The Time is Now for Cleaning Up Cash Reconciliations

by Jennifer L. Shields, CPA, CGFM, Audit Partner

Posted on May 8, 2019

In a recent blog article, Sara Kirk discussed a number of points highlighting the importance of ensuring a district reconciles its records of cash to the county treasurer, a subject that happens to be near and dear to my heart. As an auditor, I’ve frequently audited cash reconciliations. I find that area of the audit to be particularly interesting, as you can glean so much information about an entity and their financial position and activity by reviewing the cash reconciliation. In fact, the process of reconciling accounts is partly what drew me into the accounting field in the first place!

Before I get too far off track, we should focus on the task at hand. The end of the fiscal year is not far off, and I cannot stress enough that now is the time a district should elevate efforts to resolve any outstanding reconciling items. The objective should be to have a cash reconciliation with very few reconciling items as of June 30. Not only will this make your auditor happy, but it will help the district ensure a smooth transition into the next fiscal year. Nobody wants prior year unresolved reconciling items following them into a fresh, clean and error-free new fiscal year.

Let us take a look back at the Uniform System of Financial Records (USFR), the manual followed by Arizona school districts and the related requirements. The USFR requirement is clear – the District’s records of cash balances must be reconciled to the County Treasurer’s records at least monthly. This includes the process of resolving reconciling items in a timely manner. Simply identifying a difference or making sure the difference between the Treasurer and District is zero does not mean the District is reconciled.

Reconciling items can include simple timing differences, which need no resolution other than the passage of time. These are generally the easiest to identify and the only reconciling differences that should exist at year end.  If items are not simple timing differences, now is the time to resolve those. It likely means that there is an error in the District’s accounting records, that if not resolved prior to the closing of the accounting records will likely result in an audit finding.

During the annual audit, it may appear as though the auditors focus on the June reconciliation, however, activity from several months is often reviewed. During this process, auditors frequently note reconciling items that were properly identified in one month, yet the same item still exists on the reconciliation months later. When that occurs the auditors must evaluate whether management has a process in place to resolve reconciling items in a timely manner. If the auditor concludes that there is no such process this may result in an audit finding.

To avoid possible findings, make sure to review the reconciliation each month, ensuring it is completed the following month. Also, pay attention to the date of reconciling items to ensure only current month items are on the reconciliation. If you find that you have items from prior months still outstanding, evaluate to determine whether you need to adjust the accounting records of the district or whether you need to have the County Treasurer move funds from one of your accounts or funds with them to another.

Remember, putting in the effort now will pay off when the annual audit gets underway later in the year!