Volume 2 — Governance and ControlsGovernance and Controls © Copyright 2002, All rights reserved 40 Objectives Ensure that a company’s systems and databases are internally balanced and validate that internal records are consistent with those of external parties. Best Practices and Controls • Reconciliations should be automated where possible. • Systems supporting the front, middle, and back offices, if different, should be reconciled daily. The following are examples of typical reconciliations: − Trade blotter and trade capture system. − Trade capture systems and risk management system (if different). − Trade capture and billing/ general ledger (GL). • External party information should be reconciled with internal data on a regular basis. • A formal, documented process should set out how reconciling items are investigated, explained, and resolved. • All reconciliations should be reported to appropriate management and should carry evidence that management has reviewed them. • In order to validate P&L figures derived from valuations, reconciliations should be completed between front-office expectations and back office results. These should include: − Documentation of the reason for the discrepancy, the P&L impact, and the final resolution. − Reporting of material discrepancies to senior management. − Controls adequate to prohibit the front office from reevaluations made to correct the discrepancies. • A monthly reconciliation of the A/R and A/P sub-ledgers and GL should be performed to ensure that the balances tie and are appropriate, based on invoices received and payments made. Key Reports • Reconciliation reports. • P&L reports. 1.4.4 Compliance with Accounting and Disclosure Requirements11 Process Overview It is the responsibility of the back office to ensure that the proper accounting treatment for transactions is performed. The back office should work in conjunction with the front office, the 11 See the Risk Management Disclosures White Paper