Bank Reconciliation and a Cashier's Three-Week Shortage
Ogun Retail Ventures is a building-materials partnership with a 31 March year end. At 31 March 2025 its cash book showed a debit balance of ₦1,845,000 while the bank statement showed a credit balance of ₦1,915,000. The following had not been recorded in one or other book:
- cheques issued to suppliers, ₦310,000, not yet presented;
- a lodgement of ₦250,000 made on 30 March, not yet credited by the bank;
- bank charges of ₦15,000 shown only on the statement;
- a customer's direct transfer of ₦180,000 shown only on the statement;
- a customer's cheque for ₦95,000, entered as a receipt and lodged, returned unpaid, with no entry made;
- a standing order of ₦60,000 for rent shown only on the statement.
The ₦250,000 lodgement consisted of two customer cheques the cashier, Mrs Eze, had held for three weeks. She has worked for the firm for eleven years and is the managing partner's niece. The managing partner wants to 'handle it in the family' and has asked you not to raise it with the other partners.
1. Prepare the adjusted cash book and the bank reconciliation at 31 March 2025 and reconcile the two balances.
Read the worked answer
Adjusted cash book (bank column) Balance per cash book 1,845,000 Add: customer's direct transfer 180,000 → 2,025,000 Less: bank charges (15,000) Less: dishonoured cheque (95,000) Less: standing order - rent (60,000) Adjusted balance 1,855,000
Bank reconciliation Balance per bank statement (credit) 1,915,000 Add: lodgement not yet credited 250,000 → 2,165,000 Less: unpresented cheques (310,000) Reconciled balance 1,855,000
The two figures agree, which confirms the reconciliation is complete.
Two points worth stating explicitly
- The direct transfer and the dishonoured cheque are not reconciling items on the bank side: the bank has already recorded both. Their only effect is to correct the cash book. Treating the dishonoured cheque as a timing difference is a common error.
- The dishonoured cheque also revives the customer's debt of ₦95,000, which should be reinstated in the receivables ledger and followed up; the cheque should be re-presented or the customer pursued.
2. Identify the internal control failures revealed and recommend improvements.
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Failures
- Cheques held for three weeks. Receipts must be banked intact, daily or on the next banking day. Holding customer cheques exposes the firm to loss, stale-dating and misappropriation.
- No segregation of duties. Mrs Eze both receives and lodges the money, so she can suppress a receipt and later cover it with another customer's cheque - the classic teeming and lading pattern.
- Late or absent reconciliation. Reconciliation appears to be an annual, external exercise. The three-week-old lodgement would have been picked up immediately by a monthly reconciliation.
- No receipting discipline. There is no evidence of pre-numbered receipts, a cheque register or a daily lodgement sheet, so a receipt can go unrecorded with nothing to compare it against.
- Related party in a control role, long tenure, no rotation. Employing the managing partner's niece in a custody role without independent oversight creates both a control gap and an intimidation threat for anyone reviewing her work.
Recommendations Bank all receipts intact daily; separate receipting, recording, custody and reconciliation; dual authorisation on payments; monthly bank reconciliation prepared by someone independent of cash handling and reviewed and signed by a partner; pre-numbered duplicate receipts; surprise cash and cheque counts; mandatory annual leave and job rotation (shortages often surface during absence); and a written code of conduct with a confidential reporting channel. Extend testing to earlier months: three weeks of held cheques usually means the true shortfall is larger than one month's ₦250,000.
3. What should you do about the managing partner's request to keep the matter in the family?
Read the worked answer
Establish the facts before characterising them Obtain the two cheques, paying-in slips, the cash book and earlier reconciliations. Sloppiness and dishonesty look identical until the dates are laid out. The pattern - customer cheques withheld, then a lump lodgement just before year end - has the signature of teeming and lading, where later receipts cover earlier shortages, and that needs testing over several months.
The request itself Asking you to withhold the matter from the other partners, because the person is a relative, creates a self-interest and intimidation threat to your objectivity. Confidentiality does not extend to concealing suspected fraud from those entitled to know; the partners are the client, not the managing partner alone. A member must not be associated with misleading information.
Action
- Report in writing to the managing partner, setting out the evidence, the quantified exposure and your recommended treatment: adjust the cash book, reinstate the dishonoured cheque, complete the reconciliation properly and consider whether the accounts are materially misstated.
- If he refuses, escalate to the other partners or those charged with governance.
- If the partnership takes no action, follow the NOCLAR provisions of the IESBA-based ICAN Code: consider whether disclosure is permitted or required, take legal advice, and consider resigning in accordance with the firm's procedures.
- Do not sign the reconciliation or the accounts as correct, and document every step, conversation and instruction.
The relationship and the eleven years of service may mitigate the sentence, but they cannot change the finding.