Bank Reconciliations by Sponsor PKF Francis Clark

AS THE COFA / PRINCIPAL COULD YOU FULLY EXPLAIN THE CLIENT RECONCILIATION REVIEW PROCESS?

 

We often see bank reconciliations where the COFA has diligently signed and dated the bottom of the reconciliation to evidence they have reviewed the reconciliation. When completing this sign off our experience tells us that it would be useful if the reviewer considered the following points:

  • If the SRA asked what I have done to review this reconciliation what would I say?
  • If the SRA asked me to explain the reconciliation to them would I be able to?
  • Have I done enough to discharge my obligations as a Manager and / or COFA in the firm?

The following is not exhaustive but may be a useful â€work programme’ and checklist to help COFA’s or Principals in their work to review bank reconciliations and to ensure they are more comfortable in answering the above questions.

 

1. Is the client reconciliation a complete 3 way reconciliation

 

Is there part of the reconciliation which compares the total of client ledger balances from a report generated by the practice management system(1) which is compared with the bank reconciliation balance i.e. the bank statement less outstanding items and lodgements (2) which is finally compared with the trial balance figure for the client account (3).

 

Many reconciliations only compare items (1) and (2) but ignore item (3) meaning the process is not fully compliant.

 

2. Review of outstanding payments for cheques older than 3 months

 

Outstanding cheques over 3 months can be an indication of a number of problem areas including fraud, teeming and lading of client funds as well as instances where client money is incorrectly being held on the office account.

 

Reviewing old outstanding payments to investigate the reason why the amount has not cleared is an important task for someone reviewing a reconciliation. Often the outcome will identify a breach of the rules which can be corrected or prompt a fee earner to follow up the issue to prevent a breach arising in the future.

 

3. Review outstanding receipts which have not cleared promptly

 

Receipts that are genuinely banked clear quickly. Instances where this is not happening suggest some underlying issue that may require investigating.

 

4. Review outstanding bank transfers (in and out) which have not cleared promptly

 

Bank transfers genuinely completed rarely take more than a day to complete (save around weekends). Bank transfers that take notably longer than this can be indicative of transactions which have not actually taken place, or ones where the transaction date differs to the date recorded in the client ledgers.

 

5. Agreement of bank statement balance to the bank reconciliation

 

Simple checks of integrity to ensure the bank statement balance(s) being used in the reconciliation process is the actual balance per the bank statement and that they have been extracted on the same dates.

 

6. Cast of bank reconciliation

 

A physical check to ensure the reconciliation has not been manipulated in any way in transition as output from the Practice Management system to the final form reconciliation.

 

7. Agreement of reconciled bank balance to matter listing report

 

Physical checks that the amounts recorded on the reconciliation for the adjusted bank balance does actually agree to the â€hard copy’ or â€electronic copy’ that is retained on the client matter listing.

 

It may also be appropriate from time to time to undertake a casting check of such matter listing reports to ensure there is not intermediate adjustments being made from the electronic output of the practice.

 

8. Agreement of matter listing report to trial balance

 

Physical checks that the amounts recorded on the reconciliation summary do actually agree to the â€hard copy’ or â€electronic copy’ that is retained on the client matter listing and that this agrees to the trial balance.

 

Ensure that the matter balance and the trial balance reports have been extracted from the Practice Management System on the same date as the reconciliation statement is being prepared.

 

9. Review the client matter listing

 

A specific review of the matter listing for unusual items such as:

  • Overdrawn client ledgers (Debt balances on client ledgers)
  • Client money on office ledgers (Credit balances on office ledgers)
  • Suspense matters / general ledgers listed
  • Matters in the name of the firm
  • Matters in the name of partners

 

The above are some items in the matter listing which should alert the reviewer to potential areas of risk from a SAR breach viewpoint and potential misappropriation of client funds.

 

10. Review the reconciliation statement for unusual items

 

By definition it is difficult to be precise here but examples of what might be defined as unusual could include the following:

  • Adjusting items needed to make the reconciliation report balance
  • Very large outstanding payments that do not clear very shortly after the balance sheet dates

These types of instances require further enquiries by the COFA and can point to more significant problems in the reconciliation.

 

11. Review the office account reconciliation

 

Strictly the office reconciliation warrants a review by the COFA in its own right. In the context of client funds however it is important to look at the office account reconciliation for a number of reasons.

 

A good example to illustrate this point is outstanding payments on office account. These can indicate, for example, instances where money has been transferred from client to office to cover expenses that the firm has not actually incurred on a client’s behalf.

 

 

PKF Francis Clark has a dedicated team that specialises in the legal sector.

If any assistance is required, please get in touch with Jason Mitchell – T: 01872 276477

E: jason.mitchell@pkf-francisclark.co.uk.

 

This publication is produced by Francis Clark LLP for information only and is not intended to constitute professional advice. Specific professional advice should be obtained before acting on any of the information contained herein. Whilst Francis Clark LLP is confident of the accuracy of the information in this publication (as at the date of its production), no duty of care is assumed to any direct or indirect recipient of this publication and no liability is accepted for any omission or inaccuracy.

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