Software creates investment allocation flaw

investment strategy allocations

Differences in how software systems view assets can lead to flaws in how auditors may view an investment strategy.

The reporting of investment strategy allocations against benchmarks has a fundamental flaw that occurs across the SMSF sector, according to an SMSF specialist adviser.

SMSF Alliance principal David Busoli said the flaw is the result of SMSF investments and their underlying sector investment allocations being set up on software systems that are different than those used to administer the fund.

“They may have been determined according to the fund’s investment strategy, but as the underlying asset sector allocations within the administrator’s software are often not the same, the reports that the fund’s auditor accesses may well show a significant variation to the investment strategy,” Busoli said.

He said this flaw was evident where values for assets were manually entered, such as shares in a private company, but can include assets where data is fed directly into the administration software.

“The result is an audit query regarding a seeming divergence from the strategy,” he said.

“Typical problems include investments with no underlying asset sectors at all, no value – that is a $0 per unit/share price, a negative sector, or an ‘unknown’ sector designation.

“The presence of gearing may also cause issues depending on how it is recorded by the administrator.

“It is not uncommon to find a borrowing classed as a negative percentage ‘asset’, which the administration software caters for by recording the total of the other actual assets at more than 100 per cent. This obviously skews any benchmark asset allocation reporting.”

He added SMSF Alliance had developed a comparison tool to identify any assets that require attention, as well as a reporting process to advise the firm of any discrepancies to assist SMSFs correct their investment strategy reporting.

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