The Fading role of bank reconciliation in fraud prevention and detection

Abstract

Bank reconciliation statements have traditionally served as an important control tool in detecting anomalies either in the cash book and or the bank statements. Whereas there may exist a number of anomalies in the cash book maintained by the company, there are usually few (or no) anomalies in the bank statement. In my experience with a number of corporate frauds, bank reconciliations have in most cases been least useful in tracking where fraudulent activity could have started. I have encountered companies that have had to do with “cooked” bank reconciliation statements for over two years, that is, 24 months! This period is enough to defraud the company a significant amount of money without anyone noticing.