With the sheer volume and complexity of expense allocation rules, managers that continue to rely on manual processes will face a slew of operational and financial risks. As proven by several firms over the years, misallocations can result in substantial fines and reputational damage, leading many to re-evaluate their expense allocation process and seek a solution that reduces the risks of errors, streamlines compliance and improves transparency.
Although most misallocations are unintentional, they often occur when there is a disconnect between the complexity of the task and the rudimentary technology used to address it, namely spreadsheets. For instance, if a user makes a mistake in one of thousands of individual cells, that error becomes an operational risk that may not be detected until an expense has been charged to investors. Moreover, spreadsheets depend on manual data collection, manual data entry and legacy calculations, all activities that take up a great deal of time.
The below questions are designed to help managers assess their need for an automated expense allocation solution as they look to move beyond their use of spreadsheets and other manual processes:
- Audit and Transparency: Does your current expense management system allow you to keep an audit trail of all performed actions? If there are overrides made, are they documented and retrievable when needed?
- Volume of Expenses and Invoices: Does the current volume of expenses and invoices require management by a full-time employee? Will these volumes increase over time?
- Management’s Loss: Do you know if you skip the allocation of expenses and invoices to funds? Do you have an expense allocation system that keeps track of decisions and supporting documentation? 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?
- Current Processes (Manual, Semi-Automated or Advanced): Is your current expense allocation process mostly manual, requiring too much data analysis and complex spreadsheets? Have you faced a month-on-month build-up of unpaid invoices due to missing approvals? Does your current process rely on manual calculations that are typically error-prone?
- 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?
- Dead Deal Expenses: Does your expense allocation system track expenses at the deal level, and are you required to track dead deal expenses?
- 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?
- Reallocations: Does your expense management system track reallocations if a deal is closed?
- 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?
- Reporting to PMs and Investors: Does your expense allocation process allow for the reporting of 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?
Depending on your answers to the above questions, it may be time to consider an automated solution for a more accurate and efficient expense allocation process. IVP Expense Allocation Solution reduces the risks of errors and streamlines compliance, all with a detailed audit trail for improved transparency throughout the expense allocation process. This expense allocation solution also provides fund managers with the ability to fully automate the expense capture, approval, allocation and final payments process, while improving both accuracy and efficiency to drive long-term success.
Click here for more stories
Expense Allocation Solution
This expense allocation solution helps asset managers improve accuracy and efficiency, reduce the risk of errors, and guarantee compliance. It ensures that in-house teams can process most allocations swiftly, allowing them to focus more on exception handling. Accounts payable and expense allocations are also tracked by the platform through customizable reports. Additionally, it offers easy-to-set-up invoice approvals and maintains a detailed audit trail for approvals, rejections, and changes.
Latest blogs delivered right to your inbox
Resources For Growing Your Firm
IVP’s FinanceForward Thinking
Discover the latest trends, find out how your peers are accelerating their digital transformations, get updates on evolving products, and more.