Don't Get Caught Short. Steps for a Successful Reconciliation Program.

A comprehensive client funds reconciliation program goes far beyond bank reconciliation. If you don't have all of the necessary reconciliation components, you are at risk for losing track of your customer funds, and ultimately time, customer confidence, and your hard-earned profits.

Step 1: Build your ledgers.

Each customer should have a set of ledgers that include deposits and payments transacted on behalf of that customer. The ledgers should be broken out by type (e.g. Net Pay, Tax, Direct Deposit).

Step 2: Match ledger transactions to bank transactions.

Given the volume of transactions, daily bank reconciliation is a necessity for HCM providers of all sizes. Even when done daily, automation in matching bank and ledger transactions should be used to minimize both manual work and the risk of incorrect matching. After your auto-match routing has completed, any remaining exceptions, such as ACH returns, bank fees, wires, etc.) need to be handled efficiently in order to complete the bank reconciliation.

Step 3. Complete bank reconciliations for all of your client funds accounts.

Bank reconciliation starts with an opening bank balance that must match to the prior day's closing bank balance. When, and only when, the difference between the closing and opening bank balance equals the net of cleared deposits and payments in that reconciliation, should the reconciliation be finalized.

Step 4. Perform a ledger reconciliation for each ledger used.

Each of your bank accounts should be associated with a ledger. Complete a daily comparison of the adjusted bank balances per ledger to the sum of the individual client ledgers. The adjusted bank balance is a calculation of the most recent closing bank balance per account and the sum of the outstanding (uncleared) ledger transactions for that account.

This reconciliation ensures the integrity of your client funds reconciliation program. This reconciliation prevents variances that would otherwise be undetected such as previously cleared transactions that have been voided, beginning balances that are out of sync, or bank transactions that have been posted to a previous day.

Step 5. Complete subledger reconciliation.

Subledger reconciliations identify variances between the amount of funds you are holding vs. those you should be holding. For example:

• Aged uncleared transactions. These are ledger transactions that should have cleared but didn't. These transactions are indications of an invalid ledger entry or a transaction that should have been processed by your bank or ACH processor but was not.

• Tax liability variances. These are differences between the total unpaid tax liabilities by customer and that customer's ledger balance.

• Negative cash balances. Verify that you have not paid out more than you have taken in for any customer.

Ideally, you will be able to identify these subledger reconciliation items using exception reporting rather than validating each customers' balances individually.

Step 6. Manage the variances.

There will inevitably be variances between the funds you should be holding and those you are holding. These result from things like ACH returns, SUI rate changes, voided payroll batches where tax deposits have already been paid, and missed tax payments, just to name a few. Use a workflow management board for team collaboration to work each variance through to completion.

In summary, with the proper tools it is possible to be confident that you are holding the right amount of money for every customer, every day. The key is proper education and dedication to completing the steps above each and every business day. Take care to treat your reconciliation program as though your business depends on it, because it does.