The reconciliation work of Inter Office accounts is normally centralized at a designated office of the bank (the reconciliation department. In the new CBS environment, most of the banks have centralized this reconciliation work at the IT department at the Head Office.

While practices may differ from bank to bank, the inter branch accounts are normally sub divided into segments or specific areas, e.g. ‘Drafts paid/payable’, ‘Inter –branch remittances’, H.O. A/c etc.

Each branch has to send periodic statements of Inter Office account to the Central Reconciliation Department (CRD). If there is no transaction in this account , a NIL statement has to be sent by the branch. Based on these daily statements, the computer system matches the originating entries with responding (reversal) entries for a particular day/period. If there remain any un reconciled entries, it could be because of the following reasons :

a) Nature of Entry : There is a time lag involved in some of the entries like draft issued.

b) Mistake in one or more daily statements sent by the branch : Even a minor mistake may result in system showing the entry as unreconciled.

c) Frauds : e.g. If a forged draft is paid at a branch, there will be a responding entry for which there is no originating entry.

the system will generate the report of unreconciled entries for any particular day or period in any format, age wise, amount wise, branch wise, branch wise, category wise etc. as per the requirement of the CRD. But that is where the role of artificial intelligence stops and that of human intelligence begins. All the unreconciled entries in the statement generated by the system have to be examined/enquired into with branches and appropriate action/decision has to be taken. Each bank has it’s own policies and procedures regarding periodicity, escalation to higher level etc., regarding the unreconciled entries. Some of the practices involved are as under :-

a) Tackling mistakes in daily statement of branches : As these daily statement form the basis of reconciliation by CRD, branches are required to introduce the system of properly preparing and checking the statements. The common errors in the daily statements are as under :

1. Wrong identification of the type of transaction

2. Record of particulars in incorrect fields

3. Wrong accounting of bank charges , commission etc.

4. Errors in writing amount

5. Recording same transaction twice

6. Difference between closing and opening balances in successive daily statement

7. Incorrect branch code no

8. Incorrect schedule no

b) Application of the concept of A-B-C analysis. That is to segregate bulk transactions, high value items, vulnerable truncations involving cash etc.

Basics of Banking Reconciliation Set Up & Process at Banks

c) Prescribe a procedure for action to be taken by Head Office regarding any entries (Particularly Debit entries) not being responded by the branch concerned within a reasonable time

d) Special procedure are evolved by the bank to expediate clearance of the arrears, particularly in respect of large value entries.

e) Special emphasis on any reversal entries indicating the possibility of irregular payment or fraud.

f) Put in place a system to watch for any unusual entries put through interbranch/head office. This system should also check whether transactions other than those relating to inter branch transactions have been included in inter-branch accounts.

g) Put in place procedure of ensuring timely dispatch of the daily statements by the branches. Process may include identification of branches habitually sending delayed statements.

h) To have a system of checking opening balances. Computer programme itself may contain an instruction to check this aspect.

i) Procedure to check whether the balances include any items in the nature of cash – in – transit (e.g. cash meant for deposit into currency chest) included in this head which remain pending for more than a reasonable period. This is because such items are not expected to remain outstanding beyond a very small period during which they are in transit.

j) To have a well defined system to follow up with branches regarding outstanding entries will they are cleared/reconciled.

k) Device a system to review by BOD as desired by RBI.

l) Introduce the system to restrict originating debits to Head Office account to Cash/fund transfer, purchase of securities/capital assets, withdrawal from PF, advances to staff members etc. as advised by RBI.

Author Bio

Qualification: CA in Job / Business
Company: UCO Bank
Location: Jaipur, Rajasthan, India
Member Since: 01 Mar 2021 | Total Posts: 42
I am a Chartered Accountant working with a nationalized bank in middle management. View Full Profile

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