By Beth Manzi, CPA,Chief Operating, PEF Services, LLC
That’s a recipe for disaster on so many levels. When the numbers are entered manually, the risk of human error is high. It’s also more difficult to verify the information because there’s no trail to identify where the numbers came from or how they were calculated.
This becomes even more problematic when someone leaves the firm and takes all of the institutional knowledge with them. Often, there is no supporting documentation for reports that have been issued, and when an LP questions them, the firm has to scramble for an answer.
One of the benefits of outsourcing the preparation of financial statements is that a fund administrator has more sophisticated systems and processes in place to ensure that your investors receive accurate and timely information. The procedures include an audit trail that supports all of the calculations and integrated reconciliations and verifications to help ensure the accuracy of the data. They will also have a process in place that provides multiple levels of review to ensure accuracy.
WHAT TECHNOLOGIES SHOULD BACK OFFICES PRIORITIZE?
Technology can dramatically improve back-office operations, but best-in-class solutions can be out of reach. It’s not just the setup costs, it’s the ongoing expertise and maintenance required that can put best-in-class technologies out of the reach of small and mid-sized firms.
Even if the in-house team has invested in a technology platform, they don’t have the experience of using and refining it across hundreds of funds, and they seldom have the luxury of a dedicated IT department working on integration and customization within those platforms.
At a minimum, the back-office team should have a centralized database where the critical data is stored, ideally a portfolio accounting system geared towards private equity funds with an integrated general ledger and security ledger. This will help ensure the integrity and consistency of the data.
Any support schedules maintained in Excel should be automated as much as possible with formulas and checks, which will minimize errors and the time involved and help with standardized reporting.
To learn more about back office visibility, agility and effectiveness, read this white paper, The Brilliant Back Office.