The Monthly Money Mirror: Reconciling Client Account Balances Without the Year-End Rush

Client money is not the firm’s money. It is held on trust for clients, and the firm’s ability to account for it depends on routine evidence rather than a heroic effort at the end of the financial year. A monthly reconciliation habit turns a stressful annual exercise into a sequence of small, documented checks.

The routine does not need to be elaborate. It needs to be fixed, owned and evidenced. The following structure is suitable for many UK professional firms that hold client money, subject to their own regulatory rules and the terms on which they hold funds.

Fix the date and the ownership

Choose a working day each month for the reconciliation and treat it as a deadline. Identify who prepares the reconciliation and who reviews it. Where possible, separate the two roles. A preparer who also reviews the work without challenge is not providing the firm with an independent check.

Build in cover for absence. A reconciliation that is skipped because the usual preparer is on leave creates exactly the gap the routine is meant to prevent. Record the date of preparation, the date of review and the name of the reviewer.

Reconcile bank to ledger, client by client

Start with the bank statements and the client ledger. Agree the total balance on the bank statement to the total of the client ledger, then test individual client balances rather than relying only on the aggregate. A firm can have a correct total and still hold the wrong money for the wrong client.

Investigate differences promptly. A timing difference may be explainable, but it should still be noted, dated and cleared. Where a difference cannot be explained immediately, record what has been done to resolve it and who is responsible. The reconciliation log should show the life of the difference, not just its existence.

Deal with unclaimed and residual balances

Review aged balances every month, not only at year-end. Ask whether the client can be contacted, whether the balance is genuinely due, and whether the firm is entitled to retain it. Document the steps taken to trace the client and the response received.

Residual balances should be handled under a written policy that reflects the relevant regulatory rules. Do not sweep a client balance into the office account simply because it has been dormant for a while. If the firm intends to deal with a residual balance in a particular way, the basis for doing so should be recorded and approved.

Treat interest deliberately

Where client money earns interest, the firm should know when interest is earned, how it is calculated and how it is allocated. The client terms should explain the position. The monthly reconciliation is a good point to check that interest has been applied consistently and that the calculation is supported.

If interest is retained by the firm under the agreed terms, the record should show that. If it is paid to the client, the payment should be traceable. Ambiguity about interest is a common source of client queries, and a monthly check makes those queries easier to answer.

Use dual authorisation as a control, not a courtesy

Payments and transfers from client account should require the appropriate level of authorisation. Where dual authorisation is part of the firm’s control framework, test that it is operating in practice. A second signature that is added routinely without review is not a control.

Segregation of duties matters here. The person who prepares payments should not be the only person who can approve them. The monthly reconciliation should confirm that the authorisation records match the transactions shown on the bank statement.

Keep a reconciliation log

The log is the paper trail for resolving differences. It should record the reconciliation date, the preparer, the reviewer, the balances tested, any differences identified, the action taken and the date of resolution. Where a difference remains open, the log should show who is dealing with it and when it will be reviewed again.

Retain supporting documents in line with the firm’s retention policy. A reconciliation that cannot be supported by a bank statement, ledger extract or explanation is difficult to defend if questions are asked later.

Report exceptions, not just balances

A monthly summary to management should highlight exceptions rather than simply repeat the closing balance. Recurring timing differences, aged balances, unresolved queries and authorisation failures are the items that need attention. Trends matter: a difference that appears in the same form every month may point to a process problem rather than a one-off error.

Use the same discipline for client communication. If a client asks about a balance, the firm should be able to explain it from the reconciliation record rather than reconstructing the position from memory.

Review the routine annually

Once a year, test the routine itself. Sample a few months, check that reconciliations were prepared and reviewed on time, and confirm that differences were cleared. Update the procedure if the firm’s banking arrangements, staffing or client base have changed. Brief new staff on the routine before they are asked to prepare it.

The value of the monthly check is cumulative. It gives the firm a clearer view of its client money, a more reliable record for regulators and a better basis for answering client questions. The year-end then becomes a review of an established pattern rather than a scramble to explain it.