We understand that by mid December, part of you may check out. Or be on the way the way to checking out. Focus turns from end of month reporting and reconciliations to Christmas parties and fun with friends and colleagues. After a hard year’s work we can see how this can happen…
Yet, it is best to not let the Christmas festivities start too soon. Ensure you follow all correct procedures in the lead in to Christmas to avoid any costly breaches on your desk in the New Year’s audit.
Whether you are closing down completely for the Christmas period, or just on public holidays (see how handy previous blog on client notifications you can send from your trust accounting software) if you follow the correct procedures for December end of month and disbursements, you’ll be celebrating a breach-free year soon enough!
Here is a couple of client scenarios whereby the incorrect procedures were followed and costly Christmas breaches incurred.
Scenario 1: No of end of month reporting
This client performed their landlord disbursements on the 19th December prior to the agency closing for the holiday season. The agency failed to perform their end of month/close period/rollover in December as required. Instead they performed it on the 31st of January, in combination with their January end of month. The agency incurred a breach for failing to comply with regulations by not closing off the month of December separately and December was not reconciled in the required timeframe.
Solution:
The agency was free to perform their disbursements prior to their close period. However, they should have reconciled their December end of month on the 31st December or the 1st of January. They then have the option to reconcile within 21 days (if in NSW) following their end of month when they return from their Christmas break. They then complete their January end of month separately within the required timeframe and avoid a breach.
Scenario 2: Closing off too early
Scenario 2 is for an agency on the other end of the spectrum whereby they closed off the month too early. This agency performed their landlord disbursements and end of month/close period/rollover on the 20th December. This is too early for an official end of month. They were subsequently breached in the following audit period for not complying with regulations, as the transactions did not appear in the relevant monthly report. So any December transactions made after the 20th showed up in their January reporting – as opposed to the correct December reporting period. The audit report also specified that the month was closed too early and was not a true ‘end of month’.
Solution:
The agency once again was free to perform their disbursements early within December before official end of month. However this is where they should have stopped. Perform end of month at official end of month. This is regarded as the last day of each month or the first day of the following month. Therefore, all December reporting would be delegated correctly into the correct month.
Both are common and simple mistakes that are easy to rectify if you follow the correct procedures. If you are unsure, follow our key points when closing off and reconciling your December period.
Points to remember:
- Make disbursements separate from the close period. There is no need to close of the month at the same time.
- Perform close period on the last day of each month or 1st of the following month.
- You must reconcile within the specified time frame (check your state’s legislation). In NSW it is 21 days following the end of month.
- It is a requirement to produce trust records for each month including trial balances, reconciliations, cashbook payments, cashbook receipts and ledgers.
As appealing as shutting up shop early may be, keep your December month on track. Remain breach free this holiday season.