Inter Branch Reconciliation

Inter-branch reconciliation is a major activity for banks and financial institutions looking to create a balanced co-ordination between their various branches and their activities.

Inter-branch Reconciliation

These are:

• Comments on the system/ procedure and records maintained.
• Test check for any unusual entries put through inter-branch/ head office accounts.
• Position of outstanding entries; system for locating long outstanding items of high value.
• Steps taken or proposed to be taken for bringing the reconciliation upto- date.
• Compliance with the RBI guidelines with respect to provisioning for old outstanding entries.

Inter-branch accounts are normally reconciled by each bank at the central level. While practices with various banks may differ, the inter-branch accounts are normally sub-divided into segments or specific areas, e.g., ‘Drafts paid/ payable’, ‘inter-branch remittances’, ‘H.O. A/c’, etc. The auditor should report on the year-end status of inter-branch accounts indicating the dates up to which all or any segments of the accounts have been reconciled. The auditor should also indicate the number and amount of outstanding entries in the interbranch accounts, giving the relevant information separately for debit and credit entries. The auditor can obtain the relevant information primarily from branch audit reports. Where, in the course of audit, the auditor comes across any unusual items in inter-branch/head office accounts, he should report the details of such items, indicating the nature and the amounts involved. The auditor should examine the procedure for identifying the high-value items remaining outstanding in inter-branch reconciliation. He should review the steps taken or proposed to be taken by the Management for clearing the outstanding entries in inter-branch accounts, particularly the high-value items. If he has any specific suggestions for expeditious reconciliation of inter-branch accounts including any improvements in the systems to achieve this objective, the same may be incorporated in the report. In the new CBS environment the branch reconciliation is done of IT department at H.O. in most of the banks.

Importance of Reconciling

A regular review of your accounts can help you identify problems before they get out of hand.

1. Catch Fraud before it’s too Late

Signs of fraud should be your priority when reconciling transactions in your bank account.

A few things to consider include:

• Were legitimate checks that you issued duplicated or changed, resulting in more money leaving your checking account?
• Were checks issued without authorization?
• Are there unauthorized transfers out of the account, or did anybody make unauthorized cash withdrawals?
• Does the account have any missing deposits?

2. Prevent Administrative Problems

Reconciling your account also helps you identify internal administrative issues that need attention. For example, you might need to reevaluate how you handle cash flow and accounts receivable, or perhaps change your record-keeping system and the accounting processes you use.

Proper processes for managing your banking transactions result in outcomes such as:

• Knowing how much cash you really have available in your accounts
• Avoiding bounced checks (or failing to make electronic payments) to partners and suppliers
• Avoiding bank fees for insufficient funds or using lines of credit when you don’t really need to
• Knowing if customer payments have bounced or failed, and determining if any action is needed
• Keeping track of your outstanding checks and following up with payees
• Making sure every transaction gets entered into your accounting system properly
• Catching any bank errors

How Bank Reconciliation Works?

To reconcile your accounts, compare your internal record of transactions and balances to your monthly bank statement. Verify each transaction individually, making sure the amounts match perfectly, and note any differences that need more investigation.

Make sure that your bank statements show an ending account balance that agrees with your internal records. If the amounts don’t match, you need an explanation for the difference.

The process can be as formal or informal as you’d like, and some businesses create a bank reconciliation statement to document that they regularly reconcile accounts. If you don’t complete the process monthly, you can perform it daily, quarterly, or for any other period you choose.

Best Time to Reconcile

It’s wise to review your accounts at least monthly. For high-volume businesses or situations with a higher risk of fraud, you may need to reconcile your bank transactions even more often. Some companies reconcile their bank accounts daily.

You can also build protection into your bank accounts, and your bank can provide useful ideas. For example, many banks offer a solution called Positive Pay, which prevents your bank from approving payments out of your account unless you specifically provide instructions to approve individual payments in advance.