automation. 

If you’re unsure how to audit bank reconciliation more efficiently, it’s time to upgrade to a faster, smarter solution like Aico. With Aico's automation software, you can save valuable time while ensuring the highest level of accuracy. 

Contact us for a consultation, and let us automate your financial processes and free up your time for more important tasks.