{"id":227,"date":"2005-10-12t11:04:00","date_gmt":"2005-10-12t16:04:00","guid":{"rendered":""},"modified":"-0001-11-30t00:00:00","modified_gmt":"-0001-11-30t05:00:00","slug":"bank-reconciliation-services-the-good-the-bad-and-the-risky","status":"publish","type":"post","link":"\/\/www.g005e.com\/2005\/10\/12\/bank-reconciliation-services-the-good-the-bad-and-the-risky\/","title":{"rendered":"bank reconciliation services: the good, the bad and the risky"},"content":{"rendered":"

the risks to cpas can’t be ignored<\/i><\/p>\n

from camico<\/a><\/b><\/p>\n

in october 2004, the world of payments entered the era of “check 21”, formally known as the check clearing for the 21st century act. but when it comes to practice liability for cpas who perform bank reconciliation services, check 21 – and a number of new web-based banking services – are unknowns. advances in technology and the new payments environment offer conveniences to cpas and their clients, but the risk of loss is still high, says jeff hohman, cpa and loss prevention specialist for camico mutual insurance company, one of the nation’s largest providers of professional liability insurance for cpas. “check 21 accelerates payments, which means fraud can be perpetrated faster,” hohman says. “but the risks for cpas performing bank reconciliation services can be reduced by following five steps: 1) exercise skepticism; 2) warn clients about their exposures to fraud; 3) advise clients of the steps they can take to reduce their exposures; 4) offer cpa services to help reduce exposures; and 5) document all communications with clients.” <\/p>\n

hohman stresses the potential for clients misunderstanding what services the cpa is offering. “bank reconciliations have always presented significant exposure to cpas if the scope and limits of those services have not been adequately communicated to clients,” he says. “client expectations can be unrealistic and very different from those of the cpa when embezzlement occurs. clients who want the cpa to ‘handle everything’ are risky, especially if the cpa-client relationship is long standing.” <\/p>\n

cpas should document all advice and communications with the client. “the more the client acknowledges an understanding of the processes, the more responsibility he or she has for them,” he said. “this is absolutely crucial in this changing payments landscape.”<\/p>\n

online check-imaging capabilities are being promoted by banks, and cpas need to understand the new payments environment and the potential loss of a paper trail that can occur. “many banks are discouraging businesses from receiving cancelled paper checks,” notes hohman, “but clients can get confirmation of payment by printing or viewing imaged checks off of the web. there’s usually a limited window of time, such as 90 days, during which you can access online check images. it’s a matter of finding out about the bank’s policies and getting used to a different method of reconciling bank transactions.”<\/p>\n

online access to digitally imaged checks exposes the cpa to more liability if access to client bank information is abused. hohman cautions cpas to have strict controls over passwords and other confidential client information in order to prevent cpa firm personnel and others from improperly accessing client bank accounts. <\/p>\n

in this present environment with a heightened awareness of fraud, changes in the nation’s payments system may create additional risks. hohman recommends that cpas who perform bank reconciliation services consider offering bifurcated services as a method of clearly separating client\/practitioner responsibilities as well as to enlarge service offerings. as a model, he suggests the following two bank reconciliation services options to clients:<\/p>\n

option one – a standard monthly service in which the cpa performs bank reconciliations solely to compare the amount of cash in bank on the books with the amount of cash in bank shown on the statement. this service is not designed or intended to deter or discover fraud, and the engagement letter should clearly communicate that. cpas can perform normal bank reconciliation services quickly and at lower cost.<\/p>\n

option two – an expanded service that might be labeled “bank reconciliation plus.” the cpa must not guarantee that embezzlement or other irregularities will always be uncovered, but can state that the consistent and timely application of this expanded service can provide additional protection to the client. in this service, the cpa performs additional specific activities such as: ” examining individual checks, the signatures on each check, the payee on the check, and the signature cards on file with the bank; and ” providing the client with a written report detailing all checks posted against the account and appearing on the bank statement or the client’s books for the time period covered by the service. <\/p>\n

the cpa communicates that the client also has specific, clearly identified responsibilities and that the fees will be higher in order to cover the additional steps involved.
\n
\nrecommending positive pay <\/b><\/p>\n

positive pay is a fee-based bank service in which the bank compares checks for payment with issued-check data received earlier from the account-holder. the bank will contact a designated person with the account-holder for a payment decision on questionable checks before they are processed. the effectiveness of positive pay depends on having adequate internal controls in place and making sure the right person has the authority to verify check payments. <\/p>\n

“the price of positive pay has decreased significantly,” adds hohman, “and for the amount of protection it can provide, it is worth every penny. for cpas with high-risk clients such as those with cash-intensive businesses or wealthy individuals who want the accountants to handle everything for them, positive pay is considered a good choice.”<\/p>\n

ultimately, it is unclear whether web banking and check 21 will make things better or worse for practitioners, according to hohman. “if no one is looking at the online activity, fraud can still be perpetrated, and the cpa could be exposed to liability for a failure to detect it. as a result, it is important for the cpa to warn and advise the client and to document the understanding reached with the client.”<\/p>\n","protected":false},"excerpt":{"rendered":"

the risks to cpas can’t be ignored from camico in october 2004, the world of payments entered the era of “check 21”, formally known as the check clearing for the 21st century act. but when it comes to practice liability … continued<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","footnotes":""},"categories":[2254],"tags":[6],"class_list":["post-227","post","type-post","status-publish","format-standard","hentry","category-growth","tag-bsg-business-builder"],"acf":[],"yoast_head":"\nbank reconciliation services: the good, the bad and the risky - 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