Accounting Policies and Procedures Manual Bank Reconciliation

6 Bank Reconciliation

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Accounting Policies and Procedures Manual Bank Reconciliation

Table of Contents

6.1 Introduction 6.3

6.2 Overview 6.4

6.3 General Policies 6.5

6.3.1 Relationship with bank 6.5
6.3.2 Daily returns by Main Designated Branch 6.5
6.3.3 Cash balance and cash reporting 6.6
6.3.4 Monthly reconciliation 6.7
6.3.5 Monthly reconciliation statement 6.7

6.4 Daily Procedures 6.9

6.4.1 Daily procedures flowchart 6.9
6.4.2 Daily procedures by bank 6.10
6.4.3 Daily procedures by DAO/AG/AGPR 6.11

6.5 Monthly Procedures 6.12

6.5.1 Monthly procedures flowchart 6.12
6.5.2 Monthly procedures by bank 6.13
6.5.3 Monthly procedures by DAO/AG/AGPR 6.14
6.5.4 Summary of bank reconciliation by Accountant General 6.15

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6.1 Introduction

6.1.1.1 This chapter covers the accounting policies and procedures

applicable to the bank reconciliation.

6.1.1.2 This chapter lays down processes to be followed by both the

Bank and the DAO/AG/AGPRAccountant General in order to
perform daily and monthly reconciliation functions.

6.1.1.3 The State Bank of Pakistan and the National Bank of Pakistan,
acting as an agent for the State Bank of Pakistan, shall be the
Government’s banker, unless otherwise authorised by the
Government.

6.1.1.4 This chapter does not address the procedures and internal controls
operative within the State or National Bank.

6.1.1.5 For the purpose of this chapter branches of the National Bank are
describe as follow:
 Category A branch - these are main branches of the NBP and
are normally situated in urban areas
 Category B & C branch - these branches are normally
situated in rural and remote areas.

6.1.1.6 The following key internal controls must be observed in the bank
reconciliation processes:
 there shall be a one-to-one relationship between the
DAO/AG/AGPR and a designated branch of either SBP or
NBP referred to as the Main Designated Branch
 all receipt vouchers shall be sequentially numbered by the
bank
 the DAO/AG/AGPR shall check the bank scroll with the
payment advice note on a daily basis
 the DAO shall prepare a monthly reconciliation statement for
receipts and expenditures
 the Accountant General shall prepare a consolidated monthly
reconciliation statement for each government bank account.

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6.2 Overview

The following is a summary of the relationship between the

DAO/AG/AGPR, the bank and the payee/payer.

Issue cheque DAO/AG/AGPR

Cheque

Send daily advice note/ Bank Scroll with paid

direct credit advice cheques and receipt
vouchers

Payee

Prepare daily bank scroll

Cash cheque

Rs
The Bank

Make deposit

Stamped copy of
Receipt Voucher
Receipt Voucher

Prepare receipt voucher

Payer

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6.3 General Policies

6.3.1 Relationship with bank

6.3.1.1 For payment purposes, the DAO (and AG/AGPR making

payments) shall only deal with one designated branch of either
SBP or NBP in their jurisdiction and this shall be deemed as the
Main Designated Branch.

6.3.1.2 Where a SBP branch exists, the DAO/AG/AGPR shall deal with
that SBP branch. Where a SBP branch is not in the jurisdiction,
the DAO/AG/AGPR shall deal with the designated category A
branch of the NBP. Where neither an SBP branch nor a category
A branch of the NBP exists, the DAO/AG/AGPR shall deal with
the designated category B branch of the NBP.

6.3.1.3 Cheques issued by the DAO/AG/AGPR can be presented at any

bank branch by payee and shall only be cleared at the Main
Designated Branch through the bank clearing system.

6.3.1.4 The Main Designated Branch shall only clear cheques which are
listed on an advice note sent by the concerned DAO/AG/AGPR.

6.3.1.5 For receipt purposes, government revenue can be deposited at any

branch of SBP or NBP authorised to collect government revenue.

6.3.1.6 The adjustments to government bank accounts shall be performed

by the SBP as authorised by the AG/AGPR.

6.3.2 Daily returns by Main Designated Branch

6.3.2.1 The Main Designated Branch shall submit a daily return to the
concerned DAO/AG/AGPR in the form prescribed by the
Auditor-General/Controller General of Accounts. The daily
return shall include the following:
 bank scroll (form 6A)
 paid cheques
 receipt vouchers
 transfer advices.

6.3.2.2 When a receipt voucher is deposited at a bank branch, that branch

shall allocate a sequential number to it. Where the bank branch
receiving the receipt voucher is not the Main Designated Branch
reporting to the DAO/AG/AGPR, that branch shall forward all
receipt vouchers to the designated main branch at the end of the
day. The Main Designated Branch shall then allocate its own
unique sequential number when reporting, along with the bank
scroll, to the DAO/AG/AGPR.

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6.3.2.3 The Main Designated Branch shall submit a separate daily return
for each government bank account and for:
 expenditure - federal government
 expenditure - provincial government
 expenditure - local governments
 receipts - federal government
 receipts - provincial government
 receipts - local governments
 adjustments between government departments
 adjustments between different governments.

6.3.2.4 The two main government bank accounts (separate for each
government) are:
 Non-food Account (I) relating to other than food transactions
 Food Account (II) relating to food transactions
 Account (IV) relating to local governments.

6.3.2.5 The Main Designated Branch shall report on a monthly basis to

the relevant DAO/AG/AGPR through the Monthly Main
Designated Branch Statement (MMDBS).

6.3.3 Cash balance and cash reporting

6.3.3.1 The head office of SBP shall report cash balances of each
government bank account on a daily basis and in the form
prescribed by the Auditor-General / Controller General of
Accounts to the following, as applicable to each government:
 Ministry of Finance, Islamabad
 Department of Finance, Punjab
 Department of Finance, Sindh
 Department of Finance, N.W.F.P.
 Department of Finance, Balochistan
 AGPR, Islamabad
 AG, Punjab
 AG, Sindh
 AG, N.W.F.P.
 AG, Balochistan.

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6.3.4 Monthly reconciliation

6.3.4.1 A monthly reconciliation of bank accounts is a necessary part of

financial management and is also an effective measure for
detecting and deterring fraud and irregularities.

6.3.4.2 Every DAO shall prepare a monthly reconciliation statement for

expenditures and receipts, as set out in direction 6.3.5.1.

6.3.4.3 The respective Accountant General shall prepare a consolidated

monthly reconciliation statement for each government bank
account, as set out in direction 6.3.5.2.

6.3.5 Monthly reconciliation statement

6.3.5.1 Each DAO will prepare and provide the following monthly
reconciliation statement to the Accountant General.

Outline of DAO Monthly Reconciliation Statement

Expenditure

Total expenditure as per DAO’s General Ledger X

Less: Unpresented (uncleared) cheques/payments:

Item 1
Item 2
Sub-total X

Add: Payments or transfers in bank statement/

schedule but not in DAO’s General Ledger:
Item 1
Item 2
Sub-total X

Adjusted total expenditure of DAO’s General Ledger X

Total expenditure as per MMDBS X

Receipt

Total receipts as per DAO’s General Ledger Y

Add: Receipts or transfers in bank statement/

schedule but not in DAO’s General Ledger:
Item 1
Item 2
Sub-total Y

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Adjusted total receipts of DAO’s General Ledger Y

Total receipts as per MMDBS Y

6.3.5.2 The Accountant General (AG and AGPR) will prepare a

consolidated monthly reconciliation in the following format for
each of the government’s bank account with the SBP under their
jurisdiction.

Outline of AG Monthly Reconciliation Statement

for account ----------

Cash balance as per Accountant General X

Add: Unpresented (uncleared) cheque/payments:

Item 1
Item 2
Sub-total X

Receipts in bank statement but

not in AG record:
Item 1
Item 2
Sub-total X

Less: Payments in bank statement but

not in AG record:
Item 1
Item 2
Sub-total X

Adjusted cash balance as per Accountant General X

Cash balance as per bank statement X

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6.4 Daily Procedures

6.4.1 Daily procedures flowchart

Rs Rs Rs
Report daily
balances

NBP-Category
State Bank Branch NBP-Category A
B&C

Bank Scroll with Bank Scroll with Bank Scroll with

paid cheques and paid cheques and paid cheques and
receipt vouchers receipt vouchers receipt vouchers

DAO/AG DAO/AG DAO/AG

Report of daily balances Report of daily balances

Rs Consolidated report of daily balances

Rs
SBP - HQ NBP - HQ

Accountant
General
Report of daily cash
balances

MoF

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6.4.2 Daily procedures by bank

6.4.2.1 The Main Designated Branch (SBP branch or NBP category A

branch or NBP category B branch) shall submit a daily bank
return to the concerned DAO/AG/AGPR as set out in section
6.3.2.

6.4.2.2 The daily bank return shall include all transactions for the day
and shall reach the concerned DAO/AG/AGPR by 10 a.m. next
working day.

6.4.2.3 The Main Designated Branch shall obtain proof of delivery of the
daily bank return. Where the daily bank return is personally
delivered to the office of the DAO/AG/AGPR, the signature and
official stamp of the officer shall be obtained. If the Main
Designated Branch uses a courier service, proof of postage as per
courier service voucher shall be kept.

6.4.2.4 Each category B and C branch of the NBP shall report

(internally) the daily balances to the NBP - HQ (Head Quarter).

6.4.2.5 The NBP - HQ shall consolidate the daily balances received from
category B and C branches and submit a consolidated report, in
the prescribed form, of daily balances to the SBP - HQ.

6.4.2.6 The NBP - HQ shall place such internal checks and controls as
necessary to ensure that all category B and C branches have
submitted the daily report and shall keep a record of those
branches which have not reported. The NBP - HQ shall take
follow-up actions to receive daily report from such branches.

6.4.2.7 Each category A branch of the NBP shall report (internally) the
daily balances to the designated SBP branch.

6.4.2.8 Each SBP branch shall submit a daily report in the prescribed
form, of daily balances (including the daily balances of category
A branch) to the SBP - HQ.

6.4.2.9 The SBP - HQ shall consolidate the information received from

the NBP - HQ and SBP branches and report the daily cash
balances to Accountant General and Finance Department as set
out in section 6.3.3.

6.4.2.10 The SBP - HQ shall place such internal checks and

controls as necessary to ensure that all SBP branches and the NBP
- HQ have submitted the daily report on time and shall keep a
record of those SBP branches which have not reported. The SBP
- HQ shall take follow-up actions to receive daily report from
such branches.

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6.4.3 Daily procedures by DAO/AG/AGPR

6.4.3.1 At the end of each day the DAO/AG/AGPR office shall send
payment advice notes (as laid down in Chapter 4) to the Main
Designated Branch of the bank it deals with.

6.4.3.2 On receiving the daily bank returns from the Main Designated
Branch, the delegated officer in the Account Section of the
DAO/AG/AGPR shall carry out the following checks:
 supporting documents detail (i.e. paid cheques, receipt
vouchers, transfer advice) agrees with the bank scroll
 bank scroll entry agrees with a payment advice note entry
previously sent to the Main Designated Branch of the bank.

6.4.3.3 Where there are any discrepancies in the bank scroll, the officer
shall immediately inform the Main Designated Branch and
resolve any differences in writing.

6.4.3.4 The delegated officer shall make note of those payments which
have not yet been cleared by the bank and check these payments
against the daily bank returns until they are cleared or have
passed their encashment time limit.

6.4.3.5 The delegated officer in the DAO/AG/AGPR office shall also

update the cheque register as laid down in Chapter 4.

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6.5 Monthly Procedures

6.5.1 Monthly procedures flowchart

Banking Procedures DAO/AG Procedures

Rs
Main branch

Prepare monthly
Reconcile daily balances and
main branch
statement
sign monthly main branch statement DAO/AG

Copy of signed Copy of signed

monthly main monthly main
branch branch
statement statement

Category B & C

SBP Branches
(including category A)

Monthly
Rs Reconciliation
Statement

NBP - HQ

Consolidated
Rs monthly report

SBP - HQ

Consolidated
monthly report Reconcile
Accountant
General

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6.5.2 Monthly procedures by bank

6.5.2.1 The Main Designated Branch (SBP branch or NBP category A

branch or NBP category B branch) shall prepare a “Monthly Main
Designated Branch Statement” (form 6B) of daily balances of
receipts and expenditures for each government bank account.

6.5.2.2 The Monthly Main Designated Branch Statement shall be sent to

the concerned DAO/AG/AGPR by 2nd of the following month.
The delegated officer in the DAO/AG/AGPR shall sign and
stamp the statement once he/she agrees with the daily balances
and send a copy back to the Main Designated Branch within 2
working days of receiving the statement.

6.5.2.3 Where the NBP category A (Main Designated Branch) uses NBP
category B & C branches then the NBP category B & C branches
will report to the Main Designated Branch.

6.5.2.4 The category A branch of the NBP shall send a signed copy of the
Monthly Main Designated Branch Statement to the designated
SBP branch.

6.5.2.5 The SBP branch shall agree the daily balances reported in this
statement with the daily balances received earlier during the
month from that category A branch.

6.5.2.6 Once the daily balances are verified, the SBP branch shall submit
a monthly report in the prescribed form, of daily balances
(including the balances of category A branch) to the SBP - HQ by
6th of the following month.

6.5.2.7 The SBP - HQ shall consolidate the information received from

the NBP - HQ and SBP branches and shall submit a “SBP
Consolidated Monthly Report” in the prescribed form (form 6C) ,
of daily balances to the concerned Accountant General by 8th of
the following month.

6.5.2.8 The SBP - HQ shall place such internal checks and controls as
necessary to ensure that all SBP branches and the NBP - HQ have
submitted the monthly report on time. The SBP - HQ shall take
follow-up actions to receive the monthly report from such
branches and from the NBP - HQ.

6.5.2.9 The SBP - HQ shall obtain proof of delivery of the monthly

report to the Accountant General. Where the monthly report is
personally delivered to the office of the Accountant General, the
signature and official stamp of the officer shall be obtained. If
the SBP - HQ use a courier service, proof of postage as per
courier service voucher shall be kept.

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6.5.3 Monthly procedures by DAO/AG/AGPR

6.5.3.1 On receiving the Monthly Main Designated Branch Statement

from the Main Designated Branch, the delegated officer in the
Account Section of the DAO/AG/AGPR shall reconcile the daily
balances of receipts and expenditures with its own records (Sub
Ledger/General Ledger), including the daily balances as reported
on the daily bank scrolls.

6.5.3.2 The delegated officer shall investigate individual items only

where the daily balances do not agree and shall take into account
the main reasons of any differences (e.g. misclassification).

6.5.3.3 Where differences arise the delegated officer shall compare the
daily transactions on the General Ledger with the MDMDBS and
identify those entries which are on the General Ledger but not on
the MDMDBS and visa versa. The entries found on one record
but not on the other will constitute the differences and form part
of the reconciling items for the bank reconciliation purpose.

6.5.3.4 The delegated officer shall sign and stamp the statement once
he/she agrees with the daily balances and shall send a copy back
to the Main Designated Branch within 2 working days of
receiving the statement.

6.5.3.5 On the basis of the Monthly Main Designated Branch

Statement/General Ledger, the DAO shall prepare and sign a
“DAO Monthly Reconciliation Statement”, as outlined in section
6.3.5.1, for receipts and expenditures and shall submit this
statement to the Accountant General by 7th of the following
month along with the monthly accounts of the DAO office.

6.5.3.6 A signed copy of the Monthly Main Designated Branch Statement

(signed by both the Main Designated Branch manager and the
DAO/AG/AGPR) shall be sent to the Accountant General with
the DAO Monthly Reconciliation Statement and along with any
supporting schedule to indicate exceptions in daily balances.

6.5.3.7 The Accountant General shall consolidate the information

received from the DAOs and prepare an “AG Consolidated
Monthly Report” (form 6E) of total balances of expenditures and
receipts.

6.5.3.8 The delegated officer in the office of the Accountant General

shall agree the SBP Consolidated Monthly Report, sent by the
SBP - HQ, to the AG Consolidated Monthly Report prepared by
his/her office.

6.5.3.9 The delegated officer in the office of the Accountant General

shall investigate daily figures only if monthly balances do not
agree. The officer shall prepare a “Daily Balances Exception

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List” (form 6F) which lists down daily balances reported in the
AG Consolidated Monthly Report but not in the SBP
Consolidated Monthly Report, or vice versa.

6.5.3.10 The delegated officer shall send a copy of the Daily

Balances Exception List to the SBP - HQ in order to reconcile the
differences, and shall take the necessary follow-up actions in
consultation with the Accountant General.

6.5.3.11 On the basis of the AG Consolidated Monthly Report, the

delegated officer shall prepare an “AG Monthly Reconciliation
Statement”, as outlined in section 6.3.5.2, for each government
bank account.

6.5.4 Summary of bank reconciliation by Accountant General

6.5.4.1 The following diagram summarises the bank reconciliation

process carried out by the Accountant General.

AG Consolidated Monthly Report AG Monthly Reconciliation Statement

Expenditures

DAO
1 2 3 Total

DAO figure X X X XX

As per As per
Reconciling X X X XX bank AG
items
Opening cash
OB OB
balance
Bank figure X X X XX

Total
XX XX
expenditures

Receipts
Total receipts YY YY
DAO
1 2 3 Total

DAO figure Y Y Y YY
Closing cash
CB CB
balance
Reconciling Y Y Y Y Y
items

Bank figure Y Y Y YY

Agree to Agree to
SBP's AG's
monthly Monthly
figures Accounts

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