The expense allocation process is time-consuming and resource-intensive and is often done manually with complex spreadsheets. The manual nature of the expense allocation process also poses additional compliance concerns. In fact, the SEC has announced that disclosures related to fees, expenses, and conflicts of interest are among its top concerns for the OCIE examination. The SEC has issued more than 2,100 deficiency letters and 190 enforcement referrals in recent years and has levied fines of several million dollars for misallocation of expenses.
In general, the major challenges fund managers face with respect to the expense allocation process include:
- Low efficiency caused by a high volume of expenses and a wide range of expense types
- Lack of transparency in allocation methods
- Misallocation of funds caused by lack of oversight, human errors, and hidden mistakes
- Lack of control in enforcement of internal policy
- Lack of regulatory guidance
The best way to tackle these challenges is with an expense allocation solution that automates the process. Automation can help fund managers streamline allocations by improving accuracy and efficiency, reducing the risk of human errors, and ensuring full compliance. The top four benefits of an automated expense allocation solution include:
- Higher efficiency: Automation improves visibility of AP processes, so teams can identify and address issues quickly as well as get alerts about exceptions. Automated solutions can capture invoices with OCR technology, eliminating the need for manual data entry.
- Tighter enforcement: Automation allows you to enforce policy through workflows aligned with specific vendors, dollar amount thresholds, or business groups, ensuring invoices are approved according to the firm’s policy.
- Improved transparency and compliance: An automated expense allocation solution should support complex allocation rules and methods, including those based on AUM, NAV, committed capital, or other metrics. It should also ensure allocations align with fund offering documents, fiduciary duty, and SEC expectations, all of which improves compliance. It will also create a detailed audit trail for approvals, allocation methods, and amount splits.
- Robust reporting: Automated solutions can produce detailed reports that help you keep track of vendor payments, fund reimbursements, pending invoice approvals, and other activities. These solutions may also include Power BI dashboards to help you with analytics.
The IVP Expense Allocation Solution helps fund managers overcome the biggest challenges of expense allocation, offering a cloud-based SaaS that streamlines allocations, helps funds stay compliant, increases transparency, and automates the expense allocation process to improve efficiency. Learn more about this solution right now.
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