Mastering Bank Statement Bookkeeping: Essential Guide for Professional Bookkeeping Teams

Banks generate monthly statements that capture customers' financials. Businesses can download these statements from the bank’s website or branch. But what’s the importance of bank statements?

The 2023 Federal Trade Commission Fraud Report provides shocking data. Fraudulent bank transfers generated the highest total losses, valued at $1.59 billion. But businesses can't afford such losses, so to avoid losses, compare internal financial statements with bank statements.

Bank statement verification safeguards the company from penalties and fraud. Yet, a manual verification process is prone to errors. The process is time-intensive. This can be even more daunting for document-heavy businesses.

There's a disadvantage even if you’re using accounting software for this process. The automatic bank reconciliation features need a certain degree of human input. This includes,

• Synchronise bank statements

• Validating and verifying the financial transactions

So, can bookkeeping teams achieve end-to-end automation?

Continue reading the blog to learn how bookkeeping teams can achieve automation. Execute this by investing in data extraction tools.

What is Bank Statement Verification? 

Bank statement verification tallies a company’s transaction and income information. Then, the platform categorizes the data under different attributes. This includes monthly balances, gross income, expenditure, etc.

Bank statement analysis eliminates errors and reduces costs for the bank reconciliation process.

What is Bank Reconciliation?

Bank reconciliation is the process of comparing bank statements with the cash accounts. The bank reconciliation process is complete when the cash balances match. This process helps to maintain accurate records. It also guards against penalties and fraudulent charges. 

Why is Bank Statement Verification Important for Bookkeeping Purposes?

According to Inscribe’s 2023 Fraud Report, 61% of companies faced document fraud in the past year. These companies faced financial losses due to inadequate document verification workflows. 

Here’s how bank statement verification helps avoid or reduce document fraud instances:

a. Confirms the cash flow

Verifies payment status, cash deposits, and account balances. This helps the C-suite executives check the company’s financial status. It also prevents the company from incurring unnecessary penalties. This is due to late invoices or loan payments. 

b. Reduces fraud

Identifies forged documents. It also helps to find doctored bank statements. It protects firms from incurring losses and authorizing bogus payments. 

c. Validates transactions

Accounting and bookkeeping teams gain access to accurate information. They use it for bank reconciliation, budgeting, cost management, and financial planning. 

d. Establishes audit trails

Verified bank statements assist the auditors in two things. 1. Finalizing the organization's bank accounts. 2. Financial statements auditing. 

e. Adheres to regulations 

Statement verification keeps the company compliant with international accounting standards (IAS). It also helps the company follow anti-money laundering laws (AML) and national banking rules, saving the bank from paying penalty fees and litigation charges. 

The bank statement verification workflow saves many departments time, money, and resources. Moreover, it streamlines business processes and the flow of information across the organization. 

How do Bookkeeping Teams Verify Bank Statements?

Let’s understand manual and automated bank statement bookkeeping processes in detail. 

a. Manual bank statement verification

Check account ownership details

Confirm ownership by checking essential credentials. Verify the account number, holder’s name, address, and contact information. Look for discrepancies, such as incorrect spelling, botched numbers, and fake addresses. 

Compare the details provided in the original bank documents with the credentials saved on the system.

Check signs for doctored statements 

Formatting errors are a tell-tale sign of document manipulation and alteration. Also, look for: 

• Inconsistent fonts 
• Old logos 
• Poor paper quality 
• Skewed alignments 

Remember, downloaded bank statements are also prone to forgery. In such cases, crowding and spreading of line items indicates document tampering. Separate the document for further verification. If you need help, contact your bank to issue a fresh statement. 

Cross-reference with financial documents 

Cross-check key figures against corresponding financial documents. This includes sale orders, invoices, payment receipts, bank records, contracts, and tax invoices. Accurately match the names, amounts paid/received, and dates. Conduct thorough investigation in case of discrepancies in these financial touchpoints. 

Analyse transaction history

Analyze the transaction history to find oddities. These might include suspicious payments, round numbers, gaps, and repetitive payments. Furthermore, re-verify large cash debits and credits from crucial account holders. 

Match the withdrawals with wire approval, cleared cheques, and other withdrawal approvals. Match the large deposits with cheques, deposit slips, and electronic payment transaction numbers. 

Check if the spending and income pattern aligns with the company’s expected cash flow behavior. Granular transaction analysis is time-consuming. But, it quickly identifies fraudulent activities compared to simply matching the totals. 

Check for consistency

Verify the carryover balances across consecutive statements. Match the ending balances of the last month/quarter/year with the beginning of the next one. This step identifies missing or manipulated pages in the company’s general ledger. 

Any unexplained balance changes are highlighted and discussed with the internal audit teams. The relevant team conducts an extensive investigation. They do this to address the discrepancies during that timeline. 

Contact the bank in case of discrepancies 

If the bank's dubious transactions go unverified after reviews, approach the bank officials. Discuss the issues with the bank personnel and get newly issued bank statements. 

b. Cons of manual bank statement verification

The overarching theme for the manual data verification method is meticulous document checking. But this level of scrutiny is almost impossible. The company carries out thousands of transactions. So, manual document verification has many cons, such as: 

• High error rate of 30%
• Processes limited number of statements 
• Slow processing speed delays transactions 
• Requires re-correction for erroneous entries 
• Challenging to convert the verified statements into different formats

c. Automated bank statement verification

The automation process condenses the manual bank statement verification into three steps:

• Bank statements data extraction 
• Verification and validation of extracted data
• Storage of validated data for further use by downstream applications 

Most companies use two advanced technologies for automating the bank statement verification process:

Optical character recognition (OCR)

OCR software extracts important texts and numbers from digital and scanned bank statements. It extracts line data descriptions, amounts, dates, account numbers, logos, and payee names.

The OCR platform feeds the data into the organization’s accounting software. The software conducts verification, validation, and transaction analysis. 

Standalone OCR technology only partially automates the process. But, it does extract the information for other enterprise software. Moreover, the OCR software offers advanced verification features such as:

Pattern recognition 

The OCR software uses pattern recognition to identify duplicate entries. 

The OCR tech scans bank statements with different fonts and skewed alignments. It immediately alerts relevant personnel, who verify the statements manually. 

In-built validation tool 

The extracted information is compared against official bank documents to check for discrepancies. The validation process is highly accurate as it is an extension of the previous method. 

Consistency checks

Finally, the OCR software checks for formatting, spacing, font size, and spelling errors after completing the extraction process. 

Intelligent document processing (IDP) software

An IDP platform, like Docsumo, combines OCR with AI and ML models. It can analyze the extracted information and categorize it for further use. 

Some IDP platforms even offer analysis tools to identify cash flow trends. Let’s look at all the benefits of using an IDP software for bank statement verification. 

Data validation

The IDP platform starts the validation process when the data is extracted from the bank statements. It extracts data with over 99% accuracy and introduces a touchless validation process. 

The software has a human-in-the-loop contingency to check for anomalies. Eventually, the AI-powered platform will eventually learn from human inputs and become more efficient. 

Adaptability

The self-learning AI adapts to different bank statement formats, reducing manual review time by 80%. Its adaptability allows the platform to extract data from many sources and formats. 

For example, the IDP software can directly ingest PDF bank statements from emails and process them without human intervention. It can also process data from structured, unstructured, and semi-structured file formats. 

Customizability

Document AI platforms are highly customizable and developed to meet specific requirements. For example, the accounting team can choose a pre-trained API model and use it to extract bank statement data, or they can train a new model from scratch. 

Scalable

Rule-based AI mechanisms eliminate all mundane and time-consuming tasks. Once calibrated, it continues to verify bank statements and transactions without getting tired. 

It verifies and validates bank statements within seconds. This frees the accounting professional to focus on mission-critical tasks. 

Analytics tool

IDP software also offers advanced analytics tools. These tools use real-time data tracking to recognize spending patterns and identify irregularities in regular income and expenditures. 

d. Cons of using automated bank verification 

The only challenge of automated bank statement processing is its initial setup cost. 

Setting up the software is expensive. Training it to identify fraudulent activities in bank statements is also expensive. Yet, the operating costs of the software are much lower than maintaining an in-house team of accountants.

How to automate bank statement verification for bookkeeping efficiency? 

An IDP solution helps with the complete automation of the bank statement verification process. 

But, the implementation steps will be different for different providers. 

Here, we understand Docsumo’s bank statement verification workflow. We use a bank statement parser.

• Docsumo automatically ingests bank statements from emails and other sources 
• Users can also manually upload bank statements to the platform
• Intelligent data capture algorithms extract essential information. This includes the transaction ID, summary table, accounting number, and amounts.
• The pre-trained API uses GL coding to capture the line items. Then, it sends them to downstream applications, including electronic bank ledgers and ERP systems, which process the data further.
• Again, the API flags any errors and mismatched entries. It then sends them to the user for manual verification and approval

In conclusion, choosing manual bank statement verification over automated ones will create operational bottlenecks. It will also eat away valuable resources and stagnate the company’s growth. 

So, businesses should understand the importance of automated bank verification. The best way to do this is through a Docusmo case study. 

Hitachi Payment Services, a white-label ATM provider, was utterly overwhelmed by the monthly reconciliations for their ATMs. The problem only got worse as their business started to grow. They faced numerous challenges:

• Manually scanned bank documents with 50+ different formats
• No validation process
• Manual data entry of 3000+ monthly bank statements
• Double manual entry for verification
• No differentiation between clean and contaminated bank statements

Docsumo understood the organization’s problems and introduced the following solutions:

• API-based direct ingestion of bank statements into the system
• Pre-processing methods to identify the different formats and prepare them accordingly.
• Intelligent categorization of key-value pairs using self-learning AI
• Rule-based validation engine along with a correction algorithm
• Native integration with downstream software using APIs and iFrame
• Data extraction accuracy of 99%

Start automating your bank statement verification with Docsumo to improve the efficiency of your bookkeeping team. Sign up for a free trial. 

FAQs

1. How do you do bookkeeping with bank statements?

Start comparing individual line items in your bank statements, including large credit/debits, expenditures, and invoices, with the transactions in your general ledger. Ensure the ending balances match each other. 

2. How do I reconcile a bank statement?

Compare each transaction on the statement with your records. Identify any discrepancies, such as missing or mismatched transactions. Adjust your records accordingly, adding/subtracting any outstanding cheques or deposits. The bank statements are reconciled when the ending balances match each other. 

3. How often should I reconcile the bank statements?

Reconcile the bank statements once every month. This prevents the errors and discrepancies from piling up. However, businesses with high-volume transactions reconcile their statements more frequently using automated tools. 

4. Which is better - automated bank statement reconciliation or manual bank statement reconciliation?

Manual bank statement reconciliation is time-consuming, error-prone, and resource-intensive. Automated bank statement reconciliation is faster, scalable, and more accurate, so it is a better choice than the manual method. 

5. How long should you keep your bank statements?

The bank statement retention period varies depending on the company’s bookkeeping requirements. For example, bank statements need to be retained for three years. This is to show proof of charitable donations, if any. Retain bank statements for at least one year before getting rid of them.