Government finance departments have a lot to juggle—tight deadlines, strict compliance requirements, and complex financial records. Among the most important areas to stay on top of: Accounts Payable, Accrued Liabilities, and Long-Term Debt.
These liabilities may seem routine, but they can derail an audit or lead to inaccurate financials if not carefully managed. This guide walks through how to reconcile these accounts, why it matters, and what best practices you should be implementing now—not just at year-end.
Accounts Payable: Clean Ledgers, Strong Foundations
What to Watch For:
Accounts payable (A/P) reconciliation is all about ensuring that the amounts your government owes are recorded in the right period, supported by proper documentation, and match between the general ledger and subledger.
Why It’s Critical:
Incorrect A/P balances can overstate or understate liabilities, cause issues during the audit, and raise red flags about your internal processes.
Common Reconciliation Issue:
You’re closing the books for June, and your A/P ledger says $250,000. But your GL says $247,500. After investigation, you find a $2,500 invoice was posted to July by mistake—it related to a service performed in June. Adjusting this puts both ledgers in sync.
Best Practices for A/P Reconciliation:
- Reconcile the A/P subledger to the general ledger monthly
- Review payments made after fiscal year-end for prior-year expenses
- Maintain detailed schedules with vendor names and disbursement types (check, ACH, wire)
- Generate and retain open PO/encumbrance rollover reports at year-end
Key Workpapers:
- Year-end A/P schedules with vendor details
- Cash disbursement listing from year-end through audit fieldwork
- Open encumbrance/PO report
Accrued Liabilities: Payroll, Benefits, and More
What to Watch For:
Accrued liabilities capture what’s owed at year-end but hasn’t yet been paid—often tied to payroll, benefits, and other time-sensitive obligations.
Why It’s Critical:
These balances must be accurate to reflect the true financial position. Missed accruals can distort financials and mislead decision-makers.
Accruals to Track Carefully:
- Unpaid payroll for June work that’s paid in July
- Retirement, insurance, and tax liabilities tied to unpaid payroll
- Liabilities due to other governments
- Customer deposits or retentions payable
Best Practices for Accrued Liabilities:
- Reconcile payroll distributions with pay dates and ensure timing aligns with the correct fiscal year
- Maintain clear schedules for third-party benefit and tax payments
- Track deposit and retention liabilities with clear invoice matching
- Ensure sick/vacation accruals are updated consistently and reflect actual policies
Key Workpapers:
- Payroll registers showing earned vs. paid dates
- AP payments to benefit providers (CalPERS, insurance carriers, etc.)
- Schedule of liabilities due to other governments
- Schedule of deposits payable and retentions payable with supporting invoices
- Listing of compensated absences with relevant policy details
Long-Term Debt: Know It, Track It, Reconcile It
What to Watch For:
Debt can take many forms—general obligation bonds, revenue bonds, assessment debt, leases, and loans. Reconciling debt balances means ensuring you’ve properly recorded proceeds, tracked amortization, and complied with debt covenants.
Why It’s Critical:
Long-term debt represents a major financial obligation. Errors in tracking repayments, amortization, or covenant compliance can impact credit ratings and financial transparency.
Types of Long-Term Debt:
- General Obligation Bonds (backed by full taxing authority)
- Revenue Bonds (paid from specific revenue sources like water utilities or toll roads)
- Special Assessment Debt (repaid through property assessments)
- Other Instruments: Lines of credit, promissory notes, lease-purchase agreements
Best Practices for Debt Reconciliation:
- Record all debt proceeds in the correct fund (as outlined in the debt agreement)
- Reconcile principal and interest payments with amortization schedules
- Update rollforwards as payments are made
- Review and document compliance with any debt covenants (reserve requirements, continuing disclosures, etc.)
Key Workpapers:
- Debt rollforward showing beginning balance, additions, payments, and ending balance
- Amortization schedules for each debt issuance
- Support for deferred charges on refunding (if applicable)
- Evidence of covenant compliance (e.g., insurance, cash reserves)
- Calculations and journal entries for new debt
Why All This Matters
Whether it’s a large capital project or a payroll cycle, every liability has a ripple effect on your agency’s financial health and public transparency. Inaccurate records or delayed reconciliations can lead to:
- Audit findings
- Restated financials
- Compliance breaches
- Damaged credibility with governing bodies or constituents
Final Thoughts: Be Audit-Ready All Year Long
Don’t wait until the audit request list hits your inbox. Incorporating these reconciliation processes into your monthly or quarterly close ensures your books are accurate and your team is prepared. The smoother your records, the more efficient your audit—and the more trust you build within your organization and your community.
Pro Tip: Keep a running checklist of key reconciliations and supporting documents by category (A/P, accrued liabilities, long-term debt) to streamline your audit prep and reduce stress.
Want a deeper dive? Register for our webinar 8/12 with LSL’s Senior Manager, Jayme Lambert, CPA – can’t make the live session? Register anyway, and we’ll send you the recording: https://us02web.zoom.us/webinar/register/WN_FO6W52kLQyq1_K7wn7wwyw#/registration
