Pub. 1 2021 Issue 2

44 the appearance that you have more cash than you do. Or that there is regular, barely detectable theft occurring internal ly, adding up over time. Timely monthly reconciliations can expose discrepancies like these so you can address them. What Reconciliation Means for Dealerships For dealerships, reconciliation primarily refers to bank reconciliation. This is a regular business activity where staff cross-checks the general ledger activity with the actual bank account activity to ensure all transactions are correctly posted. This is how you will reconcile your cash to your account activity. Other reconciliation activities include vehicle inventory and floor plan reconciliation. Bank reconciliation is central to cash flow management because this regular view of your actual financial activity and cash status empowers you to identify: • Where you might improve the inflow and outflow of cash • Opportunities to improve processes • Unnecessary spending and loss • Unusual activity and errors If your bank accounts and cash do not reconcile, it could be something as simple as a miscalculation or something as substantial as fraud. Even a simple miscalculation is worth identifying and fixing to ensure you always have the most accurate understanding of your cash status. Common Issues with Reconciliation and Cash Control If you have employees responsible for monthly reconciliations, you must check in with their processes to ensure they complete the task and do so with attention to detail. You must also assess whether you can better support them with process and technology improvements. There are a few ways your reconciliations might be stunted: • Employees assume any discrepancies will work themselves out, as with pending payments and due-to- process payments in the following statement. • Employees are not adequately trained to recognize errors and inconsistencies. • There is no proper segregation of duties, so employees are less likely to catch their own mistakes. • Employees do not have adequate tools and technology to reconcile errors, particularly in a timely fashion. • Employees cannot conduct bank reconciliations because they are too busy. • Owners and managers de-prioritize reconciliations because the business is doing well and other tasks demand attention. • Employees are participating in fraudulent activity or theft. To solve these issues, dealership owners and managers must emphasize the importance of reconci l iations, ensure segregation of duties and involve themselves in the process to ensure procedures are fol lowed. Outsourcing reconci l iation to a third party can also help solve these issues. Using an outside party ensures an unbiased perspective, reduces the risk of fraud and provides assurance that the reconci l iation is performed timely and correctly. Benefits of Regular Reconciliation When you conduct or outsource reconci l iation regularly, it gives you greater control over your cash. You can catch problems in a timely manner and take care of them before they become cost ly and detrimental. Inconsistency could be as easy to fix as moving a comma, or it could be a sign of something significant happening in your dealership. Find Internal and External Errors All manner of errors could show up when you are reconciling your cash. The fault may be with the banks themselves or errors made by your staff. It may even be that employees are consistently making mistakes you can fix with better training, processes or technology. Identify and Prevent Fraud Unfortunately, your reconci l iations might turn up fraud or theft at your organization. These activities could be incremental and difficult to see, but they add up over time and cost your dealership money. Additional ly, you When you conduct or outsource reconciliation regularly, it gives you greater control over your cash. You can catch problems in a timely manner and take care of them before they become costly and detrimental. Inconsistency could be as easy to fix as moving a comma, or it could be a sign of something significant happening in your dealership. CONTINUED FROM PAGE 43