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Expense Allocation System Checklist: Is your fund at risk?

By October 20, 2020 No Comments
Expense Allocation System Checlist: Is your fund at risk?

With the sheer volume and complexity of expense allocation rules, managers that currently rely on manual processes significantly increase their risk of costly errors. Adding to work-from-home and remote challenges, funds face additional risk and issues with the coordination of key stakeholders to approve invoices, and collation of the AUM number, investment holdings and ownership ratios.

These complexities and added operational burdens have pushed many mangers to start re-evaluating their expense allocation process. The below questions are designed to help managers assess their need for an automated system:

  1. Audit and Transparency: Does your current process allow you to keep an audit trail of all performed actions? If there are overrides made, are they documented and retrievable when needed?
  2. Volume of Expenses and Invoices: Does the current volume of expenses and invoices require a full-time person? Will these volumes increase over time?
  3. Current Processes (Manual, Semi-Automated or Advanced): Is your current process mostly manual, requiring too much data analysis and complex spreadsheets? Have you faced a month-on-month buildup of unpaid invoices due to missing approvals? Does your current process rely on manual calculations that are typically error-prone?
  4. Management’s Loss: Do you know if you skip the allocation of expenses and invoices to funds? Do you have a system that keeps track of the decisions and supporting artifacts? This is mostly true for T&E, which is generally small in dollar value but high in volume and easily ignored. Are you doing the same?
  5. Expense Allocation Policy: Assuming your firm has a formal expense policy, are you 100% confident that it is being followed fully and correctly? Is the manual nature of the work unintentionally allowing your team to make discretionary decisions?
  6. Payment Methods (Manual and Automated): Regarding vendor payments, do you pay them from the management company and later seek reimbursements from funds? Do you have issues reconciling the management company’s receivables and funds’ payables? Do you want to reduce the management receivable as the amount has been growing for a while now?
  7. Dead Deal Expenses: Does your firm need to track expenses at the deal level, and are you required to track dead deal expenses?
  8. Reallocations: Does your firm need to track reallocations if a deal is closed?
  9. GL Systems’ Journal Postings: Do you need to support more than one GL system to track fund and management company expenses, payables and receivables? If so, is this currently done manually?
  10. Reporting to PMs and Investors: Does your firm need to report expenses to fund managers and, more importantly, to the investors? Are you in full compliance with your LPA and side letters to make sure you don’t overcharge your funds and, consequently, their investors?

If you answered yes to most of these questions, it is time to consider an automated system, like IVP Expense Manager, to help you reduce risk and streamline the expense allocation process. Providing fund managers with the ability to fully automate the expense capture, approval, allocation and final payments process, IVP Expense Manager improves accuracy and efficiency to reduce costly errors and drive long-term success.

Learn more about IVP Expense Manager here.

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