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In a small finance team one person often records payments, releases them and reconciles the bank, so a mistake or a fraudulent payment can stay hidden for months.
Split the work so that the person who records or releases money is not the only person who reconciles it. A second person reviews the reconciliation against original evidence and signs it with a date.
A simple duties table naming preparer and reviewer for each reconciliation, owner access to the bank portal, payment approval by someone other than the person who books, and a monthly review deadline.
Every reconciliation carries a preparer and reviewer sign-off, the reviewer has seen the original statement, and no one person can both create and hide an unauthorised payment.
The person who posts entries, handles cash or releases payments should not be the only person who reconciles those accounts. A second person should review the reconciliation, look at the original evidence and sign it. That way one mistake, or one dishonest act, cannot stay hidden. This is called segregation of duties, and even a two-person team can apply a version of it.
Who should prepare and who should review each task?
| Task | Who prepares | Who reviews | Red flag when one person does both |
|---|---|---|---|
| Bank reconciliation | Accountant | Owner or finance manager, with direct access to the bank portal | Payments to unknown parties never questioned |
| Releasing bank payments | Accountant creates the payment | Owner or second signatory approves | Payments released with no approval trail |
| Cash count | Cashier counts | Accountant or owner counts again on random days | Regular small shortages written off without comment |
| Vendor master changes (new vendor, bank details) | Purchase or accounts | Finance manager approves | A new vendor added and paid in the same week by the same person |
| Customer receipts and debtors | Accountant | Sales head or owner reviews the ageing | Receipts posted to the wrong customer to hide shortages |
| TDS and GST credit checks | Accountant | CA or finance manager | Credits claimed that do not appear in government records |
The key point: the reviewer must look at the original record, such as the bank statement from the bank portal, not only at a copy prepared by the person being reviewed.
What can a two-person team do when roles cannot be fully separated?
Most small businesses have an owner and one accountant. Full separation is not possible, but these steps go a long way:
- The owner views the bank portal directly. At least once a week, look at the statement yourself rather than relying on a printed copy.
- The owner approves payments. Use the bank’s maker-checker setting, where one user creates a payment and another approves it, if your bank offers it.
- Monthly sign-off. The owner reviews and signs each bank reconciliation within a fixed number of days of month end.
- Spot checks. Pick five payments each month and look at the bill and the approval behind each one. Include every payment above a level you choose, such as ₹50,000, and at least two smaller ones, such as payments under ₹10,000, because small repeated payments are easy to overlook.
- Vendor master control. Any new vendor, or any change to a vendor’s bank account, needs the owner’s approval. Before the first payment, a test credit of ₹1 to the new account confirms the account holder’s name.
- Occasional outside review. Ask your CA firm to review one month’s reconciliations each quarter.
An illustrative example: how one person can hide a payment
This is an illustrative case, not a real one. A trading business with ₹4 crore of annual sales has one accountant who books payments, uploads them to the bank and prepares the bank reconciliation. The owner signs the reconciliation without looking at the bank statement.
In April, the accountant adds a vendor called “Shree Packaging Supplies” with his cousin’s bank account and pays it ₹80,000. He books the payment to the packaging expense account, so the bank reconciliation agrees: the bank shows ₹80,000 going out and the books show ₹80,000 of packaging expense. He repeats this in May, June and July.
| Month | Payment to fake vendor |
|---|---|
| April | ₹80,000 |
| May | ₹80,000 |
| June | ₹80,000 |
| July | ₹80,000 |
| Total | ₹3,20,000 |
The bank reconciliation agrees every month because the entries are real; the vendor is not. It is only discovered when the auditor asks for the packaging supplier’s GST invoices and none can be produced.
The ₹3,20,000 is 0.8 percent of the year’s ₹4 crore sales, small enough not to stand out in the profit and loss account. Packaging expense for the four months rose from about ₹2,40,000 to ₹5,60,000, and a simple comparison with the ₹60,000 monthly average of the previous year would have raised the question, but nobody made it.
Any one of these controls would have stopped it early: the owner approving the new vendor, the owner approving payments in the bank portal, or the owner spot-checking a few payments against bills. A reconciliation proves the books match the bank. It does not prove the payments were genuine unless someone independent reviews them.
What does an auditor expect to see on a signed reconciliation?
- The account name and the reconciliation date.
- The balance per books and the balance per the statement, with the source attached.
- The list of reconciling items, each with a reference and age.
- The preparer’s name and the date prepared.
- The reviewer’s name and the date reviewed, ideally within a few days of month end.
- Notes on old items that were followed up.
A reviewer’s signature dated months after the period, or the same name in both boxes, tells the auditor the control did not really operate.
What to read next
- Next in this series: Internal financial controls and reconciliation
- Prevention controls for manual reconciliation
- For how reconciliation fits into audit work, see reconciliation vs verification vs audit
- For the broader picture, see reconciliation software for Indian finance teams
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →