Bank Reconciliation for Charities: Finding Differences

A bank reconciliation is not arithmetic. It is the control that proves the cash in your books is the cash you actually have, and it is the first thing an auditor, a funder or CRA will look at. Charity reconciliations break in specific ways that business ones do not, and this covers how to find the difference, what usually caused it, and the one thing you must never do to make it balance.

What does a bank reconciliation actually prove?

That the cash balance in your ledger is supported by a third party. Your bank statement is independent evidence. Your ledger is your own assertion. Reconciling the two is what turns the assertion into something defensible.

That is why it carries weight beyond bookkeeping tidiness. A reconciled cash position supports your financial statements, your funder reports and the financial data on your annual return. An unreconciled one supports nothing.

It is also a detective control against misappropriation. Money that left the bank without leaving the ledger has to show up as a difference, so reconciliation is one of the places such a difference becomes visible. That only works if somebody other than the person handling the money reviews it.

This article assumes you already understand debits and credits. If you do not, start with our guide to double-entry bookkeeping for Canadian charities.

Why do charity reconciliations break differently?

Because five things flow through a charity's bank account that rarely trouble a small business.

Donation batches arrive as a single deposit representing many individual gifts. The deposit reconciles; the gifts behind it may not.

Payment processor settlements arrive net of fees and on a delay, so the amount and the date both differ from the donations they represent.

Cash collections at events and services are counted by volunteers and deposited days later, sometimes in an amount nobody independently verified.

Transfers between accounts, particularly where a charity keeps a separate account for a restricted fund, appear twice and are easy to record once.

Cheques still circulate in the charity sector far more than in business, and a cheque written to a small supplier can sit uncashed for months.

How do you find a difference?

Work from the size and sign of the difference, not from the top of the transaction list. The number itself usually tells you where to look.

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Two of these are worth knowing. A difference divisible by nine can indicate transposed digits, such as $540 entered as $450, so it is a useful prompt to compare likely entries against the statement rather than a conclusion. A difference equal to exactly twice a transaction amount points to a sign error, because the entry moved the balance the wrong way.

What are the most common causes and their fixes?

Six causes account for most charity reconciliation differences.

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Stale cheques deserve attention. A cheque outstanding for more than six months usually means it was lost, was never sent, or the supplier no longer exists. Carrying it forever overstates your liabilities and understates your cash. Investigate, then reissue or reverse it with a note explaining why.

What do you do about a difference you cannot resolve?

Document it, quantify it, and escalate it. Do not absorb it.

Write down what you know: the amount, the account, the period, what you checked and what you ruled out. Report it to the treasurer or executive director. If the amount is significant or the pattern suggests money left the bank without authorization, it needs to go to the board.

Small unresolved differences are still worth recording. A recurring unexplained shortfall of forty dollars a month is not a rounding issue; it is a pattern, and patterns are what reveal both process failures and misappropriation. Our article on common pitfalls in charity accounting covers the wider set.

Your records need to support what happened either way. Our guide to keeping proper books and records sets out the obligation.

What should never appear in a reconciliation?

A plug. An entry created purely to force the two sides to agree, with no underlying transaction behind it, is the single worst thing you can put in a charity's books.

It is worse than an unreconciled difference for three reasons. It hides the problem instead of recording it. It puts an entry in the ledger with no supporting document, which fails your record-keeping obligation. And it removes the only signal that would have told you something was wrong.

Watch for the disguised versions too: a miscellaneous expense account that only ever receives odd amounts at month end, or a suspense account that never clears. A suspense account is legitimate for a few days while you investigate. It is not legitimate as a permanent home for differences.

If your reconciliations are not clean and you want them brought current, our charity bookkeeping service page sets out how monthly reconciliation works within an engagement.

Frequently Asked Questions

How often should a charity reconcile its bank accounts?

Monthly, for every account holding money, including credit cards and payment processors. Waiting longer makes differences much harder to trace, because the supporting documents and the people who remember the transactions both become less available.

My difference is divisible by nine. What does that mean?

It may indicate a transposition error, where two digits were entered in the wrong order, such as $540 recorded as $450. Treat it as a prompt rather than a diagnosis, because a difference can be divisible by nine for other reasons. Compare your recorded entries against the statement amounts to find it.

What do we do with cheques that have been outstanding for a year?

Investigate rather than carrying them indefinitely. Contact the payee to confirm whether the cheque was received. If it was lost or never sent, stop payment and reissue. If the obligation no longer exists, reverse the entry with a documented explanation.

Should the person who records deposits also do the reconciliation?

Ideally not. Separating the two is a basic control, because reconciliation is what catches errors and misappropriation in recording. For a very small charity, having the treasurer or a board member review the completed reconciliation achieves most of the benefit.

Can we just accept a small difference and move on?

No. Record it as an open item and keep looking. Small differences are often the visible edge of a systematic problem, and a charity that habitually accepts small differences will eventually accept a large one.

This article provides general information about bookkeeping practice and Canadian charity compliance. It is not accounting, tax or legal advice. Speak with a qualified adviser about your organization's circumstances.

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