Do UK Charities Need Bank Reconciliation Statements?

Bank reconciliation often sits quietly in the background of charity finance, viewed as routine – even mechanical. But that simplicity is misleading. A well-executed reconciliation offers something powerful: confidence that your charity’s records reflect reality.

Each month, it provides a reliable checkpoint, aligning what’s recorded internally with what’s actually in the bank. And when gaps appear – whether due to delays, data entry errors, or unauthorised transactions – it gives you the opportunity to act quickly, rather than explain later.

With the cost-of-living crisis still affecting donor behaviour and tightening operational budgets, charities can no longer afford to leave reconciliation until year-end.

Regular oversight is now considered best practice, strongly recommended in the Charity Commission’s Internal Financial Controls for Charities (CC8) guidance, and increasingly expected by funders who want to see that their support is being managed responsibly.

So, what exactly does a bank reconciliation involve, and why does it matter at every level of charity finance?

What Is Bank Reconciliation?

Bank reconciliation is the process of comparing your charity’s internal cash records with your actual bank statement. You’re seeking alignment – and explanations where there isn’t any.

For instance:

• If your ledger shows a donation received, but the bank hasn’t cleared it yet, that’s a timing difference.
• If you’ve logged a supplier payment that hasn’t yet been presented, the reconciliation will flag it.
• If there’s a transaction on the bank statement that doesn’t appear in your records, it warrants immediate investigation.

The aim is to ensure that, once adjusted for timing differences and other reconciling items, your bank balance matches your internal records precisely.

What UK Charities Need to Include in a Bank Reconciliation Statement

Although the structure of a bank reconciliation is fairly consistent, the level of detail required depends on how your charity prepares its accounts and where it sits in terms of income.

If you’re using the receipts and payments method – common for smaller charities with gross income under £250,000 – your task is to confirm that the cash balance at period-end matches the figure in your bank account.

It’s a straightforward exercise in accuracy: are all funds accounted for, and do the numbers align?

Charities preparing accrual accounts under the Charities SORP – required for those above the £250,000 threshold – will need a more comprehensive approach.

The aim remains the same, but the reconciliation must support the wider framework of financial reporting and audit readiness.

Here’s what a robust reconciliation typically includes:

• Opening balance – This should correspond exactly with the closing balance from the previous reconciliation. If it doesn’t, something’s missing.
• Receipts – All money received into the account, including grants, donations, gift aid, and other inflows. Each entry should tie back to supporting records.
• Payments – Outgoings such as BACS transfers, standing orders, cheques, card payments, and bank charges. Don’t forget any one-off transactions.
• Outstanding items:
  • Unpresented cheques – payments issued but not yet cleared through the bank.
  • Deposits in transit – income received and recorded internally, but not yet showing in the bank statement.
• Adjustments – Corrections for duplicate entries, mispostings, or items missed from either record. These should be fully explained and clearly documented.
• Closing balance – Once the reconciliation is complete, the final adjusted balance should match your bank statement exactly.

Clarity is essential. Every line in the reconciliation should be traceable, backed by an invoice, receipt, approval form, or donor confirmation. If a discrepancy arises, investigate it immediately and log the resolution. Leaving issues to accumulate only makes the next reconciliation harder and undermines your control environment.

Advantages Charities Obtain from Using Bank Reconciliation Statements

Bank reconciliations may appear procedural, but for UK charities, they are a foundational tool for sound governance. Whether you lead a small voluntary organisation or a national charity with complex income streams, the benefits of regular reconciliation extend far beyond simple accuracy.

1. Stronger Internal Controls

Routine reconciliation is one of the most effective ways to reinforce financial discipline. By matching your bank transactions to internal records monthly (or even more frequently), you reduce the risk of overlooked discrepancies and unauthorised payments.

The Charity Commission identifies reconciliation as a critical part of maintaining internal financial controls​. This includes ensuring dual authorisation of payments and regular review by trustees or finance committee members.

The process deters misuse of funds and provides evidence of due diligence in the event of an audit or investigation.

2. Enhanced Audit Readiness

Larger charities, particularly those exceeding £250,000 in income, must prepare full accrual accounts in line with the Statement of Recommended Practice (SORP). These accounts require precise reconciliation of all financial activity, and failure to do so can delay audit processes or lead to qualified reports​.

By performing bank reconciliations monthly, you avoid the last-minute scramble to correct errors or explain missing transactions. Auditors are more likely to place confidence in your systems when reconciliations are timely and well-documented.

3. Detecting Irregularities Before They Escalate

The risk of financial fraud remains an unfortunate reality for many UK charities, with sector-wide losses running into the hundreds of millions each year. While not all irregularities indicate fraud, many are preventable with consistent checks.

A well-maintained bank reconciliation process acts as an early warning system. It helps trustees spot unexpected activity, such as repeated payments, unapproved transfers, or unexplained withdrawals, before they become more serious.

4. Gaining Clarity on Available Funds

Understanding your actual cash position is vital, particularly during times of financial strain. Regular reconciliations give trustees confidence that internal records reflect the true state of the charity’s finances – information that underpins sound decision-making.

Without this clarity, your team could act on inaccurate data. A minor delay in a grant payment or an unnoticed bank fee could distort your cash flow picture and lead to overcommitment.

On the other hand, reconciling promptly can uncover available funds that might otherwise remain idle – money that could support service delivery or be directed into reserves to bolster future resilience.

5. Greater Donor and Stakeholder Confidence

Trust is the currency in the voluntary sector. Whether you’re reporting to institutional funders, preparing a trustee report, or sharing impact updates with individual supporters, financial credibility underpins everything.

Bank reconciliations signal that your charity takes accountability seriously. When they form part of a larger strategy of financial transparency – one that includes clear SoFA statements, balanced reserves, and timely reporting – stakeholders are more likely to engage and invest in your mission.