What is reconciliation?
Broadly defined, a reconciliation is a comparison of different sets of data, identifying and investigating differences, and taking corrective action when necessary.
For example: verifying charges in the general ledger to file copies of approved transactions.
Reconciling monthly financial reports from the Accounting Department (such as Statements of Accounts or Ledger Sheets) to file copies of supporting documentation or departmental accounting records is an example of reconciling one set of data to another. This control activity helps to ensure the accuracy and completeness of transactions that have been charged to a department's accounts.
Another example of a reconciliation is comparing vacation and sick leave balances in departmental records to vacation and sick leave balances in the payroll system.
Note: To ensure proper segregation of duties, the person who approves transactions or handles cash receipts should not be the person who performs the reconciliation.
A critical element of the reconciliation process is resolving differences. It does no good to note differences and do nothing about it. Differences should be identified, investigated and explained. Corrective action must be taken.
If an expenditure is incorrectly charged to a department's accounts, the approver should request a correcting expense transfer. The reconciler should ascertain that the correcting entry was posted.
Reconciliations should be documented and approved by management.