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Synapse crisis aftermath shows ledgers are key

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Synapse, a banking-as-a-service (BaaS) company, filed for bankruptcy in April of this year after a year of financial and operational challenges, including disputes with its banking partners, two rounds of layoffs, and an incident where many Synapse customers were unable to access their accounts.

The Chapter 11 trustee appointed to oversee Synapse’s bankruptcy has struggled to reconcile all funds, with potential shortfalls between $65 million and $96 million. Partner banks have made progress in distributing funds, but significant discrepancies in Synapse’s records complicate full reconciliation efforts. According to a recent status report filed by the trustee, full reconciliation may be impossible.

This development has shed light on a troubling phenomenon: many cutting-edge fintech companies, which bring much-needed disruption to a sector that has stagnated for decades, still lack the essential infrastructure to effectively reconcile transactions, track funds, and maintain visibility into their ledgers.

Synapse’s crisis underscores this pervasive issue in fintech and highlights the urgent need for investment in technology and automated processes.

A Prevalent Problem

The Chapter 11 trustee has encountered significant challenges in reconciling funds and ensuring accurate distribution to customers. These efforts have been hampered by missing data and uncooperative former employees.

Despite making some progress in distributing funds from demand deposit accounts (DDAs), the trustee faces substantial hurdles in reconciling more complex “for benefit of” (FBO) accounts, where discrepancies in Synapse’s records have complicated efforts. Partner banks have identified numerous discrepancies in Synapse Brokerage’s program ledgers, further complicating the reconciliation process.

These challenges are not unique to Synapse and underscore a broader issue within the fintech industry: the struggle to maintain robust financial infrastructure capable of reconciling transactions and safeguarding customer funds. 

Despite their commitment to tech-driven efficiency, many large fintechs face significant challenges when it comes to managing key tasks such as reconciling payments and maintaining accurate ledgers. As these problems persist, they draw greater scrutiny from regulators, potential banking partners step back, investors raise more questions and most importantly, fintechs lose the most critical thing for every company that handles money – consumer trust.

Reconciliation and Ledgering Challenges

Why exactly are these seemingly standard financial processes so difficult?

First, fintech companies – and most businesses in general – lack the necessary technology to handle reconciliation at scale. While fintechs are known for digitizing and automating their own services and products, most of them tend to rely on antiquated manual systems to manage internal processes such as reconciliation, using Excel held together by a patchwork of macros and SQL scripts. Many companies delay addressing this issue until it becomes unmanageable.

Second, these fintechs handle extremely high volumes of transactions and complex flows of funds —e.g., pay-ins and pay-outs and a growing number of data sources connected to each flow of funds (banks, PSPs, ERPs, billing systems, internal databases etc.) – which further complicates ledger management. The risk of error increases exponentially, and when something goes wrong, simply tracking a single transaction and identifying the break in the chain can be a Herculean task.

And third, even if an individual company has a strong handle on its internal ledgering, there’s still the risk that its partners’ or customers’ bookkeeping standards may not meet the same level of rigor, potentially leading to inconsistencies when multiple companies collaborate.

The Stakes of Inaccurate Ledgering

In Synapse’s case, these challenges converged to deliver the final blow. The trustee’s inability to reconcile accounts exacerbated internal financial issues and disputes with key partners, exposing gaps that have strained Synapse’s relationships with customers, partners, investors, and more.  Due to the high stakes, accurate reconciliation is crucial for fintech companies. Losing track of customers’ money diminishes trust and business viability. Without the ability to track funds, protecting customers’ financial security becomes impossible.

With Synapse’s recent shortcomings bringing these issues under the spotlight, regulators are beginning to impose even stricter oversight over fintechs and their partner banks. Companies that fail to effectively manage their ledgering and reconciliation processes risk severe consequences, including financial losses, reputational damage and harming their relationships with partner banks.

The Solution: Technology and Automation

Though the finance operations sector has long been neglected, a new generation of tools is available to help fintech companies manage reconciliation and ledgering more effectively. These advanced technologies can handle high transaction volumes and complex fund flows, providing real-time visibility, a high level of accuracy, and operational efficiency.

To avoid the pitfalls experienced by Synapse, fintech companies should, first and foremost, prioritize minimizing or eliminating the risk of losing track of customers’ funds. This requires  investing in advanced technology that seamlessly integrates into their operations, automates critical processes, and streamlines operations prone to inconsistencies and discrepancies. 

Automated reconciliation systems offer several benefits, beginning with real-time accuracy. These systems ensure that transactions are accurately matched and discrepancies promptly identified, reducing the risk of errors. Automated reconciliation also streamlines financial processes, minimizing the manual workload. This not only frees up employees to focus on more pressing tasks but also enables more efficient scaling of operations, while reducing the number of human errors.

The ability to maintain accurate and transparent financial records in real time will bolster customer trust and loyalty and ensure compliance with financial regulations by providing accurate and timely financial data.

Another advantage is resilience and adaptability. Automated systems can quickly adapt to changing financial environments and regulatory requirements, providing a stable foundation for growth.

Learning from Past Mistakes

Though difficult for those involved, the Synapse crisis ultimately offers hopeful lessons for the fintech industry. Investing in technology and automation is crucial to prevent similar crises and secure long-term success. These investments are essential for maintaining accurate financial records, building customer trust, ensuring regulatory compliance, and achieving operational efficiency. By learning from Synapse’s challenges and embracing advanced technology to mitigate them, fintech companies can safeguard their operations and position themselves for future success in an industry where competition continues to be fierce.

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House passes tax administration bills

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The House unanimously passed four bipartisan bills Tuesday concerning taxes and the Internal Revenue Service that were all endorsed this week by the American Institute of CPAs, and passed two others as well.

  • H.R. 1152, the Electronic Filing and Payment Fairness Act, sponsored by Rep. Darin LaHood, R-Illinois, Suzan Delbene, D-Washington, Randy Feenstra, R-Iowa, Brad Schneider, D-Illinois, Brian Fitzpatrick, R-Pennsylvania and Jimmy Panetta, D-California. The bill would apply the “mailbox rule” to electronically submitted tax returns and payments to allow the IRS to record payments and documents submitted to the IRS electronically on the day the payments or documents are submitted instead of when they are received or reviewed at a later date. The AICPA believes this would offer clarity and simplification to the payment and document submission process while protecting taxpayers from undue penalties.
  • H.R. 998, the Internal Revenue Service Math and Taxpayer Help Act, sponsored by Rep. Randy Feenstra, R-Iowa, and Brad Schneider, D-Illinois, which would require notices describing a mathematical or clerical error to be made in plain language, and require the Treasury to provide additional procedures for requesting an abatement of a math or clerical error adjustment, including by telephone or in person, among other provisions.
  • H.R. 517, the Filing Relief for Natural Disasters Act, sponsored by Rep. David Kustoff, R-Tennessee, and Judy Chu, D-California. The process of receiving tax relief from the IRS following a natural disaster typically must follow a federal disaster declaration, which can often come weeks after a state disaster declaration. The bill would provide the IRS with authority to grant tax relief once the governor of a state declares either a disaster or a state of emergency and expand the mandatory federal filing extension under Section 7508(d) of the Tax Code from 60 days to 120 days, providing taxpayers with more time to file tax returns after a disaster.
  • H.R. 1491, the Disaster related Extension of Deadlines Act, sponsored by Rep. Gregory Murphy, R-North Carolina, and Jimmy Panetta, D-California, would extend the amount of time disaster victims would have to file for a tax refund or credit (i.e., the lookback period) by the amount of time afforded pursuant to a disaster relief postponement period for taxpayers affected by major disasters. This legislative solution would place taxpayers on equal footing as taxpayers not impacted by major disasters and would afford greater clarity and certainty to taxpayers and tax practitioners regarding this lookback period.

“The AICPA has long supported these proposals and will continue to work to advance comprehensive legislation that enhances IRS operations and improves the taxpayer experience,” said Melanie Lauridsen, vice president of tax policy and advocacy for the AICPA, in a statement Tuesday. “We are pleased to work closely with each of these Representatives on common-sense reforms that will benefit taxpayers, tax practitioners and tax administration and we’re encouraged by their passage in the House. We look forward to continuing to work with Congress to improve the taxpayer experience.”

The bills were also included in a recent Senate discussion draft aimed at improving tax administration at the IRS that are strongly supported by the AICPA.

The House also passed two other tax-related bills Tuesday that weren’t endorsed in the recent AICPA letter. 

  • H.R. 1155, Recovery of Stolen Checks Act, sponsored by Rep. Nicole Malliotakis, R-New York, would require the IRS to create a process for taxpayers to request a replacement via direct deposit for a stolen paper check. If a check is determined to be stolen or lost, and not cashed, a taxpayer will receive a replacement check once the original check is cancelled, but many taxpayers are having their replacement checks stolen as well. Taxpayers who have a check stolen are then unable to request that the replacement check be sent via direct deposit. The bill would require the Treasury to establish processes and procedures under which taxpayers, who are otherwise eligible to receive an amount by paper check in replacement of a lost or stolen paper check, may elect to receive such amount by direct deposit.
  • H.R. 997, National Taxpayer Advocate Enhancement Act, sponsored by Rep. Randy Feenstra, R-Iowa, would prevent IRS interference with National Taxpayer Advocate personnel by granting the NTA responsibility for its attorneys. In advocating for taxpayer rights, the National Taxpayer Advocate often requires independent legal advice. But currently, the staff members hired by the National Taxpayer Advocate are accountable to internal IRS counsel, not the Taxpayer Advocate, creating a potential conflict of interest to the detriment of taxpayers. The bill would authorize the National Taxpayer Advocate to hire attorneys who report directly to her, helping establish independence from the IRS. 

House  Ways and Means Committee Chairman Jason Smith, R-Missouri, applauded the bipartisan House passage of the various bills, which had been unanimously passed by the committee.

“President Trump was elected on the promise of finally making the government work better for working people,” Smith said in a statement Tuesday. “This bipartisan legislation helps fulfill that mandate and makes improvements to tax administration that will make it easier for the American people to file their taxes. Those who are rebuilding after a natural disaster particularly need help filing taxes, which is why this set of bills lightens the load for taxpayers in communities struck by a hurricane, tornado or some other disaster. With Tax Day just a few days away, we must look for common-sense, bipartisan ways to make filing taxes less of a hassle.”

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Accounting

In the blogs: Many hats

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Teaching fraud; easement settlement offers; new blog on the block; and other highlights from our favorite tax bloggers.

Many hats

  • Taxbuzz (https://www.taxbuzz.com/blog): There’s sure an “I” in this “teamwork:” What to know about potential IRS and ICE collaboration.
  • Tax Vox (https://www.taxpolicycenter.org/taxvox): How IRS data would likely be unhelpful validating SNAP eligibility.
  • Yeo & Yeo (https://www.yeoandyeo.com/resources): How financial benchmarking (including involving taxes) can help business clients see trends, pinpoint areas for improvement and forecast future performance.
  • Integritas3 (https://www.integritas3.com/blog): One way to take a bite out of crime, according to this instructor blogger: Teach grad students how to detect, investigate and prevent financial fraud.
  • HBK (https://hbkcpa.com/insights/): Verifying income, fairly distributing property, digging the soon-to-be-ex’s assets out of the back of the dark, dark closet: How forensic accounting has emerged as a crucial element in divorces.

Standing out

Genuine intelligence

  • AICPA & CIMA Insights (https://www.aicpa-cima.com/blog): How artificial intelligence and other tech is “Reshaping Finance,” according to this podcast. Didem Un Ates, CEO of a U.K.-based company offering AI advisory services, tackles the topic.
  • Taxjar (https:/www.taxjar.com/resources/blog): How AI and automation can help even the knottiest sales tax obligations and problems.
  • Dean Dorton (https://deandorton.com/insights/): Favorite opening of the week: “The madness doesn’t just happen on college basketball courts — it also happens when your finance team is stuck using a legacy on-premises accounting system.”
  • Canopy (https://www.getcanopy.com/blog): Top client portals for accounting firms in 2025.
  • Mauled Again (https://mauledagain.blogspot.com/): Despite what Facebook claims, dependents have to be human.

New to us

  • Berkowitz Pollack Brant (https://www.bpbcpa.com/articles-press-releases/): This Florida firm offers a variety of services to many industries and has a good, wide-ranging blog. Recent topics include the BE-10, nexus and state and local tax obligations, IRS cuts and what to know about the possible bonus depreciation phase out. Welcome!

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Accounting

Is gen AI really a SOX gamechanger?

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By streamlining tasks such as risk assessment, control testing, and reporting, gen AI has the potential to increase efficiency across the entire SOX lifecycle.

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