A history lesson
Back in the day, individuals with checking accounts had (or should have had) a monthly ritual: receiving in the mail from the bank a statement of the most recent month’s activity,1 and spending a bit of time reconciling that account.
These days, I expect few people receive paper statements monthly, and very, very few bother to reconcile their accounts—going through the detailed process of comparing their statements (digital or paper) with their check registers (remember those?) item by item, checking off what they recorded versus what cleared the bank and dealing with or noting any differences (checks and deposits in transit—initiated on their end but not yet reflected by the bank; errors, most often on the human’s end than on the bank’s; activity, like interest earned, on the bank’s end that the human didn’t know about yet; etc.). It sounds a bit involved, and it can get complicated, especially if the human makes a mistake (like transposing digits in a number, failing to record a transaction, or making math errors in the running account balance) and has to spend time chasing down the error.
The fact that fewer and fewer of us go through this monthly chore is not necessarily that we’ve become less disciplined with keeping up with our finances. Rather, internet banking and mobile apps let us monitor the bank’s activity ‘round the clock. We don’t have to wait for the monthly statement in the mail. But even with near-instantaneous access to the bank’s data, we still (hopefully!) keep significant pending items in our heads—like a payroll deposit that hasn’t hit yet, or that upcoming automatic car loan payment—when estimating the available funds in the account based on the bank’s stated balance.
Reconciliations are still relevant
The world of banking and personal finance borrowed the word from another context (that has been around long before banking): reconciliation in relationships. The root meaning is to bring back together two things that should be in harmony or agreement.
Christ’s parable of the prodigal in Luke 15 describes a reconciliation between a loving father and a wayward son. Harmony in the relationship was restored.2
Reconciliations in the world of accounting aren’t dealing with restoring broken relationships, but they are significant in their own (and admittedly lesser) way. And though most individuals and families have figured out personal finance workarounds that don’t involve reconciliations, businesses and other organizations cannot afford to wing it, eyeball the balances, and guesstimate the true available funds.
Doing it, and doing it well
If you’re in the finance function of an organization, someone somewhere had better be reconciling the organization’s key accounts regularly. The second paragraph above describes some of what is involved, but your reconciling person needs to know the process inside out and must be performing it faithfully and regularly. What accounts you reconcile and when depends on the nature of your financial activities.3 But every organization needs to reconcile its cash accounts at least monthly. And if you have a high volume of flow, you may need to reconcile them daily.
Important practices
This isn’t a primer or recon “how to” article. Instead, here are non-negotiables for your reconciliation process:
- It must be a process: clear steps, diligently followed, and with each reconciling iteration documented (balances noted, differences itemized and explained, with the individual performing the reconciling identified, etc.). I had a colleague who’d regularly remind his team a good process should be “defined and repeatable.”
- It must be done promptly. When you start the month, promptly reconcile the previous month’s activity and ending balances. (If you’re at a bank, you’ll be doing this daily for each prior day’s activity and balances.) Do not let this key activity sit neglected.
- Ensure appropriate segregation of duties: the person writing checks (or otherwise initiating payments) or making deposits should not be the same person reconciling the account. This helps protect the organization from fraud and it protects the humans involved with cash from accusations of fraud.
- Have a third person review the reconciliation. Timely. And document that review.4
- Make sure you have trained, capable backups identified for each of the parts of the process (handling cash activity, reconciling the account, reviewing the recon).5
- Do not let reconciling items get stale. For example, a check you’ve written may sit as a reconciling item for weeks or months till it shows up in the bank’s activity if the payee forgets to make a deposit. Don’t leave it unaddressed indefinitely: you may need to contact the payee to inquire about the check, and that may lead to a stop pay and cutting a replacement check.
- If anything at any step in the process is unusual or just seems odd, dig deeper. Don’t assume it will straighten itself out by next month end. Figure out what’s going on.
System changes, operational changes
For many Finance shops, your normal recon processes check all the boxes of the non-negotiables above. Keep it up. Do not let any passivity or laxity creep in. The processes and associated internal controls are just too important for the protection of your cash, the integrity of your team, the accuracy of your numbers, and the quality of your cash flow—your business’s “life blood”—for you and your team to be anything other than constantly diligent and vigilant.
But here is a place I’ve seen solid, experienced finance teams get into trouble, even when their recons are in a generally good groove: a system change, or a material change in operations, or both, where each or both involve cash in some way.
The higher the complexity of the system and operations, the more material the change, and the heavier the volume of transactional flow through the cash account, the greater the risk of a catastrophe. And I use that word “catastrophe” advisedly. I’ve seen instances of big system/operations changes combined with high transaction flow creating messes that took months to clean up, and with some unreconciled items so stale and so difficult to research that the clean up ultimately required manual journal entries to force the accounts into balance. You never want to have to explain to the Board that you have a large expense showing up on the income statement because you and your team let the recons get away from you.
Three imperatives:
- Assume that the recons will be messy after the system/operations change, and have your strongest, most able reconcilers teed up ready to begin reconciling immediately. And don’t be surprised if you’ll need these heavy hitters tasked for this for a while. Things may go smoothly with no unusual effort required on the back end. But it’s not safe to assume that will be the case.
- Even more importantly: get on the front end of the likely problem by doing thorough planning and testing on the front end of the change. Bring together the strongest, most knowledgeable individuals from operations, IT and finance to make sure you all understand each other’s perspectives and assumptions about the change and the effects on the flow of funds. Don’t assume you are speaking the same language, have the same objectives and concerns, or even understand terminology the same way. Test every possible transaction and its flow. Then test it again. Document the outcomes and make adjustments. On the front end. Close collaboration up front doesn’t guarantee you’ll catch every potential problem, but failing to collaborate up front guarantees you’ll have some you could (should!) have prevented.
- Always keep everyone up all relevant chains of command fully briefed about this aspect of the change initiative. It’s easy to focus on other, more exciting features and promised capabilities. Don’t lose sight of the risks in the deep, vital, inner workings of your vital cash flow stream. Ace implementation of the expected features without doing fundamental financial harm.
It’s something to think about
Other aspects of our role are more exciting. But as stewards—and especially as stewards in the Finance function—we must take good care of this vital responsibility. Yes, it’s dull, but that’s a good thing. If your recons are causing excitement, that means something blew up. Stay on top of those recons!
Eric R. Alexander
August 2025
No A.I was employed (or harmed) in the creation of this content.
© 2025, Six Arrows Consulting. All rights reserved.
1 Farther back in the day, the envelope from the bank would also have included the checks and deposit slips that cleared the bank that month. Or at least, that’s my recollection. It was very much back in the day.
2 The Apostle Paul uses the language of reconciliation to describe Christ’s work of salvation for those who respond to his call to become his people. The presence of sin and evil in the world and in each of us as humans means our relationships with God are broken. His gift of salvation restores the relationship, dealing with the sin and the brokenness, and making me part of God’s family. Jesus Christ, by his death and resurrection on our behalf, restores the relationship between us, the prodigals, and God, the loving Father. (For some Scripture passages on this topic, see Romans 3:23; 5:10-11; 6:23; and 10:9-10.)
3 Subledgers need to be reconciled to the general ledger for accounts payable, accounts receivable, inventory, fixed assets, investments, owners’ equity stakes and so forth.
4 In a small organization with a small Finance shop, you may have too few people for this kind of segregation. In cases like these, segregate as much as you can and have the owner or a board member provide and document the review step. Make sure you alert whoever is doing the reviewing to anything unusual. They may not be experts, but their review cannot be perfunctory.
5 Optimally, you should have two layers of backup for each person. Again, that’s tough in a small shop. But this process is so vital that you cannot afford for it not to stay on track if someone is out sick or on vacation. Also, optimally, have the backup perform the assigned function periodically so their knowledge stays fresh. (Also: AI may come into play to a degree, especially matching off routine items; but this is too important a function to leave without expert human oversight and involvement.)