Integration within a financial management solution is critical when it comes to saving time, eliminating errors, and creating efficiency within an organization. But, with advances in fund accounting software many local government organizations still utilize outdated, manual processes to reconcile their accounts. If you’re looking to make the switch to an integrated bank reconciliation solution, consider these four advantages.
What is Bank Reconciliation?
In order to discuss an integrated bank reconciliation solution it’s important to have a clear understanding of what it is. Bank reconciliation is the process in which the bank account balance in an organization’s books of account is reconciled to the balance reported by the financial institution. Basically the account balance that is reported by the bank is compared to an organization’s general ledger.
Four Advantages of an Integrated Bank Reconciliation Solution
1. Spot Errors and Detect Fraud
One of the main reasons for reconciling your accounts is that it helps you spot common accounting errors. These mistakes include addition and subtraction errors, double payments, lost checks, and missed payments. Bank reconciliation helps you spot ongoing fraudulent transactions. In rare cases you may even uncover that your bank made an error in your favor.
2. Import Banking Transactions
Many cash management applications can import a file from an organization’s bank. This process can mark cleared checks, verify check amounts (system vs. bank), and generate exception reports for mismatched amounts. This can save you valuable time and help reduce and uncover errors.
3. Understand Fees and Interest Charges
Another great benefit of account reconciliation is organizations can get a better understanding of the fees and penalties that can be charged. For instance, your bank may charge fees if you have an overdraft, stop payment on a check, or if your balance drops below a specified amount. Bank reconciliation can help each side understand where unexpected charges are originating, and help each side narrow down weaknesses within your organization’s internal process.
4. Track Transactions and Receivables
Depending on when you make a payment, your payment may not appear on your bank statement until the following month. You may also accidentally leave one check off of a deposit, especially if you’re making multiple entries.
The same thing can happen to you when a payment you’ve made isn’t cashed or received. Uncashed checks can make you believe you have more money to spend than you actually have to spend.
If you’re taking payments from citizens for things like utility and tax payments, reconciling your accounts will help ensure you do not miss a citizen’s payment (which can incur late penalties or interrupt the citizen’s service).