Bank reconciliations aren’t exactly the most glamorous part of finance—but they are one of the most important. For local government finance teams, reconciling your bank accounts to the general ledger isn’t just about ticking boxes. It’s about catching errors before they snowball, preventing fraud, and making sure you’re ready when the auditors come knocking.
If you’ve ever scrambled to track down missing checks, questioned why your GL balance doesn’t match the bank, or found yourself trying to justify a reconciling item months after year-end… this guide is for you. We’re breaking down what reports to gather, how to work through the numbers, and what auditors will want to see—so you can stay ahead of the curve and avoid last-minute surprises.
Let’s walk through the process.
Step 1: Gather the Right Reports
Before you begin, make sure you have all the necessary documents and reports to perform an accurate reconciliation:
- Bank Statements and Credit Card Statements – These are your primary sources for matching transactions.
- Check Listings – Include both the current month’s checks issued and the prior month’s outstanding checks.
- Cash Receipt Listings – Track all cash received and recorded during the period.
- Deposit in Transit Listings – Start with last month’s deposits that hadn’t cleared and update with the current month’s.
- GL Cash Balance – Pull your general ledger cash balance at the end of the month.
Step 2: Reconcile the Numbers
The goal is to ensure your adjusted bank balance matches your adjusted general ledger balance. Here’s how to calculate each:
Adjusted Bank Balance:
- Ending bank balance
- Minus: Outstanding checks
- Plus: Deposits in transit
Adjusted GL Balance:
- Ending GL cash balance
- Plus or minus: Prior month reconciling items or journal entries
If the two adjusted balances don’t match, it’s time to dig deeper.
Step 3: Investigate and Resolve Variances
Common reconciling items include:
- Bank fees or interest income not yet recorded in the GL
- Unrecorded or incorrectly posted transactions, like checks issued from the wrong account
- Returned or voided checks that weren’t removed from your GL
- Timing differences, especially with credit card payments
- Delayed posting of cash receipts from other departments
Create a checklist to catch these items early, and ensure you have a system in place for tracking and resolving them month to month.
Step 4: Avoid Common Mistakes (and Headaches!)
Prevent audit headaches by watching for these issues:
- Delayed reconciliations – Get them done within 30–60 days of month-end. Waiting too long can lead to audit findings, even if everything’s accurate by year-end.
- Missing signatures – Each reconciliation should be reviewed and signed by both the preparer and an approver.
- Pooled cash errors – If your agency uses pooled cash, make sure interest is allocated correctly. Don’t assign revenue to funds with negative cash.
- Untracked reconciling items – Outstanding items that don’t clear quickly should be logged and monitored until resolved.
Step 5: Get Ahead of Your Audit
Once your reconciliations are in order, the next step is to get ahead of audit season by understanding what your auditors will be looking for:
- A complete list of all bank accounts (including investment and credit card accounts) and the final statement for the fiscal year
- Year-end reconciliations for each account that show accuracy, are signed, and completed within a timely window
- Confirmation of bank balances, typically through a third-party system like confirmation.com
- GASB 31 fair value adjustments, especially if your agency holds investments—these must be accurately recorded and reflected in your footnotes
- Testing of reconciling items, including follow-up to ensure outstanding checks and deposits in transit have cleared
Two Common Audit Questions—Answered
1. Do fair value adjustments always need to be recorded?
Yes, per GAAP—but if the difference is immaterial, some choose not to post an entry. If you skip it, be ready to justify that decision.
2. What if reconciling items don’t clear right away?
Track them. Long-outstanding items raise red flags. Maintain a plan for resolution and make sure explanations are documented.
Final Thoughts
Bank reconciliations may not be the flashiest part of your role, but they’re one of the most powerful tools you have to ensure financial accuracy, build trust with auditors, and avoid unnecessary stress at year-end. By following these steps—gathering the right reports, reconciling carefully, resolving variances, and thinking ahead to what auditors expect—you’re not just preparing for audit season. You’re building a stronger, more reliable process that will serve your agency all year long.
If you have more questions or want help streamlining your process – contact LSL today!
Want a deeper dive into this topic?
We’re hosting an upcoming webinar on bank reconciliations, specifically designed for local government finance teams. We’ll walk through real examples, answer your questions live, and share tips to make your process smoother month after month.
Register here to save your spot: https://us02web.zoom.us/webinar/register/WN_3yl4Qa8_Q0Ka5XJkUNhYQQ
