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Council Post: Avoid Making These Six Manual Reconciliation Mistakes

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Shagun is an ex-Fortune 100 auditor, process consultant and CEO of SkyStem who designed ART, a month-end close solution for accountants.

Amid economic uncertainty, manual month-end reconciliations are top of mind for many business leaders right now. After all, the reconciliation activity is a crucial part of business and serves as the last line of defense against financial fraud and errors.

Despite its importance, many companies struggle to handle the reconciliation process efficiently. If you’re still using manual reconciliation practices, watch out for these six most common mistakes that could be holding you back.

1. Not Having Standardized Documentation

The practice of celebrities never wearing the same outfit twice may work well in the world of fashion, but it’s not the most optimal approach when it comes to financial reconciliations.

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If each cover sheet has its own style and format, but no two reconciliations look the same, it’s time to take action. This is primarily because non-standardized documentation creates room for mistakes.

Picture this: You’re using a spreadsheet to reconcile your accounts. In that case, you might be replicating your general ledger’s activity without realizing that errors, such as incorrect account numbers, could slip through the cracks. Reevaluate your documentation to ensure consistency across the board—it could save you valuable time at month’s end.

2. Making A Lot Of Mistakes

To err is human, but when it comes to reconciliations done manually on spreadsheets, the potential for errors can be overwhelming. According to data firm Duco’s research, nearly one-third of financial services organizations consider mistakes from manual processes to be their biggest data reconciliation challenge.

When businesses can improve data quality, they can create more accurate financial statements and maintain a high level of credibility. Address any potential pitfalls, such as forgetting to reconcile new accounts, data entry and transposition errors, broken links and overlooked prior period open items. Consider automating certain accounting tasks to help with this.

3. Not Collecting All Information In One Place

Tracking every comment, email and scribble on a spreadsheet is essential to ensuring accuracy and demonstrating diligent review.

But if accounting teams need to go for a scavenger hunt to dig up old invoices and backup documentation from shared drives, binders or even offsite storage, it’d be pretty tricky to streamline financial operations. Remedy this issue by keeping everything you need at your fingertips and tracking it in a timely manner. Accounting software can be helpful in this effort.

4. Spending Too Much Time On Status Reporting

While status reporting, a brief overview of a project, is an important aspect of accounting, spending too much time on it can negatively impact organizations.

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When accountants spend a lot of time on status reporting, they may have less time to focus on more strategic tasks, such as analyzing financial data, identifying trends and making timely decisions. Streamline these administrative responsibilities to free up valuable brainpower to tackle business challenges and design more effective financial management strategies.

5. Failing To Acquire Insightful Data

Accounting teams put in long hours to reconcile a company’s balance sheet. But it’s difficult to turn all that information into meaningful insights that can guide your company’s decision making as this data is often spread across various spreadsheets.

Through data analytics, organizations can gain a deeper understanding of unexplained variances and long-standing expectations, allowing them to make more data-driven decisions during and after the close. Ensure your reconciliation process includes all necessary insightful data so you can make informed decisions.

6. Accounting Team Burnout

The manual reconciliation process places a heavy burden on accounting teams. In addition to their day-to-day workload, they have to deal with providing supporting documentation, establishing a paper trail, updating policies and narratives, enforcing proper segregation of duties and executing controls.

And let’s not forget the frustration of spending hours reconciling an account, only to realize later that the general ledger balance was outdated. This leads to additional work, delays in finalizing financial statements and employee burnout.

By approaching the reconciliation process from a more strategic standpoint, business owners can alleviate the pressure on accounting teams. Ensure that your team’s workload is manageable to maintain productivity. Looks for areas of opportunity to address or proactively prevent accounting team burnout.

The Bottom Line

Reconciliation is crucial for every business as it enables companies to comply with regulations, detect errors and fraud and prevent financial irregularities. Although accounting teams and business owners can do it manually, this method can be time-consuming and prone to errors, so it’s important to ensure you evaluate your current processes to address any weaknesses. Remember: If you’re regularly making these six reconciliation mistakes, maybe it’s time to ditch the spreadsheets, binders and paper stacks and consider what elements you can automate.

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Source: Forbes

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