Real Business Examples: Bank & Credit Card Reconciliation Gone Wrong and How to Fix It?
Bank and credit card Reconciling is one of the most important financial tasks for growing businesses. Yet, small and large companies, alike, continue to make mistakes that result in erroneous balances, delays of reporting, and potential compliance issues. Mistakes made in the real world show the ease in which things can go wrong, and the basic steps that can be taken in order to avoid long-term financial issues.
Here are some real examples of business mistakes in reconciliation and practical solutions.
Example 1: Duplicate Transactions That Inflate Expenses:
A retail company of medium size, realized that their monthly expenses exceeded the predicted amount in their budget. After reconciling the amount, their finance team realized that multiple credit transactions were entered into the system twice, once it is done by an employee manually.
What happened?
- There wasn’t any synchronization when it came to one-off entries and auto-imports.
- There wasn’t a system to check for duplicates.
- There was too much dependence on manual bookkeeping.
What needs to happen?
Businesses should have automated reconciliation software to flag duplicates entries, before they get posted. Having a system where all manual entries have to be reviewed a second time can help to remove duplicate data entry. Most importantly, having accounting systems connected to bank feeds directly makes for a much better and cleaner record.
Example 2: Missing Vendor Charges Leading to Unbalanced Reports:
Growing IT service company ran into a problem where vendor invoices and recorded credit card charges didn’t match. There were a few recurring small payments, for example, software subscription payments, that was missing from the books and made the monthly statements do not match.
What went wrong?
- There were auto pay subscriptions where there was no monitoring.
- There was a lack of communication between ops and finance.
- There was no monthly vendor charge reconciliation.
What needs to be fixed?Make a subscription tracker that can be accessed across departments. Conduct monthly cross checks between vendor invoices, card statements, and accounting system. For charges that are recurring, automated alerts help ensure that nothing goes undetected.
Example 3: Employee Expenses Submitted Late
A construction company had month ends that were chaotic due to field employees being late to submit their expense receipts. When their accounting department started to manage their credit card expenses, they did not have receipts for several expenses, which resulted in missed expenses, confusion, and misuse of reported expenses.
What went wrong?
- Lacking a system for when expense receipts are due
- Paper receipts, not digitized
- No accountability visit cardholders
What can we do to fix it?
Implement a hard-and-fast rule that they are required to submit expenses by a given deadline. Make uploads of digital receipts is a requirement, and ensure cardholders are thoroughly educated on timelines. Automated expense software actually reduces errors and speeds up reconciliation.
Example 4: Bank Errors That Went Unnoticed for Months:
A small manufacturer was updating their balances when they noticed a bank had mistakenly credited their account instead of debiting it. This error was overlooked for months, and due to the bank not having reconciled their accounts, it caused the manufacturer to have to change their financial reports and caused confusion in their cash flow management.
What went wrong?
- Irregular reconciliation cycles
- No bank verification process
- Overlooked small discrepancies which grew over the time
How to fix it?
Carry out reconciliations every week or month depending on how many transactions there are. Small discrepancies need to be cleared up immediately. Tools for automated reconciliation will bring discrepancies to your attention as soon as the discrepancies appear.
Why Fixing Reconciliation Matters?
Accurate reconciliation keeps cash flow steady, keeps fraud away, improves reporting, and keeps the finances of the organization stable. Companies that lack automated processes and regular reconciliations cycles will suffer from more expensive problems. For more details on reconciliation, check out this – (https://logicwelltechnologies.com/latest-blogs/best-practices-for-corporate-credit-card-reconciliation-from-policies-to-automation/).
