Authenticate Critical Data with Shadow Accounting Services

Managing an SBO (Serviced by Others) portfolio can be challenging for private funds, especially when dealing with multiple third-party servicers, and internal servicers, each of which is responsible for different aspects of a loan portfolio. These third-party providers often use different accounting methods, have different policies, and apply processing methodology to the loans they manage. These differences make it difficult to combine and standardize data from multiple third-party providers into a unified and coherent operation for the fund. This problem is only aggravated by the fact the each of these providers work in different time-zones, and deliver work at different schedules.

Without a shadow accounting service or strong data validation processes, the private funds must gather and reconcile data manually or with some degree of automation from these third-party partners. This can be a very time-consuming and error-prone process, because the lack of a unified, validated source of truth can lead to miscalculations (of interest income, P&L components, treatment of incomes and expenses, amortizations) and inaccuracies in the application of principal and interest payments. Relying heavily on manual processes and end-user computing (EUC) tools (like spreadsheets) can significantly weaken financial controls.

Without independent validation for crucial financial statement items, the situation can get even worse and raise the risk of errors or inaccuracies that go unnoticed. As a result, audits become more costly because auditors must spend extra time and resources to verify information that should have already been confirmed through strong internal controls.

One way the private funds and other asset managers can mitigate these risks and reduce costs is by utilizing a shadow accounting service provider. These service providers often provide automated systems/processes to consolidate data from multiple third-parties into a one , unified system, creating a single and reliable source of truth for financial data. Using a shadow accounting service also reduces management and audit pressures, because these services independently verify data. This ensures accurate interest calculations that align with various conventions and policies and also confirms that payment application logic is correct.

When selecting a shadow accounting service provider, find one that is scalable and enables your fund to reconcile daily expected results with results from each third-party servicer. Additionally, make sure the service supports complex month-end accounting events and provides robust intra-month reporting capabilities. Ultimately, the right shadow accounting service should provide:

1.  Daily tracking: Monitor daily balances and profit/loss (P&L) to ensure accuracy and timely updates.
2.  Accruals and remittances: Match daily accruals with remittances for principal, interest, and servicing fees to maintain alignment.
3.  Expected payments: Process daily expected payments, including principal, interest, and fees, along with fee amortization.
4.  Interest and payment management: Manage various interest types, interest bases, payment types, and remittance agreements effectively.
5.  Complex accounting: Leverage industry-proven solutions to handle complex month-end accounting events efficiently.
6.  Reliable reporting: Utilize a robust and configurable reporting platform to deliver accurate month-end results.
7.  High-volume processing: Handle high volumes of loans with necessary SOC reports and built-in controls for compliance and accuracy.
8.  Professional services: Benefit from the option to outsource the process for greater flexibility and expertise.

Hedge funds and asset managers can find all of these capabilities in IVP Shadow Accounting Services,which help reduce the risk of errors, lower operational costs, and enhance financial control. With the ability to independently validate data, manage diverse interest and payment types, and handle high volumes of transactions, IVP Shadow Accounting ensures a higher level of accuracy and efficiency.

Even more critically, IVP Shadow Accounting helps asset managers navigate the complexities of SBO portfolios with greater ease and confidence, ultimately achieving more reliable and effective portfolio management.

Learn more aboutIVP Shadow Accounting Services right now or contact sales@ivp.in to schedule a live or online demo.