The Risks of AppFolio's Automated Bank Reconciliation Feature

Introduction

As a property manager, accounting oversight can be a time-consuming and frustrating task. To address this issue, AppFolio has introduced an automatic bank reconciliation feature. While this feature may appear to save time and effort, it is likely to cause you headaches in the future. Automating critical accounting processes can lead to a false sense of security that may cause property managers to overlook an error for months.

What is Bank Reconciliation?

Bank reconciliation is the process of matching and verifying a company's accounting transactions with the corresponding transactions in their banking system. This is a crucial step to ensure the accuracy of financial reports. To automate this process, AppFolio allows you to link your bank account to the software. Once linked AppFolio will automatically upload transactions and match them to your records in the AppFolio account.

Risks of Using AppFolio's Automated Bank Reconciliation Feature

While the automatic bank reconciliation feature may seem like a convenient solution, there are several reasons why property managers should avoid using it.

The main concern is that the automated matching process may lead to a relaxation of human internal controls. The bank reconciliation process is the number one internal control available to users, and one of the simplest to execute when good practices are in place. It is the last place you want to automate because it gives you the most insight and spotlights errors and omissions in your records. Programming a computer to “check the boxes” is a poor substitute for an accounting manager completing the process and interpreting the results.

Further, AppFolio's automated bank reconciliation feature is designed to work with standard programming rules and principles. It leans toward a “one size fits all” methodology. In practice, many companies have idiosyncratic accounting workflows that may not be easily interpreted by the feature. This could result in unique transactions being recorded inaccurately or not at all, leading to more confusion and requiring more time later to resolve.

Finally, there is the risk of security breaches and fraud. Linking a bank account to an outside party exposes sensitive financial information to potential cyber threats and data breaches. By opting out of this feature, property managers can minimize this risk.

Conclusion

While AppFolio's automated bank reconciliation feature may seem like a convenient solution for property managers, it’s essential to have a firm grip on oversight of the accounting process. Bank reconciliation is the most important internal control available. Introducing inaccuracy and inefficiency for the sake of convenience is not a worthwhile trade in this setting. For these reasons, we recommend that property managers take a cautious approach and manually reconcile their bank accounts to ensure the accuracy and security of their financial data.

Learn More

If you are interested in bank reconciliation services for your database, software training or other internal control functions in the AppFolio database, please fill out a request for more information and one of our consultants will follow up for a complimentary initial consult.