I recently overheard someone say that since she did all of her banking on-line, she didn’t need to balance her bank statement. It took a great deal of restraint on my part to continue drinking my coffee and to mind my own business.
I really wanted to give her a lecture and tell her how wrong she was. Instead, I decided to go back to the office and start writing this.
The Bank is Always Correct: True or False?
Short answer: FALSE, mistakes are always possible.
Longer answer: Please keep reading.
In a perfect world, everything would be, well, perfect. Unfortunately, that’s not always the case. You might think that the only transactions which post to your bank account are the ones that you’ve initiated on-line.
Do you get checks from clients and customers which you deposit into your checking account?
There’s always a possibility that the magnetically encoded amount (which is the actual amount used for the transaction) gets entered wrong. The difference can range from one cent to substantial dollar amounts.
Do you pay any bills directly at vendor web sites?
Sometimes their systems go awry and transactions get sent to your bank twice where they’re double-posted (deducted from your balance twice). Sometimes they go astray.
One of my clients recently got a notice from one of his customers that they had paid his bill by an electronic transfer directly into his business checking account. He assumed the money was there for him to spend. Several months later he was notified that some of the checks he had written had bounced.
He asked me to reconcile his account (it hadn’t been done in a while) to see if anything was wrong. I discovered that his bank deposited his electronic payment from his customer into someone else’s account. It took him many phone calls and quite a bit of time and energy to get the situation cleared up.
It’s also possible that transactions which you didn’t authorize might clear your account because someone has hacked into your bank’s system or you’ve been a victim of identity theft.
Criminals frequently begin their activity with small dollar amount items, hoping you won’t notice. If you don’t, they graduate to higher amounts. That’s why it’s critical to be able to account for every penny that goes through your checking account.
By the way, you generally have only 60 days from the date of an error to tell the bank about it, so it’s quite important that you do your reconciliations as soon as possible.
If you have a large volume of transactions, I recommend that you go on-line at least weekly to check the transaction history for items that have posted to your account. The sooner you find an error, the easier it is to correct it. And you’ll avoid the possible embarrassment of bounced transactions and limit the amount of overdraft fees and other service charges.
If a tax payment you’ve made bounces, you’re likely to suffer further complications, including penalties and interest . Also, if you use a payroll service and pay employees by direct deposit, a single instance of insufficient funds (whether it’s your fault or not) can result in higher fees and possible restrictions on your account.
One of my clients had a situation just before Christmas a few years ago in which there were insufficient funds to cover a payroll check for direct deposit. The problem was discovered after the client’s business was closed for a two-week holiday. It was a small nightmare to get everything resolved, requiring a great deal of energy and lots of phone calls. And a substantial service charge.
Banking errors may not be common or frequent, but they can be costly and stressful. So, please, balance your bank statement regularly. I guarantee you it’s worth your time.