Monthly Reconciliation

End-of-month reconciliation process matching internal financial records with external sources (bank statements, payment gateways) to ensure accuracy

Flow

Monthly Reconciliation Flow

This flow documents the end-of-month reconciliation process that ensures our internal financial records match external sources like bank statements and payment gateway settlements.

Flow Overview

Monthly reconciliation is a critical financial control process. It verifies the accuracy of our financial records by matching them against authoritative external sources, identifying and resolving discrepancies.

Reconciliation Types

1. Bank Reconciliation

  • Match ledger cash transactions with bank statements
  • Identify deposits in transit
  • Account for outstanding checks
  • Verify wire transfers

2. Payment Gateway Reconciliation

  • Match payment transactions with gateway settlements
  • Account for processing fees
  • Verify refund processing
  • Handle chargebacks

3. Inter-System Reconciliation

  • Verify consistency between internal systems
  • Match payment service to ledger
  • Confirm invoice service to AR
  • Validate transaction completeness

Matching Algorithms

Exact Match (85-90% of transactions)

  • Transaction ID: Perfect match on reference number
  • Amount: Exact dollar amount
  • Date: Same transaction date
  • Auto-reconciled: No human intervention needed

Fuzzy Match (5-10% of transactions)

  • Amount Match: Within $0.01 tolerance
  • Date Range: Within ±3 days
  • Reference Match: Similar reference numbers
  • Confidence Score: 75-95%
  • Requires Review: Human verification needed

ML-Assisted Match (2-5% of transactions)

  • Pattern Recognition: Historical matching patterns
  • Context Aware: Considers transaction type and source
  • Learning: Improves over time
  • Confidence Threshold: 90%+ for auto-accept

Common Discrepancy Types

Timing Differences (Most Common)

  • Cause: Settlement lag (T+1, T+2)
  • Example: Payment processed on 31st, settled on 1st
  • Resolution: Defer to next period
  • Impact: Low (resolves automatically)

Missing Transactions (High Severity)

  • Cause: Data entry error, system failure, fraud
  • Example: Payment in bank but not in system
  • Resolution: Investigation + correcting entry
  • Impact: High (potential revenue loss)

Amount Mismatches (Medium Severity)

  • Cause: Fees not recorded, currency conversion, error
  • Example: $100 payment, $97 settled (fees)
  • Resolution: Record fee expense
  • Impact: Medium (affects accuracy)

Duplicate Entries (Medium Severity)

  • Cause: System glitch, manual error
  • Example: Same transaction recorded twice
  • Resolution: Remove duplicate
  • Impact: Medium (overstates revenue)

Reconciliation Metrics

Target Metrics

  • Auto-Match Rate: > 90%
  • Completion Time: < 3 business days
  • Material Discrepancy Rate: < 0.1%
  • Clean Reconciliation Rate: > 95%

Success Criteria

  • All transactions accounted for
  • Discrepancies < $1,000 total
  • Open items documented and tracked
  • Management approval received

Timeline

DayActivity
1stAutomated reconciliation starts
1-2Auto-matching completes
2-3Accountant reviews fuzzy matches
3-5Investigation of discrepancies
5Report generated and reviewed
6-7Management approval

Roles & Responsibilities

Reconciliation Service

  • Automated data collection
  • Transaction matching
  • Report generation
  • Alert generation

Junior Accountant

  • Review fuzzy matches
  • Approve high-confidence matches
  • Flag issues for senior review
  • Update tracking spreadsheets

Senior Accountant

  • Investigate discrepancies
  • Create correcting entries
  • Contact external parties
  • Document resolutions

VP of Finance

  • Review reconciliation report
  • Approve period close
  • Escalate material issues
  • Sign off for audit

Control Points

Data Quality Checks

  • Completeness: All sources imported
  • Accuracy: Amounts parse correctly
  • Timeliness: Data from correct period
  • Validity: Data passes validation rules

Approval Gates

  • Auto-match: Algorithm confidence > 95%
  • Manual match: Accountant approval
  • Corrections: Dual approval for > $1,000
  • Period close: VP approval required

Audit Trail

  • All matches logged with confidence score
  • Manual decisions documented
  • Corrections include reason and approver
  • Immutable record for 7 years

Integration Points

  • Ledger Service: Source of truth for internal records
  • Payment Gateway Service: Settlement data
  • Bank Systems: Bank statement import
  • Notification Service: Alerts for issues
  • Reporting Service: Management dashboards

Escalation Process

Minor Issues (< $100)

  • Accountant resolves
  • Document in reconciliation notes
  • No escalation needed

Moderate Issues ($100 - $1,000)

  • Senior accountant review
  • VP notification
  • Resolution within 5 days

Major Issues (> $1,000)

  • Immediate VP escalation
  • CFO notification
  • Investigation team assigned
  • Detailed root cause analysis
  • Process improvement plan

Regulatory Requirements

  • SOX Compliance: Control documentation
  • GAAP: Proper period matching
  • Audit Trail: 7-year retention
  • Segregation of Duties: Maker/checker controls
  • Payment Processing Flow
  • Invoice to Payment Flow
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