Investment managers know the impact of audits and the importance of collecting and maintaining accounting, client and performance data to generate monthly audited statements for their clients. However, many firms leave data collection until year-end or find themselves suddenly responding to ad-hoc requests manually. This can unnecessarily disrupt the normal course of business and increase risk.
The consequences of manual data collection
Manually collecting data is not just tedious and inefficient; it also opens the door to costly errors and oversights. When operations teams are bogged down with repetitive, low-value tasks like logging into websites and reformatting data, it's easy for mistakes to creep in. These small missteps can have big ramifications when it comes to audits, client reporting and maintaining trust.
Imagine your firm subscribes to 10 data sources for 100 accounts. For just one account, you would need to login to each source's website periodically to download accounting data to a spreadsheet or system, and save it to a formatted pdf. Now do it 99 more times, and it will likely take days to complete. The process is tedious, not to mention an unproductive use of professional talent.
The importance of comprehensive data
When audit time rolls around, having a complete, accurate set of data from the entire period under review is non-negotiable. Auditors need full transparency into holdings, transactions, valuations and more across every single day. Any gaps or discrepancies will be glaring red flags that necessitate lengthy investigative work to resolve—costing precious time and money.
How can this process be improved to alleviate the risk, disruption and stress on operations and compliance teams? Here are a few insights on audit risk, achieving optimal outcomes through best practices for collecting data, and ensuring a painless, successful audit or client request—each and every time.
Audit risk is real
Audit reports typically cover performance under Global Investment Performance Standards (GIPS®), operational processes and procedures related to financial reporting and data controls under SOC 1 and SOC 2, periodic SEC review audits, and year-end financial audits. These audits may become available in the public domain and to member clients and partners who have established due diligence policies and procedures.
A damaging set of findings may highlight missing or mismatched data and other discrepancies, subsequently spurring undesirable discussions with clients and partners who may demand to see your audit reports in-person. It may even open up questions from clients about their fee billing calculations and the market values applied.
How often should you collect data?
The best practice is to collect data from your accounting system and your external data sources, and generate your pdf statements at the end of every month. Here are three reasons why: (1) Firms never really know what their auditors or clients will request; (2) not all data sources store historical data that would be available at year-end; and (3) storing statements in an unchangeable format such as pdf is a must-have for efficient audit reviews.
Although SEC exams can happen at any time, most audits are scheduled and planned for throughout the year. However, even scheduled audits typically involve requests for a random set of accounts and months for review. Collecting information on a monthly basis ensures readiness for a potential audit or any client inquiries that may surface. However, collecting data at year-end (when you're also trying to close out the year's books), or while you're actually going through an audit, creates significant disruption, delays and risk.
Data collection best practices
Maintaining robust data collection processes is critical for investment managers to ensure audit readiness and keep clients informed. Here are some best practices to follow:
Leverage comprehensive data sources
In the past, investment managers' clients were comfortable with their use of market values straight from their accounting system. However, this "shadow accounting" method does not verify conformance with the custodian account for every data point required. Today, data sources – whether from direct feeds or pdf statements – are best for determining accurate market value.
Combine internal and external data
Collecting and storing audited accounting information on holdings, gains/losses, and income/expense items combined with external data sources on market values is extremely valuable for calculating performance, net asset values, trial balance, and other essential information required to generate auditable financial statements.
Maintain audit readiness
Whether using a third-party tool or spreadsheets, investment managers must collect the right data to stay audit-ready. Too often, however, manual processes keep firms from the advantages of straight-through processing. Pensions, endowments and foundations who place their money and trust in investment managers have little patience for process delays or opaqueness when it comes to performance or fee billing.
Guarantee transparency
Clients and auditors demand full transparency into data sources, collection methodologies, and report generation processes. Having a clear, well-documented data management strategy is essential for maintaining trust and confidence.
Automating data collection and report generation
There is a better way to efficiently collect data, meet audit requests, and reduce risk and cost. And it doesn't have to involve adopting and learning another software or SaaS solution.
Gresham provides a service that automates the entire process and takes the burden off your team's shoulders. It provides month-end data collection – from all your data sources, including extractions from pdf files – and delivery of data tailored to your firm's needs, as well as audit-ready pdf statements via secure file transfer protocol (SFTP). All your firm needs to do is store them in safekeeping should audit or client requests arise down the road.
Rather than manually collecting data from websites and combing through numerous pdfs every month, you can align your team to do more value-added tasks worthy of their skills. With all the market, operational, and regulatory complexity in the investment management industry today, collecting data is one of those crucial functions best outsourced to a cost-effective data expert.
Summary: Being efficient with data collection
The tedious realities of manual data collection open the door to costly errors that can severely undermine audit readiness and client confidence. By embracing best practices like leveraging comprehensive data sources, combining internal and external data and automating collection workflows, investment managers can navigate this operational minefield. Those that successfully adapt will be rewarded with mitigated risks, reduced costs, and refocused teams primed to drive greater value.
Jennifer McMackin is the senior vice president and lead for Data Services, an operations service that helps investment managers overcome the challenges of aggregating, validating and enriching data to drive multiple post-trade workflows. She also oversees Gresham's Managed Services, a scalable and cost-effective reconciliation service that helps firms simplify workflows, increase team productivity, and repurpose staff towards higher value.