How to avoid surprises during your audit of cash and investments

Published: March 16, 2022

It's not uncommon for a government to have multiple bank or investment accounts with different staff or departments reconciling them. That's okay, but keep in mind there can be risks when different people are involved with reconciling several accounts.

The Budgeting, Accounting and Reporting System (BARS) Manual requires bank reconciliations because they are an important control for safeguarding against fraud and ensuring the accuracy of your government's accounting records. As part of every audit, SAO auditors review your reconciliations and perform a global year-end reconciliation.

Here are some tips to help you shore up your government's controls around cash and investment balances so there are no surprises during your audit.

• Leave no account behind—Auditors sometimes find a government has not reconciled one or more of its accounts, or that it is months behind on its reconciliations. These are often investment accounts or an account that another department is responsible for reconciling. In some cases, staff in the responsible department believe they have reconciled it, but there is either no documentation or the documentation does not resemble an actual reconciliation. Consider a process where departments submit reconciliations to central finance so that you can identify problems early and make a plan to address them.

• The devil may be in the details—Some of the issues with bank reconciliations may not be obvious and may require additional review. In addition to checking for a proper reconciliation, central finance should scrutinize individual reconciling items like old outstanding checks and unexpected deposits in transit for validity and support, follow up on any unresolved variances, and check the math.

• Make no special exceptions—Sometimes auditors find a government has not included an account in its annual financial report. You might have a court with legal control over a trust account or a department with its own account, but they are still part of your government. Central finance should know about all accounts open and in use for your government. Departments can reconcile their accounts, but central finance should make sure they are properly included in your accounting records (i.e., general ledger) and roll up to your annual financial statement report.
• Take the easy road where you can—You can and should use your general ledger to track money for different purposes. Because you can use your general ledger in this way, you don't need a separate bank account for each purpose, program or restriction. Save yourself from a reconciliation nightmare by only having the minimum number of bank and investment accounts you need. It also helps to reduce fraud risk when you close dormant or rarely used accounts in your organization.

• Bring it all together to be certain—One way to gain comfort that all accounts and activity agree to what you are reporting is to reconcile the accounts in total to your combined general ledger cash and investment balances. You might not realize it, but the BARS Manual already requires GAAP and cash basis local governments to do this! SAO also offers a global bank reconciliation tool for cash basis governments that you can use.

These tips will help you accurately track and report cash and investments so you can provide reliable information to management, your governing body and, ultimately, the readers of your annual report.

To learn more about steps you can take to improve your reconciliation processes, download SAO's Best Practices for Bank Reconciliations guide.

For help

Remember, SAO can help you. If you have specific technical accounting questions about cash or investments, submit them using our HelpDesk in the client portal.

We also have financial management specialists at SAO's Center for Government Innovation available to talk with you about best practices, resources or internal controls. For assistance, reach out to us at Center@sao.wa.gov.