Account reconciliations are one of the most cost-effective ways to catch fraud. According to the ACFE’s 2022 Report to the Nation, 5% of occupational fraud is detected through the performance of account reconciliations. When you add in other activities account associated with reconciliations, namely management review responsible for catching 12% of frauds, and document examination which catches 6%, you can quickly see how important routine month-end close activities have in preventing and detecting fraud activities.

ACFE lists three types of detection methods: 1) Active, such as the internal audit function, 2) Potentially active or passive, such as internal audit tips, and 3) Passive, such as by accident. Active detection methods curtail both the duration and the amount of the fraud. 

Account reconciliations are considered an active detection method. On average, they will catch a fraud after about 8 months and with $74,000 in losses. For comparison, internal audit tends to detect fraud once it has been underway for one year with estimated losses of $108,000. Given that the time involved in performing account reconciliations is far less costly than conducting an audit, we really should be focusing more attention on this important month-end close activity.

Nancy Wu with SkyStem is an expert when it comes to balance sheet account reconciliations and month-end close in general. She has the blueprint for what an account rec is and what it is not. Recently, Nancy led a one-hour webinar illustrating exactly the right way to reconcile an account. You can check it out here. 

For many accounting teams, a simple turn ‘back to the basics’ will go a long way to fortify your organization’s balance sheet and help to avoid surprises. You can do this on your own or enlist the help of month-end close automation software, such as SkyStem’s ART platform, to provide visibility and assurance that your team is taking the necessary steps to avoid falling prey to occupational fraud. 

To learn more, check out skystem.com. We invite you to schedule a private demo and we hope you’ll join us for SkyStem’s next webinar on May 17. We’ll be joined by a VP of a $2 billion bank to learn about their team’s journey to a paperless month-end close. You can register here.