Internal Audit
Schools Themed Review
Bank Reconciliations
2012 / 13
December 2012
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CONTENTS
Page
Overview
3
Key Findings
3
Other Weaknesses Identified
4
Risks from Key Findings
4
Actions which can be Taken to Address These Risks
5
Financial Regulations and the Wiltshire Schools Finance Manual
7
Sources of Best Practice Guidance
8
Appendix 1 – Bank Reconciliation Best Practice Notes
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Distribution List
Report to:
Accounting and Budget Support
Head Teachers
Chairs of Governors
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Overview
Internal Audit have carried out financial health check audits and issued reports to 62 schools
since September 2011. The schools visited provide for primary aged pupils with numbers on
the school roll ranging from 50 to 300 plus pupils, and a secondary school.
These financial health checks have covered a number of key areas of financial management
and control, including:
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Financial Administration and Governance
Financial Planning and Budget Setting
Budget Monitoring
Purchasing
Income
Banking
In addition to financial health checks, Internal Audit is also required to report on a number of
themed reviews. This report constitutes the findings of a themed review which focuses on
the bank reconciliation process and how it is carried out at these schools.
This report presents the key findings from the audits completed, together with a brief
summary of other issues arising. In addition, this report includes guidance to schools on
actions which can be taken to implement controls that ensure bank reconciliations comply
with the requirements of financial regulations and are in line with best practice guidance.
Key Findings
Across the schools visited, a variety of practices and procedures were found to be in place.
Many schools were found to comply with requirements of the Wiltshire Schools Finance
Manual and employ best practice in control over their bank account. However, a number of
notable weaknesses were also found to be prevalent across several schools. Of the 62
schools visited, 14 recommendations were made in respect of the bank reconciliation
process, and 17 weaknesses in process were reported on as other issues arising.
The key weaknesses found in practice were:
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Not carrying out monthly bank reconciliations.
Separation of duties / independent checks not in evidence.
Bank account balances not reconciled to the general ledger.
Un-reconciled items not cleared within six months.
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Other Weaknesses Identified
In addition to the four key control weaknesses identified, other failures in best practice were
found at some schools:
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Balancing adjustments for which no explanation is given.
Un-reconciled items report not retained on file.
Frequency of reconciliations insufficient.
Missing bank statement.
No evidence or signature to confirm review.
High value income not banked on a timely basis.
Risks from Key Findings

Not carrying out monthly bank reconciliations.
Failure to carry out a regular, bank reconciliation as soon as possible following receipt of
the monthly statement risks going overdrawn at the bank and losing funds due to fraud
or error. It also means that the accuracy of the accounts will not be assured.
The governors will want to be assured that the underlying accounts are accurate when
they are presented with financial reports for budget monitoring or statements of the
school’s overall financial position. As the bank account is the core supporting document
to the school’s accounts, and is affected by every transaction undertaken by the school,
regular reconciling is key to maintaining up to date and accurate school accounts.
Regular bank reconciliation will also assist with completing an efficient year-end close
down of the accounts; accounts with un-reconciled amounts and / or unresolved banking
items will delay year-end close down.

Separation of duties / independent checks not in evidence.
Where there is a lack of separation of duties, tasks and responsibilities will not be
adequately separated to ensure that one officer does not have total control or
responsibility for one system.
In smaller schools, the bank balance is generally reconciled by an officer who carries
out other financial processes, and so there is a requirement for an independent check to
be undertaken. Ideally, this should be performed by the Headteacher as they are
responsible for the day to day management of the school finances.
The bank reconciliation is a key process to providing assurance to all the main financial
systems (e.g. accounts payable, accounts receivable, payroll and petty-cash).
Inadequate separation of duties means that independent checks are not being carried
out to verify the accuracy, completeness and regularity of banking and the other
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financial processes. This therefore presents a risk to the security of the financial assets
from fraud or error, and places the officer carrying out the tasks in a vulnerable position.

Bank account balances not reconciled to the general ledger.
Some schools have been found to only print the Bank Reconciliation report from the
SIMS Financial Management System for the period ending the same as the bank
statement. Checks are then undertaken to verify that the closing balance at the bottom
of the Bank Reconciliation report matches the final balance on the bank statement. This
does not demonstrate that the bank statement reconciles to the general ledger and risks
not verifying the accuracy of the accounts.
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Un-reconciled items not cleared within six months.
Failure to resolve un-reconciled items risks presenting out of date accounts because
they do not accurately reflect the actual transactions which have taken place. Leaving
un-reconciled items unresolved for long periods, without updating the accounts or
annotating the reason, increases the risk of not understanding the nature or purpose of
the item as time progresses.
At some schools, it was found that un-reconciled items reports are not printed or
retained. Failure to print un-reconciled items reports risks not detecting un-reconciled
items, and not retaining the report risks not being able to demonstrate that the items,
such as un-cleared cheques, have been investigated and resolved.
Actions Which Can be Taken to Address these Risks

Not carrying out monthly bank reconciliations.
Some schools have left the bank reconciliation for a number of months but it is a
requirement of the Financial Regulations, as stated in section 6.4 of the Wiltshire
Schools Finance Manual, to carry out bank reconciliations regularly – at least monthly.
This allows for the interruption of school holidays.

Separation of duties / independent checks not in evidence.
In many schools, especially smaller schools, the officer who usually carries out the bank
reconciliation also carries out many of the processes which feed into the bank
reconciliation as part of other financial systems, such as cash receipting and banking.
In order to demonstrate separation of duties, at least two officers should be involved in
operating a system so as to break up a series of processes to enable one person to act
as a check on another. This aids detection of errors and supports officers by ensuring
that accountability is effectively allocated to the more senior, responsible verifying
officer.
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Wherever possible, the Headteacher should verify the bank reconciliation as they hold
responsibility for the school’s finances. However, the Headteacher can delegate this
task to another member of staff but whoever carries out the checks must understand the
bank reconciliation process and be able to query any anomalies.
To demonstrate adequate separation of duties, both the person who performs the bank
reconciliation and the person who checks it should sign and date the paperwork. It
should be noted that the Headteacher, or delegated member of staff, is signing to
confirm that they have checked the bank reconciliation and that they are satisfied it is
complete and accurate.
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Bank account balances not reconciled to the general ledger
To ensure the bank balance also balances to the general ledger (the school’s Financial
Management System), the un-reconciled items report should be generated and printed.
The total figure for all items on the report can then be added / deducted, as appropriate,
to the net figure from the bank statement. This should match the ledger balance. In the
event of any discrepancy, schools should contact their Support Accountant / Accounting
& Budget Support helpline.
Note: The ‘Current Ledger Balance at time of printing’ as presented on the Bank
Reconciliation report is also stated on the Bank Reconciliation – un-reconciled items
report. Both reported amounts should be the same, when both reports are printed at the
same time.
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Un-reconciled items not cleared within six months.
All un-reconciled items should be cleared within 6 months so as to ensure that accounts
accurately reflect all actual transactions which have occurred. Schools can review their
un-reconciled items by generating an un-reconciled items report from the SIMs Financial
Management System at the same time as the Bank Reconciliation report. The officer
can then review any items arising, and especially any that are over three months old.
Un-reconciled items are often cheques that the supplier has not yet presented for
payment at the bank. In these cases, schools should ask the creditor if they have
received the cheque and when they are going to present it and note this on the report. If
schools are unsure about how to treat an unresolved item they should contact their
Support Accountant through the Accounting & Budget Support helpline.
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Financial Regulations and the Wiltshire Schools Finance Manual
All schools under local authority control are required to comply with the Wiltshire Council
Financial Regulations as they pertain to financial management and administration within
schools.
The Wiltshire Schools Finance Manual (September 2008) is the primary document to which
schools should refer to when seeking guidance. For example, section 6 of this manual states
that:
1.
Schools must reconcile the balance on their bank or building society statement with the
balance on their ledger account.
2.
This reconciliation must be done regularly – at least monthly. The reconciliation should
be signed by the Responsible Officer to signify that it is complete and accurate.
3.
A full audit trail and explanation of differences between the bank statement and the
ledger bank account must be retained.
4.
The main elements within a difference between the bank statement and the ledger bank
account are:
5.
a.
Items in the Ledger Bank Account not in the Bank Statement (unreconciled items)*
b.
Items in the Bank Statement not in the Ledger Bank Account – create appropriate
ledger transactions to recognise payments and receipts in the ledger and these
should be actioned before the next bank reconciliation *.
To complete the reconciliation, the un-reconciled items report must be printed. The
balance should be added / subtracted from the bank statement balance to reconcile to
the current ledger balance. The unreconciled items report must include all items up to
the date of printing.
* Please note the full version is in section 6.4 of the Wiltshire Schools Finance Manual. If schools
have any queries or require accounting advice they should contact their Support Accountant via the
Accounting and Budget Support helpline.
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Sources of Best Practice Guidance
There are various sources of Best Practice Guidance available to Headteachers, Finance
and Administration Officers, as well as Governors. These include:
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Schools Finance Manual
Keeping Your Balance
Financial Regulations / Wiltshire Schools Finance Manual
Bedfordshire School Finance Manual (Section 14, paragraph 14)**
** Dated 1 November 2001, this was formerly available on the FMSiS website and now on the
Internet.
A review of these sources finds that there are themes and requirements which apply across
all of these guidance tools. The principle requirements of these sources fall into 3 key areas:
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Regular bank reconciliation
Regular oversight and review
Separation of duties
In the first instance, schools need to ensure that they have clearly defined and documented
procedures for carrying out bank reconciliations.
Example of a documented procedure
(
) is responsible for promptly reconciling the account on a monthly basis and
ensuring it never becomes overdrawn. (
) will carry out a regular, independent
review to ensure this is carried out effectively. The bank reconciliation will be recorded and signed
by ( name the compiler and reviewer ).
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APPENDIX 1
BANK RECONCILIATION BEST PRACTICE NOTES
Key Controls
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Bank statements should be obtained at least monthly.
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Keep bank reconciliations up to date.
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Reconcile the bank balance to the ledger balance.
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Investigate discrepancies and note them.
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Staff responsible for undertaking bank reconciliations should not be responsible for the
processing of receipts or payments.
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All bank reconciliations should be signed and dated by the person performing the
reconciliation.
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Reconciliations should also be reviewed and countersigned and dated by someone who
understands the reconciliation process.
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