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Protecting your Company: Bank Reconciliations

Tax Question:

How does preparing bank reconciliations help to detect and prevent possible fraud?

Facts:

A bank reconciliation explains the difference between the balance in the bank account per the accounting records and the balance actually in the bank at any given time. The bank reconciliation should be prepared and reviewed monthly to analyze the differences and help detect errors or fraud. This internal control will also help deter fraud.

Discussion:

The bank reconciliation should be prepared monthly by someone involved in the record-keeping for the company and reviewed monthly by an owner or the Chief Financial Officer (CFO). The bank reconciliation report provides a list of the cheques and payments that have cleared the bank that month. These lists should be reviewed by the owner to ensure that there are no duplicates (no payment has been issued twice) and that all vendors appear legitimate and amounts appear reasonable. If an amount or vendor appears questionable, the cancelled cheque should be viewed and the payment investigated.

The bank reconciliation report also provides a list of deposits and funds received that month. This amount can be compared to other internal reports such as customer receipts and cash and credit card sales to ensure it is correct. Furthermore, the bank reconciliation report lists outstanding deposits and cheques. These items should be reviewed for reasonableness. Is it reasonable that those deposits had not yet been deposited as of the report date or should this be investigated as potential fraud? Are there any duplicate payments that need to be investigated?


If you would like more information on this topic, please contact a member of the EPR Maple Ridge Langley team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. EPR Maple Ridge Langley, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.


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