Most workers in the business world believe that reconciliations are a routine task that only accountants deal with as part of their jobs. However, in the credit union industry, financial and operational reconciliations are a way of life for operations staff throughout the organization.

Routine reconciliation tasks are often perceived as required drudgery and the cost of doing business to make sure all business information is aligned. While that might be true, there are ways to reduce the manual labor required to constantly compare and “balance” information between multiple business systems.

In this long-form explainer, we will dive deep into what reconciliations in credit unions are, why they exist, and most importantly, how to automate credit union-industry reconciliations using modern digitization strategies, such as robotic process automation.

What is the definition of automating credit union industry reconciliations?

The automation of credit union-industry reconciliations differs from “financial reconciliations” because credit union-industry reconciliations are, as the name implies, specific to the credit union industry—whereas run-of-the-mill “financial recs” occur in every industry.

credit union-industry reconciliations are spread out across the organization; they don’t simply reside in the hands of accountants in the Finance department. They are found in every operational business unit in credit union, from loan operations to deposit ops. Automating credit union-industry reconciliations is defined as the conversion of a manual credit union transaction or product (internal or external) reconciliation into an automatic computer-driven process that requires minimal human intervention.

WHAT IS A RECONCILIATION PROCESS IN THE CREDIT UNION INDUSTRY?

A reconciliation in the credit union industry is defined as the process of comparing and matching transactional data between different credit union systems on a daily, weekly, quarterly, or annual basis.

Reconciliations are typically performed by back-office credit union staff manually, using extracted credit union-system data from multiple unintegrated systems. This data from disconnected systems must be matched against other system data in Excel. If any items are determined not to match, then the back-office worker must research and resolve why the system data does not reconcile. Sounds arduous, right? It gets worse: There are still some credit unions that perform this work… on paper! Yes, even in 2021, some credit unions still perform numerous recs on the way it was done 100 years ago.

What are the different types of reconciliations that happen in credit unions?

Financial Reconciliations – most commonly thought-of recons

These reconciliations are most commonly thought of and reside at the top-of-mind for credit union execs. These are recs that accountants under the CFO, CAO, or Controllers process which directly plug into the financial close process. Of all reconciliations that occur in credit unions, these are typically the most advanced, the most automated, and tend to be more centralized.

Operational Reconciliations: The most pervasive and “hidden” of credit union-operations recons

These common credit union reconciliations differ from financial reconciliations in the sense that they are related to individual business processes, and most often occur at the daily operations transaction-level of detail. Some of these recs impact the general ledger directly; others do not.

Credit union operations reconciliations are defined as daily, weekly, monthly, quarterly, and annual comparison of two (of more) sets of data, records, or transactions, from different systems, in an effort to confirm that the information agrees. If the information does not match, credit union staff must then manually research, determine why the balances aren’t in parity, and correct/update the system once the issue has been resolved.

Additional Characteristics of Credit Union Industry Reconciliations

Credit union reconciliations are not all the same in terms of frequency, the reason for their very existence, or why they need to be processed.

Routine Credit Union Reconciliations. The majority of credit union-operations reconciliations take place on a daily basis. These are commonly referred to as “expected” and “process-related” reconciliations.

Non-Routine Credit Union Reconciliations. Other ad-hoc reconciliations that occur are typically used in problem-resolution scenarios. Example: A member calls in with a missing-wire information request. A credit union staff member then must manually research and reconcile this one-off request to find out where the missing wire is.

Project-based Credit Union Reconciliations. During core-system migrations, the system providers, consultants, and credit union staff will always need to reconcile data between the old system and the new to make sure that everything ported over correctly.

EXAMPLES FROM THE CREDIT UNION INDUSTRY

Now that we have the basics of credit union reconciliations out of the way, let’s dive into specifics.

Each day, credit unions must perform hundreds of reconciliations, which are spread out across the different departments and business units.

Each flavor of departmental recon is slightly different, because a multitude of different transactions or process data are being reconciled. But, all credit union reconciliations benefit from standardization, automation, and centralization (where possible).

Importantly, almost every credit union has the exact same types of reconciliations that they must process. This is because all credit unions process similar types of transactions. However, each credit union does each reconciliation slightly differently. This is due to the fact that all credit unions have different combinations of core applications (FIS, Jack Henry, Fiserv), ancillary applications (nCino, Salesforce, Centrix, Finastra), and general ledgers (SAP, Oracle Peoplesoft, Lawson, etc.).

Now let’s look at some specific, real-world examples.

Operational credit union reconciliations by business unit:

Retail Branch

Daily Teller Transaction Reconciliation

The Branch Operations Help Desk staffers at this credit union review a roll-up of teller-drawer differences daily, which includes cash dispenser/recycler uses, automated teller assignments, memo-posting, and others. They then process a report—manually, of course—to reconcile the differences and analyze profitability. This manual, redundant process is a ripe target for automation, since it can result in 60 hours per month of capacity savings.

ATM Network Reconciliation

This credit union’s staff must manually reconcile ATM deposit clearing balances on a daily basis—for their entire ATM network. Two reports must be downloaded from the general-ledger system, and another must be downloaded from the document-management system. These reports are then manually analyzed and reconciled in Excel to determine if any mismatches exist.

Remote Official Checks Reconciliation from Internal Report to General ledger and Records Management

Affiliates and clients of this credit union (title, escrow, insurance companies, law offices) can print official (certified/cashier’s) checks from remote locations. However, each of these on-demand official checks and account balances must be reconciled by credit union staff, manually, on a daily basis after they receive that day’s “Official Check Transaction Report” from the IT Department. This report must then be reconciled—manually—by comparing it to eight different reports from the general ledger and document-management system.

Deposit Operations

Interest Official Checks Daily Reconciliation

CD and Money Market account-interest official checks, which are generated by the credit union branches, must be manually reconciled against account balances on a daily basis. Two daily reports received from IT and Finance must be manually processed into an Excel sheet. Next, eight separate reports must be accessed and pulled from the general ledger system and a document-management system; these, in turn, must be reconciled and validated against each other. Final outputs must then be manually saved to a network drive.

Cash Suspense Reconciliation

Cash Suspense Accounts—used to temporarily carry discrepancies (e.g., invalid account numbers) for pending branchless (e.g., mobile and check-based) credit union transactions—must be manually reconciled against the general ledger by credit union finance staff daily. Here’s what it requires: Two general-ledger reports must be downloaded from one GL system. That data must then be combined into a reconciliation spreadsheet. Next, the credit union staff must access the Cash Suspense Account to download the pending transactions and manually balance them against the general-ledger reports.

Certificate of Deposit Account Registry Service (CDARS) Report Reconciliation

At this credit union, certificates of deposit (CDs) must be reconciled against the CDARS system on a daily basis. To do this, back-office staff must manually download the general-ledger report that corresponds to CDs that had been registered, using Promontory, an online CD registration provider.

Loan Operations

Deferred Income Letter of Credit Reconciliation

Daily Loan Reconciliation

On a daily basis, all loan reports in this credit union’s document-management systems must be compared to—and reconciled against—its general-ledger system. This means that credit union staff must manually extract these ten reports, one by one, to match against the general ledger. They must then manually reconcile these ten reports against the GL in Excel. And they have to do this every single day. That’s two hours’ worth of work!

Home Mortgage Disclosure Act (HMDA) Monthly Compliance Review and Reconciliation Process

During the HMDA monthly review process at this credit union, mortgage business-unit staff must access the mortgage-origination system, extract all relevant mortgage data, paste it into Excel, and then manually format it for review. This formatted data is then manually reviewed and tested by compliance staff. Finally, it’s updated and uploaded into CRA WIZ (Wolters Kluwer) after the monthly review is complete, for final processing before upload.

MERS Balance and Reconciliation

Despite having a loan MERS compliance system, the monthly MERS reconciliation process at this credit union still requires staff to extract loan information from multiple systems, and then manually work through hundreds of Mortgage Identification Numbers (MINs) before they are deemed compliant and ready to submit.