Common Mistakes In Fund Administration

Learn the reasons for the operational errors at many fund administration providers.


Typical Fund Administration Fails

Investors can now move their money around more easily than ever before and are no longer investing in the same fund family for the rest of their lives. Instead, investors may abandon ship at the first sign of issues in fund administration, accounting and and investor services. Investors need stability. Funds must do everything they can to demonstrate that they have the required fund administration processes, controls, synergies and collaborations in place. Fund management puts a lot on the line by not taking the time to prioritize excellence in fund administration — lost money, reputation, and future business.

Points of Failure

Fund administration requires the processing and maintenance of vast amounts of data. Investors and managers make data-driven decisions based on the output of fund administration. All parties must be able to put their faith in the accuracy and consistency of the information produced by fund administration and delivered to them.

When working with many millions of dollars and many thousands of investors, mistakes can quickly build up for inexperienced and ill-equipped fund administration providers. Many fund administration providers rely on multiple systems adapted for fund administration, Excel spreadsheets and other manual processes to complete calculations and process fund administration tasks. Regular errors are all but inevitable in this environment and can have expensive consequences.

At Phoenix American, we encounter investment funds frustrated by fund administration providers who make a variety errors, omissions, and miscalculations on an ongoing basis. By the time these processing errors have permanently soured a fund administration relationship, fund management has suffered significant irritation and distraction, investor and advisor confidence in the stability of the fund has been jeopardized and fund management must embark on the difficult and time-consuming process of converting asset and investor data to the system of a superior fund administration provider.

There are a host of errors and omissions possible in fund administration processes. These errors have the potential to be costly in terms of both money and reputation. Fund administration failures tend to stem from three sources:

  • Systems – inadequate fund administration systems are unequal to the tracking, calculation and communication needs of the client fund
  • Controls – inadequate internal controls are unable to prevent errors and effectively prove fund administration output
  • Communication – a lack of effective communication among fund administration teams as they process separate fund administration functions utilizing overlapping data sets

Fund Administration Systems – common failures of inferior systems

  •       Investor or portfolio accounting records do not match financial statements.
  •       Form PF data and Fair and Accurate Credit Transaction Act (FACTA) filings are erroneous.
  •       Discrepancies arise as a result of the processing and timing of corporate actions.
  •       Accounting, reporting and fund administration systems that operate properly on their own are not in sync causing data sets to be misaligned because all of the information is not integrated.
  •       Fund administration systems that are unreliable, clumsy and with limitations cause chaos. Not only do some have unresolved bugs, some have design constraints that limit their performance, slow processing or render them incapable of managing complicated and constantly changing data.
  •       Fund administration systems incapable of automating processes force a reliance on error-prone manual processes. which entails a collaboration between fund administrators and a digital, scalable, and simple-to-implement technology platform.


To decrease manual touchpoints, a fund administration system must be user-friendly, even for the least technologically savvy user. It must also provide exception-based workflows to eliminate the need for as many manual operations as possible, except in particular specified circumstances.

Fund Administration System Failures

Controls in the Fund Administration Process – common operational failures

  •       Inadequate controls in fund administration processes result in errors in accounting, pricing errors, trade book errors, and erroneous lot relief methodologies.
  •       Many businesses lack the necessary checks and balances in fund administration processes to verify that their functions and calculations are accurate. There are frequently no built-in methods for making adjustments or improvements as needed.
  •       Inadiquate fund administration systems force individuals to do work manually outside the system, rely on hand calculations or unstructured data in spreadsheets and PDFs that are difficult to query. They may not see or realize where disparities exist while examining the data, either because they are inattentive or because they lack the experience to recognize mistakes when they see them.
  •       Client firms may miss out on fees, misvalue assets, and make other costly mistakes if they don’t have the right fund administration controls in place.
  •       Entries in the fund administration system are not correctly assigned to the right class level, resulting in large NAV differences.
  •       Incentive fees are applied incorrectly.
  •       Management fees are miscalculated.
  •       The data in the investor accounting system does not match the accounting data in the portfolio.
  •       Fund expenses are applied in an inequitable manner, maybe because they are expensed as they are incurred rather than accrued periodically.


The causes of most fund administration mistakes are manual processes and human error. Even if a fund administrator has systems in place, manual interventions and Excel spreadsheets may be utilized. There might be major consequences if a fund administration provider does not have the necessary personnel and procedures in place to manage its books and records.  Of course, finances require fewer silos and the removal of manual checkpoints that introduce incorrect data. It is critical to implement proactive measures throughout the fund administration structure to ensure accountability and process controls.

Communication Among Fund Administration Teams


  •       Because the accounting systems are not integrated with the transfer agent / fund administration system, trial balances at the class and total levels don’t match.
  •       The accounting systems at the middle office and the fund accounting departments are not in sync, resulting in discrepancies in how accounting entries are recorded.
  •       Because accounting departments, corporate action teams, compliance departments, fund administration and financial reporting departments all have their own data sets, when teams fail to communicate effectively, problems develop. One fund administration group may pull data without consulting another, unintentionally extracting incorrect data or failing to fully comprehend the data they’re utilizing to make crucial decisions.
  •       Management is unable to see the larger picture beneath the fund administration data since the various teams are not communicating with one another. Certain teams may not even be aware of the downstream impacts when they rely on specific data points if they do not receive sufficient briefings from knowledgeable individuals. As communication within fund administration groups breaks down, the risk increases.

Even at major fund administration firms teams often operate in their own separate silos. Far-flung fund administration teams are based all over the world while some functions are outsourced. The  potential for miscommunication and the known operational errors that result represents a significant business risk for client funds.

There are numerous points in the process of fund administration when a lack of precision, automation, and experience can result in embarrassing and costly blunders. In the eyes of investors, financial advisors and auditors, a fund’s reputation for fund administration blunders reflects on the general competence of the fund sponsor. Advanced, experienced and integrated fund administration architecture is essential to the efficiency and positive reputation of a modern investment fund.  


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