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Bank Reconciliation: Procedures For AdjustingCash & AccountsWisconsin Association of School Business OfficialsAccounting ConferenceMarch 20, 2019 – 9:45amRobert W. Baird & Co. Incorporated is providing this information to you for discussion purposes. The materials do not contemplate or relate to a future issuance of municipalsecurities. Baird is not recommending that you take any action, and this information is not intended to be regarded as “advice” within the meaning of Section 15B of the SecuritiesExchange Act of 1934 or the rules thereunder.

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmPresentersJennifer Drost School District of LomiraComptroller920-269-4396 (ext. 225)jdrost@lomira.k12.wi.usDiane Pertzborn Baird School Business SolutionsSchool Business Specialist608-438-8125dpertzborn@rwbaird.com

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmRoles, Responsibilities, & PoliciesThe business office is responsible for: Reconciling bank statements and processing financial transactions ona timely basis Maintaining an effective system of internal controls Adhering to recommended audit procedures and responding to auditfindings Implementing and monitoring cash handling procedures, cash flowprojections Periodically reviewing and updating local cash management policies Keep in mind segregation of duties

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmSegregation of Duties“Many hands makelight work” – JohnHeywood, Englishwriter/poet“Too manycooks spoil thebroth” – JaneAusten, author Need to work together efficiently Should be less work, not morework Lots of hands along the way,where did we go wrong? Training, understanding their role

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmWhat is a Bank Reconciliation?A bank reconciliation is the process of matching the balances in anentity’s accounting records for a cash accountant to the correspondinginformation on a bank statement. The goal of this process is to ascertainthe differences between the two, and to book changes to the accountingrecords as appropriate.Your goal: bank and books should match!

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmWhat is a Bank Reconciliation?A bank reconciliation is used to compare records to those of your bank, to see ifthere are any differences between these two sets of records for your cashtransactions. The ending balance of your version of the cash records is known asthe book balance, while the bank’s version is called the bank balance.Verifies that you have everythingentered in your accounting recordsMay be entered incorrectly, but it’s inthe records

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmTiming A bank reconciliation should becompleted at regular intervals for allbank accounts to ensure that a district’scash records are correct Make this a priority! Should be doneevery month, shortly after eachstatement is available

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmOther ConsiderationsA bank reconciliation will also detect some types of fraud afterthe fact. This information can be used to design better controlsover the receipt and payment of cash

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmSteps and Worksheet Elements Step 1: Enter bank balance Step 2: Clear checks insoftware per statement,match to bank, run list ofopen checks Step 3: Run cash receiptreports, are any depositsnot shown on bankstatement, and notappearing on books? Step 4: Enter any otheradjustments Step 5: Compare to bookbalanceBalance from statement- Outstanding Checks Outstanding depositsCorrectionsAdjusted Bank BalanceBook BlanceFund 10Fund 27Fund 50Fund 80Difference Total Cash 0.00

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmWhat is a Deposit in Transit?Cash and/or checks that have been received and recorded by an entity, butwhich have not yet been recorded in the records of the bank where the entitydeposits funds. If this occurs at month-end, the deposit will not appear in thebank statement, and so becomes a reconciling item in the bank reconciliation.A deposit in transit occurs when a deposit arrives at the bank too late for it tobe recorded that day, or the entity has not yet sent the deposit to the bank atall.

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmWhat is an ACH in Transit?ACH processed in your financial software but has not been processed at thebank. If this occurs at month-end, the ACH will not appear on the bankstatement, and so becomes a reconciling item in the bank reconciliation.An ACH in transit occurs when a file arrives at the bank too late for it to berecorded and processed in the reconciling month.

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmWhat Are Outstanding Checks? A check payment thathas been recorded bythe district, but whichhas not clear its bankaccount as a deductionfrom cash. If it has not yet clearedthe bank by the end ofthe month, it does notappear on the monthend bank statement,and so this is areconciling item in themonth-end bankreconciliation.

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmNote: Reconciling Items are Normal It is extremely unlikelythat a district’s endingcash balance and thebank’s ending cashbalance will be identical;there may be multiplepayments and depositsin transit at all times, aswell as bank service feesand NSF issues thathave not yet beenrecorded. Even though you knowwhich items are causingyou to be out ofbalance, don’t wait tomake the entries andrun a new balance tocheck.

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmBeginning BalanceStep 1 Print out your bank statements Recommend you keep a separatefile for each bank, not all in onemonth file Allows you to take one at a time andrefer back to the previous month You will want to check off items. If youhave been having trouble balancing,colored markers help! Enter the bank ending balance in yourspreadsheet

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmDetermine Outstanding ChecksStep 2 Clear checks, which means you will useyour accounting software bankreconciliation process to designatewhich checks have been deducted fromyour account this month When clearing, look at the checknumber AND amount Or upload list from the bank Match your report to the bank debits But bank statements may not listchecks separate from electronicpayments

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmElectronic Payments and ReceiptsStep 3 Repeat bank statements may not listchecks separate from electronicpayments If your bank does not, you will have tomake a tape of ACH and check thattotal OR continue reconciling ACH tomatch the grand total of debits Recommend that you process paymentsthrough ACH or manual check; do notjournal entry Likewise, use cash receipts vs. journalentries for collectionsJournalEntry

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmOther Charges, Fees, and DeductionsStep 4 Not making reconciliation easierYou may have made electronic payments (ohjoy!) Process as manual check or ACH and clearYou may have allowed automatic withdrawals(double joy!) Process as manual check or ACH and clearYou may have deposited checks with nonsufficient funds (triple joy!) Debit the original revenue account andnotify original receiverEnter as expenses all bank charges/wire feesappearing on the bank statement which havenot already been recorded in the district’srecordsRun outstanding check/cleared checks report;when matched, enter outstanding checkamount on your worksheet

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmJournal Entries vs. ACH/Wire/Manual CheckExample No vendor information Duplication Errors

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmCash Receipts and DepositsStep 5 Enter as revenue all other receipts whichhave not already been recorded in thedistrict’s records. Identify sender purpose, code and enterusing cash receiptsRun the cash receipts register, match todepositsIf a deposit is in cash receipts but not bank,it is a deposit in transitEnter deposit in transit on your worksheet Could clone, reverse, and post tofollowing monthYour bank statement credits and yourdeposits in transit should equal the cashreceipts

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmReconciliation WorksheetActionBank balance 320,000- Check printing charge-200- Service charge-150- NSF fee-10- NSF deposit rejected- 500 Interest income 30- Uncleared checks Deposits in transitBook Balance- 80,000 25,000 264,170Create invoice (a.k.a wire) infinancial softwareCreate invoice (a.k.a wire) infinancial softwareCreate invoice (a.k.a wire) infinancial softwareJE Debit revenue,credit cashCash receiptcredit interest revenueNoneNone

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmReconciliation WorksheetReal-Life Example

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmProcess ReviewThe essential process flow for a bank reconciliation is to start with thebank’s ending cash balance, add to it any deposits in transit, subtract anychecks that have not yet cleared the bank, and either add or deduct anyother items.Then, adjust the district’s records;deduct from it any bank servicefees, NSF checks and penalties, andadd to it any interest earnedAt the end of this process, theadjusted bank balance shouldequal the district’s ending adjustingcash balance

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmWhat If?If the balances do not match, then continuereviewing the bank reconciliation for additionalreconciling items. Look for the following items: Checks recorded in the bank records at a different amount fromwhat is recorded in the district’s records (should catch earlier inclearing) Deposits or electronic receipts recorded in the bank records at adifferent amount from what is recorded in the district’s record(ditto) Checks or electronic withdrawals recorded in the bank records thatare not recorded or differ from district’s records Deposits recorded in the bank records are not recorded in thedistrict’s records

U:\NON IB FOLDERS\Fixed Income Public Finance\[MAIN] FICM Pitchbook - 2018 110918.pptx 11/9/18 12:21 pmWhat If?If the balances do not match, then continuereviewing the bank reconciliation for additionalreconciling items. Look for the following items: ACHs recorded in the district’s records not recorded in the bankrecords Inbound or outbound wires, transfers, and fees Duplicate receipts or journal entries Entries posted to the incorrect cash account in your financialsoftware Entries posted to the incorrect month