Write off Adjustments Best Practice

The write-off process typically refers to the procedure of clearing small differences or discrepancies that appear in financial transactions or accounts. Here’s how you can approach it.

Step 1 - Threshold for write-off: 

Establish a threshold amount for write-offs. This threshold should be predefined and approved by your organisation's financial policies. For example, transactions with differences less than $10 might be considered for write-off or with transaction type “fee”, but you may not wish to process a $1,000 write-off and instead this may need further investigation or rebooking.

Remember not all matches with differences are write-offs. Some transactions may match with difference with an expectation that additional or future transactions will match to these records and clear with 0 difference. It is very important that internally you agree to the threshold to write off per currency/ trade type/ account etc.

Step 2 - Identify the write-off in the results: 

First, identify the transactions which are within your thresholds. Usually these are small differences or a combination of various write-offs using Duco roll up rules. But, differences are usually minimal and might arise due to rounding errors, currency exchange variations, or minor discrepancies in accounting entries.

Steps to do this: 

1. Filter Transactions:

• Look for common sources of small differences, such as rounding errors or currency exchange variations.
• Filter for accounts as you cannot match across accounts
• Filter by currencies
• Check for trade types to ensure they are accurate

• Check the automatic or manually created matches for differences against the rest of the trade population to see if there is an amount of similar or exact value that has been paid or received late or early. This caters for date differences which could be auto matched.
• It may even be possible now to match these together using manual match button

2. Label Transactions:

• Use labels within Duco to mark transactions that are potential write-offs. This can help in easily identifying them for further review.

3. Combine Similar Write-Offs:

• If necessary, combine various small write-offs to streamline the process and reduce the number of individual entries.

Use the roll up rules duco offers to automatically roll up trades.

4. Review Identified Transactions:

• Conduct an initial review to ensure that the identified transactions genuinely qualify for write-off according to the predefined rules. 
• If correct, add write-off label with approved notation
• Add a comment to ensure that actions are tracked so that secondary users can understand actions and thought process behind each request

Step 3 - Review and Approval: 

Ensure that the write-off process follows proper authorisation procedures. Typically, a supervisor or manager should review and approve the write-off requests to maintain accountability and prevent misuse.

Steps to do this in and out of Duco:

1. Pull all transactional data from the system using either data platform or one of our APIs.
2. Filter: Once all transactional data is obtained out of the system you can filter for transactions with various factors using a script. Typically, our clients label transactions with ‘write off’, or ‘write off approved’ if they use a maker checker (4 eyes approval) process. Then they will filter for amounts under tolerances specified in step 1 of this document. Another way to check these exports is using the description column that Duco auto populates when a transaction is auto-matched with a difference.

3. Validation by Second User: Have a second user validate the amounts and comments on the records that are to be processed for write-off upstream.
4. Challenge any records: Any records that are above tolerance or do not have a suitable comment. Suitable actions may include client emails confirming differences, exchange rate differences, and internal confirmation of booking errors.
5. Email Approval: Often, an email approval from a separate department is sufficient for complying with audit requirements or supervisor approval before processing adjustments. This spreads the risk with a maker checker control.

Step 4 - Adjusting Accounts:

Once approved, adjust the accounts accordingly. If you have an accounting software system, use it to make the necessary adjustments to the affected accounts. Ensure that proper documentation of the write-off is recorded for auditing purposes.

Steps:

1. Prepare Adjustment Entries: Once all the above actions are completed, prepare the necessary journal entries to adjust the accounts.
2. Update Accounting System: Enter the adjustment entries into your accounting software system. Ensure the entries are properly classified and coded according to your accounting policies, with sufficient data points inserted to comply with any internal policies. Ensure that the fields that will be populated are also mapped in Duco with a correct rule to match these when processed.
3. Review Adjustments: Have a second user or supervisor review the adjustments to ensure accuracy and completeness.
4. Duco Reconcile Accounts: Perform account reconciliations to ensure that the adjustments have been correctly applied and that the accounts balance as expected. After each cycle these adjustments should feed back into Duco and clear breaks. Any breaks that are not cleared may need further investigation. It is likely that a booking error occurred (human error) or a matching rule needs to be created.  

Step 5 - Documentation:

Keep detailed records of the write-off transactions. This documentation should include the reason for the write-off, the approval details, and any supporting information that explains the discrepancy.

Steps:

1. Document Reasons for Write-Off: Clearly document the reason for each write-off, referencing the specific transactions and discrepancies.
2. Include Approval Details: Record the details of the review and approval process, including names, dates, and any supporting emails or documents.
3. Store Supporting Information: Maintain copies of any relevant supporting information, such as client communications, exchange rate confirmations, and internal memos. This could be in your outlook or internal.
4. Organise Documentation: Organise the documentation in a systematic manner for easy retrieval during audits or reviews.

Step 6 - Monitoring and Reporting: 

Regularly monitor the write-off transactions to identify any patterns or recurring issues that might need further investigation. Reporting on write-offs can provide insights into areas where procedural improvements might be necessary.

Steps:

1. Generate Regular Reports: Generate regular reports on write-off transactions to track trends and identify any unusual patterns.
2. Analyse Trends: Analyse the reports to identify any recurring issues or areas that may require further investigation or procedural improvements.
3. Review and Discuss: Regularly review the reports with relevant stakeholders and discuss any findings or recommendations for improvement.
4. Implement Improvements: Based on the analysis and discussions, implement any necessary improvements to your write-off procedures to enhance accuracy and efficiency.

Reminder Audit Trail: 

Maintain a clear audit trail of all write-off transactions. This trail should be accessible for internal audits and regulatory inspections to demonstrate transparency and compliance with financial regulations.