Cincinnati Metro Housing Authority
- Rachel Raymond
- Success Stories
- minute(s)Cincinnati Metro Housing Authority chops months of work per year with FHB + Adra Project: Reconciliations Automation Organization: CMHA Platform: Adra by Trintech How It Started In October of 2023, Monica Mitchell joined the Cincinnati Metro Housing Authority (CMHA) as an Account Reconciliation Specialist. The organization had been using Excel to manage monthly financial closing, but they recognized their need for automation and a more standardized, repeatable reconciliation process. First, they created Monica’s role for the purpose of managing that process. Then, they hired FHB to configure and implement a new financial-close-automation software, Adra by Trintech. Shortly thereafter, three key team members transitioned away from the project, and Monica needed assistance in handling the software implementation and monthly reconciliations. Our Approach FHB's objective at the project’s outset was to implement three of CMHA’s largest bank accounts in Adra Matcher and Balancer. Our approach: Understand & document the existing reconciliation processes. Set up the frequency of account preparation, approval, and review. Write custom rules to automatically match as many transactions as possible. Train the CMHA team to use the system and to write their own rules going forward. Test transaction matching through three rounds of rules to maximize the percentage of automatic matches. Provide the team with best practices to simplify and improve matching in the future. How It Went When we spoke with Monica, she had nothing but praise for FHB’s implementation team. “Jill [FHB Principal Consultant Jill Moats, CPA] was awesome,” she said. “She was very patient. It was kind of chaotic over here [amid staffing changes]. But she was very good at getting us to focus and answering our questions. Jill is very, very good at getting to the core of the problem and giving an explanation in plain English,” she said. "I appreciated the fact that Jill is an accountant and that she's done reconciliations.” –Monica Mitchell, Account Reconciliation Specialist, Cincinnati Metro Housing Authority “I have a lot of experience with implementations, and programmers always think it's a great thing to implement new software, but they never think about the end user and whether it makes sense to them. I think that FHB takes that into account, especially during implementation, asking, ‘How will you use this?’ I found that really helpful.” “I am somebody who learns much better by having someone guide me through than by trying to figure it out on my own...what happens with going it alone is that you get so far and then you run into a wall. And then it takes days to get the wall torn down. And you forget what you were doing before you hit the wall. I appreciated having Jill to say, ‘maybe you should look at it this way.'" The Results For Monica, the implementation by FHB couldn’t have come at a better time. "Having the tools to handle [reconciliations] makes it all so much easier,” she said. Now that it’s up and running, the solution saves Monica weeks of work. “I also picked up [responsibility for] what we call the lock box—our Low-Income Public Housing or LIPH main. My former colleague used to struggle with that; you should see those Excel reconciliations. He tried to explain to me how he did it in Excel, and I said, ‘No. I don't even understand what you're saying.' When I took it over, I said, ‘I can’t do that account without Adra.’” Now, only a small percentage of open items remain unmatched, mostly due to timing. “I'm [reconciling] it within 0.5 percent, so, I'm happy with that,” Monica said. “Another of our big accounts is the HAP HCV (Housing Assistance Payments Housing Choice Voucher), which includes 18,000 transactions every month,” she said. The auto-matched transactions for that account are around 98 percent, meaning now, they only need to review around 250 of those 18,000 transactions monthly. What's Next Monica anticipates enlisting the help of FHB for future work. “Now that I've really bought into it, I can start convincing other people that they can buy into it. Some have the attitude, ‘why do we need new tools if we can just do it in Excel?’”
Learn how Cincinnati Metro Housing Authority, with the help of FHB, cut months of work per year out of its reconciliation process by implementing Adra.
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Essential considerations when employing Balance Sheet Account ...
- Ed McCaulley
- In Control
- minute(s)Given the nature of the public sector industry, with its vast constituent base, any process and control failures can become highly visible, highly contentious, and highly damaging to an organization’s reputation. Yet, with budget constraints and the hiring challenges from the “Great Resignation”, how are we to keep our organizations’ safe and out from under this magnifying glass? The challenges are significant and demand rational approaches as well as application of one of the oldest — yet most effective — accounting control processes: balance sheet account reconciliations. Reconciliations have long been an important control for ensuring the accuracy of financial statements. Validating balances in general ledger accounts through the reconciliation process provides management with assurances that controls are in place and are working effectively. Performing accurate and timely reconciliations receives considerable attention under various government regulations focused upon public sector reporting. For example, in the United States, the Office of Management and Budget’s (OMB) Circular No. A-123 (A-123), the Federal Managers’ Financial Integrity Act (FMFIA), and the Government Accountability Office’s (GAO) Standards for Internal Control in the Federal Government (known as the “Green Book”) have been at the center of Federal requirements to improve accountability in Federal programs and operations. Within the Green Book, “reconciliations” are specifically called out both as “transaction control activities” and “ongoing monitoring”. Yet even without the regulatory emphasis, it is because of their summary and comprehensive nature that reconciliations often become key, rather than secondary, controls. As accountants and auditors, we should understand best practices related to account reconciliations and have a clear plan for reviewing reconciliations. RECONCILIATION TYPES There are various types of reconciliation, and each has nuances that will indicate the nature, timing, and extent of audit tests. Some of the more common types include: Basic account reconciliations. Often far from basic or simple, these account reconciliations may be reconciled to an accounts receivable aging schedule, fixed asset ledger report, or an accounts payable report. There should be account reconciliations for all asset, liability, and equity accounts. Bank account reconciliations. This type of reconciliation is between a bank statement and a general ledger account. Zero balance accounts (ZBAs) add a twist to the generic bank account reconciliation, because the bank account is swept or funded daily, leaving the end-of-day balance at zero. Suspense account reconciliations. Suspense accounts are used as a “holding” account until the appropriate disposition or classification of the transaction can be made (e.g., a lockbox used for all deposits). Once the cash deposit is recorded on the organization’s books, the organization will then determine why it was received and book the corresponding entry to clear suspense (e.g., to post it against a notes receivable or to book revenue). Thus, testing procedures should be added or modified to address the specific nature or characteristics of the account being reconciled. BENEFITS There are many benefits that come from performing high-quality account reconciliations, but here are the key benefits: Identify necessary adjusting entries before financial or other regulatory reports are issued, thus reducing restatement risk Identify operational issues earlier, when the problem is smaller, resolution is more manageable, and before the “fog of time” starts to obscure events Improved confidence in the financial statements from investors, managers, constituents, and external auditors Emphasizes to all employees the need for accuracy in transaction processing when the feedback is closer to the error BEST PRACTICES Both accountants and auditors should understand the best practices being utilized around account reconciliations. The following are practical ideas for improving the effectiveness of an organization’s account reconciliation efforts: Formalize a policy for reconciling and reviewing all balance sheet accounts. Complete a risk assessment of all balance sheet and off-balance sheet accounts and determine their risk level. Designate a regular cycle for the process (e.g., monthly reconciliations for high- and medium-based risks and quarterly for low-based risks). Complete account reconciliations by a specific calendar day of the subsequent month. Use a standard format for preparing reconciliations across the organization, and ensure each reconciliation contains standard information. Assign different individuals to both preparer and reviewer roles for each reconciliation to be performed. Confirm that the preparer and the reviewer possess the adequate skill sets to perform their functions, understand the nature of the account being reconciled, and understand the documentation and analysis required to support and substantiate the account balance. Consider automating the reconciliation process. There are various tools available to help with reconciliations. For example, many tools will automatically match up transactions from the G/L to the bank records, which frees reconcilers to focus on the more value-added task of researching unmatched records. Other tools help track the status of all reconciliations. Consider use of continuous monitoring tools and testing to immediately alert staff to potential issues (e.g., search for duplicate payments based upon payee, amount, and payment date) when they can take preventative action, instead of waiting to detect the issue when the reconciliation is performed. There are no guarantees but employing these practices can help reduce the risks… of fraud, financial loss, or misstatements, while identifying operational issues early before they become too large. INTERNAL AUDIT’S ROLE Internal audit should be responsible for independently assessing compliance with stated procedures. When performing audits of reconciliations, it is essential that auditors consider various attributes. Including the following testing procedures can help auditors perform a complete and adequate review. Does the “balance per the general ledger” on the reconciliation agree to the amount reported on the general ledger? One common problem is not reconciling to the full general ledger balance (e.g., to a subaccount, to only the cash or accrual or tax subledgers, or to only a subsidiary account). Does the “balance per bank” or “balance per system” agree with the bank or system report? A recurring issue is reconciling the general ledger activity to the general ledger balance rather than to an outside, confirming source. Reconciling one general ledger source to another, such as a trial balance to an online balance report, will accomplish nothing — unless the intent is to test the general ledger system’s reports. Are there any unreconciled differences? Unreconciled or unknown differences should set off alarm bells. These differences mean the reconciliation work has not successfully identified all reconciling items. This typically indicates that the individual preparing the reconciliation does not have the appropriate skills, did not devote the time necessary to complete the reconciliation, or simply does not have access to all the appropriate data required. Be careful about de minimis limits that some groups have established. The theory behind a de minimis limit is that the difference is too small to warrant the time and effort to track down the difference and that it is more efficient to simply write off the unreconciled amount. However, the use of de minimis limits have dropped out of favor because the unreconciled balance may be hiding more than one error if the transaction amounts offset each other. In other words, a $10 unreconciled balance might be two or more transactions… a million-dollar credit, largely offset by a $999,990 debit. Are reconciling items being cleared timely? Unless the reconciling items identified are purely timing issues, they should result in some action (e.g., a journal entry or an entry to correct a subledger). These actions should clear the item before the next reconciliation is performed. If they are not cleared, it is an indication that the work is not being performed. As many organizations are operating with lean accounting departments, completing account reconciliations both correctly and timely can be a difficult task. However, staff shortages do not justify rolling reconciling items forward from period to period. Although this approach is quicker and may seem to be an acceptable solution to the overworked individual performing the reconciliation, it is often the cause of a restatement. Was the reconciliation signed by the preparer and reviewer, and are the preparer and reviewer different individuals? Having both roles is important for three reasons. First of all, it introduces a measure of segregation of duties, especially useful in smaller organizations where everyone wears multiple (and sometimes incompatible) hats. Secondly, the reviewer may offer a broader understanding of the transactions flowing through the account. Finally, the reviewer also should help ensure that reconciliations are being performed with consistent diligence between accounts. Was the reconciliation completed on time? Reconciliations should be completed before the data or report for the next reconciliation becomes available. Thus, a bank account reconciliation would be considered late if it was not completed before the next month’s bank statement was received. Has the organization established a monitoring control over reconciliations? Reconciliations are such an important control that many organizations have implemented an organization-wide policy or centralized monitoring to ensure their timely completion. All balance sheet accounts should be reconciled. SUMMARY Performing appropriate and timely reconciliations is a critical control function that should be in place in all organizations. Although account reconciliations may seem mundane and repetitive, a strong account reconciliation process is an important component of a solid system of internal controls. Implementing account reconciliation best practices — such as accountability, risk-based prioritization, and reconciliation automation — provides management with insight into the substance of transactions and account balance content. A robust reconciliation process can identify necessary adjusting entries before financial or other regulatory reports are issued, while also reducing restatement risk, improving investor confidence, and eliminating write-offs.
Accurate and timely reconciliations are a critical control function that should be in place in all organizations. Understand best practices related to account reconciliations and develop a clear plan for reviewing reconciliations.
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