Nonprofit Best Practices : Bank Reconciliations

Bank reconciliations are a very important risk management tool for nonprofits. This process compares the organizations financial records to the bank activity and accomplishes these goals:

1. Completeness of the accounting records.  It confirms the financial reports include all deposits received and payments made. 
2. Ease of review by seeing all transaction in one place.  This improves the likeliness of identifying patterns for improvement or situations of improper spending. For example, spending to fictitious vendors or for activities not approved.  Multiple payments to the same vendor can be seen in the bank reconciliation and reviewed to determine if they are duplicate payments made in error or potentially improper payments made. (Watch the video for a story of real life fraud.)
3. Timeliness of transactions clearing.  Long time outstanding payments should be reviewed to determine if they need to be reissued.  Deposits not clearing within a week are also red flags and need to be researched. 

When should bank reconciliations be completed?

The reconciliations should be done timely.  Ideally, this is done within five days of the month end or by a set date – such as the 15^th of the month.  But it MUST be done before the financial reports are produced.

Who should do the bank reconciliation?

The person performing the bank reconciliations will vary depending on the size of the nonprofit.  It must be done by someone other than the person doing the accounting work.  In a small nonprofit, this may be a board member.  In larger nonprofit, there will be accounting staff performing the entries and a finance director/CFO can perform the reconciliations. In all cases, the reconciliation should be performed by someone who does not have authority to conduct online banking and send money out of the organization.  Therefore, it will depend on your unique situation. 

If you’re looking to explore what might work best for your nonprofit, feel free to contact me here on my website and schedule a time for us to talk.  I'd love to help you find a way of adding this safeguard into your organization.