Importance of Reconciliation and Reporting within the Cash Management Industry

Importance of Reconciliation and Reporting within the Cash Management Industry

Why is the reconciliation process extremely important for those providing services within the cash management industry?

The importance of reconciliation, simply put, it’s about controlling the movement and handling of Cash. Whether it’s replenishing an ATM network, ensuring branches or stores have enough cash stocks or managing centralised bulk holdings, Cash service providers (CSPs) will be managing these on behalf of their Financial Institutional clients (FIs)

This is particularly difficult for CSPs managing multiple clients from the same site. There is the pressure of processing, accounting and reporting clients’ Cash, but they also separate the cash to avoid cross-contamination. 

Any unexplained cash loss is a cost to the CSP that they will need to give to the FI. This can be expensive, but the impact on the CSP’s reputation and subsequent business relationships can be extremely damaging. 

Physical notes and coins are valuable commodities. Each item has a specific value that must be kept secure and fully accounted for. Lose a few pennies or cents-no problem. A few notes – no big deal. What about larger amounts or a continual shrinkage? – now we have an issue.

 

The Importance of Reconciliation ; what and why? 

Reconciliation is about matching two sets of data and identifying any mismatches. 

At its core, Reconciliation is a fundamental way of confirming and validating an expected position. It is also an important way to identify discrepancies or missing data that impact the operation.

For Cash Service Providers, it assures its FI clients of the accuracy of reported positions and that its cash handling processes are in full control and secure. 

 

Can you give an example?

A good illustration is replenishing an ATM.  The importance of reconciliation in the ATM process…

There are a three key reconciliation points when replenishing undertaking an ATM cassette replenishment:

 

ATM receipt (or Electronic Journal/EJ) 

This is a key piece of information for CSP. It represents the number of physical transactions the ATM has identified through its sensors and mechanisms and records by volume (i.e., number of notes rather than value). The ATM receipts are a hard copy paper document extracted when cassettes are exchanged and provide the CSP with the expected balance remaining in the ATM as recorded by the device itself. If this paper document is missing or fails to print, an electronic version may be accessed (commonly known as the Electronic Journal or EJ). However, this usually requires access to the client’s digital transactional information.

 

Physical Cash

Normally counted under strict control and in a secure environment; this is a count of the returned physical notes.

 

Host Processor Data (Host)

This is a digital record of all transactions at the device and reported via the host processor through to the ATM network, held within the FI’s own ATM operating system.

Reconciling an ATM in this scenario, the ATM receipt should match the Physical Cash and the Host data. This assures both the CSP and the FI of the operation’s validity, integrity, accuracy and subsequent reporting.

 

What Can Go Wrong?

In the majority of cases, this is the normal situation. However, things start getting tricky when these items don’t match. Taking a couple of simple scenarios:

If the Physical Cash is lower than the ATM receipt, and there is nothing to indicate an underlying reason, the FI Client will demand restitution of the shortage. In effect saying:

 

“it’s our money – you’re managing it – you’ve lost it – we want it back!”

 

At face value, a fairly reasonable approach? Unfortunately, it becomes a different story when there’s a surplus. Then it becomes:

 

“It’s our money – we’re keeping it!” 

 

The argument is that there must have been some technical issue at the ATM that generated this surplus. Customer claims will be forthcoming utilising this reported excess Cash.

Things become even more complicated when reconciling Host Data against Physical Cash. This is what the FI will see and reconcile and is not normally accessible to the CSP. Even though this process and data are not controlled or managed by the CSP, it is not uncommon for the FI to raise a claim if they idenify a shortage.

The CSP reconciliation process should focus only on the physical aspects of the ATM replenishment but is often integrated into investigating areas over which it has no involvement. The CSP can even find itself liable for the shortage in some situations! 

In addition, imagine how difficult it becomes to sort issues if there has been cross-contamination between ATM clients. If one client is in surplus and the other in deficit, the CSP may have to refund the shortage and explain significant process failures to get the money back on the surplus from the other client.

 

So, What will Cash Management firms do?

As shown in the simple example above, if robust operational Reconciliation and reporting processes are not in place, the implications and impact can be severe.

So, if you provide cash management services, what should you do?

First, identify the key reconciliation points and ensure you have proper controls and procedures in the related operational processes.

Secondly, get a reconciliation solution that is flexible enough to capture and record all key elements, identify differences, and provide a mechanism to monitor and track exceptions.

Thirdly, have sufficient checks and balances in place to validate client reporting. The client will measure CSP performance partly through its reporting, so be sure it’s right.

Finally, maintain strong communication lines with your client to deal with any issues/concerns open and timely.  

 

The Importance of Reconciliation, concluding points

The traditional focus has always been on physical security and managing performance in cash management. Whilst these continue to be important, the client also wants assurance on the validity and accuracy of its cash balances – hence the need and importance of Reconciliation and customer reporting.