Why bank reconciliation is still a top accounting pain point—and how you can fix it

Bank reconciliation is a critical recurring accounting function that ensures bank activities, both withdrawals and deposits, are accounted for and appropriate. The process can identify bank transactions not yet entered in MRI Property Management X (PMX), or MRI transactions that have not yet hit the bank. Accountants start with the beginning bank balance, reconcile MRI transactions, and make entries or adjustments to match the ending statement balance. These steps helps you avoid financial reporting errors or even potentially fraudulent activity.

What are bank reconciliation pain points?

Variations in bank data

Compiling data

It’s cumbersome for companies manually performing bank reconciliation to gather all the bank data, especially while working with numerous banking institutions and bank accounts. Real estate firms commonly reconcile hundreds of bank accounts across properties spanning multiple banking relationships. As portfolios grow, companies inherit dozens more accounts at new banks. Accountants will track down statements for balance and activity from each institution—sometimes one account statement PDF at a time—for hundreds of accounts.

Report formats

Beyond the challenge of gathering the data, bank institutions use different report formats. Reconciling efficiently with any automation requires time and attention to transform the various bank institution reports into a consistent format. Teams who try to build automation in Excel with formulas or other in-house tools know that all the file manipulation is tedious and risks changes that must be resolved over time.

Complex matching

Bundled matching

Teams manually matching transactions can identify one-to-one matches with relative ease, e.g. an with one debit amount in bank activity matching to a single entry in PMX (until there is high volume, which can cause a massive workload). However, many transactions consist of bundling in one system, e.g. a utility vendor that receives multiple ACH debits in the bank covered by a single AP batch in MRI PMX.

This situation applies to multiple vendor and tenant payment scenarios. These bundled matches take extra effort for accounting teams to first interpret how the transaction should appear in each system, and then sum and tie the amounts and reconcile them. That is just one example; but accounting teams must interpret multiple bundled matching scenarios, creating an extremely tedious process across all the accounts.

Knowledge silos

These process nuances, such as typical bank descriptions, are understood by accountants who reconcile the accounts every month. But process in which individual team members carry the knowledge necessary for operations. It can become a challenge to cover resources who need to take leave or during times of turnover. The resulting knowledge gaps may not surface until you are in the middle of month-end crunch time.

Impending deadlines and time crunches

Reconciliation is typically done at the end of the month (though some companies reconcile more frequently). Accounting teams make month-end entries and adjustments and work through reconciliation of all accounts. Teams with hundreds of accounts split up the work. Even so, it takes days—or more than a week—to work through, while leadership needs to close the books to prepare and deliver month-end reporting for stakeholders or owner reporting deadlines.

This large workload must be completed in a short timeframe, causing a time crunch for resources working long hours. It can become a dreaded activity for staff every month, which can lead to turnover.

How to fix bank reconciliation pain points

There are several ways you can make your reconciliation process work better and more efficiently:

Outsourcing

Some companies choose to use external resources, often offshore, to add capacity to their team bandwidth to complete bank in a timely manner. Clients will expect reconciliations to be fully completed with offshore resources, compared to technology solutions which provide highly automated yet not fully completed matching rates. This option requires onboarding the third party. In some cases, the third party may document processes and manage knowledge retention. In other cases, retraining efforts may continue to be the responsibility of the client as turnover occurs.

Additionally, outsourcing can lead to errors if review and quality levels are not at the same standard as your employees. Further, reconciliation speed increases only as much as you add headcount, which increases cost.

Treasury Management System

There are many Treasury Management Systems (TMS) in the marketplace offering various approaches for bank reconciliation. Within the TMS, clients aggregate data across bank institutions and set up match rules to reconcile transactions. These systems offer a full suite of capabilities; bank reconciliation is just one of them. That means if you are just looking for a bank reconciliation solution, you risk paying for a lot more than you actually need.

Clients may or may not be able to integrate their data within into the TMS or bank reconciliation information back to MRI, depending on the vendor’s technical resource knowledge and technical capabilities. Additionally, TMS solutions may have specific bank data format requirements to ingest the bank data.

Bank reconciliation automation with MRI Software

Another option is an MRI-aligned bank reconciliation automation, such as automation technology with MRI integration. REdirect, a trusted MRI partner for over 20 years, provides a solution consisting of both Al automation technology and ongoing service from the consultancy.

Using automation technology, REdirect gathers bank data from various institutions in differing formats, reconciles to MRI data, and updates items directly in your MRI bank recs.

Choosing the right bank rec option

Depending on your portfolio scale, technology needs, resourcing strategy, etc. one bank reconciliation solution may be better than another. Accounting teams should define their objectives and challenges and talk to multiple vendors to evaluate options and see what best suits the team’s requirements.

Ready to take the next step to improve your bank rec process? Learn more about REdirect’s Bank Reconciliation Automation with MRI Software by contacting MRI today.