3 Smart Tips for a Successful Year End Reconciliation Checklist

Wouldn’t you love it if you could simply wave a magic wand and have an expert review your entire business top to bottom to prepare for 2017?  Someone that would consider your firm’s key procedures, including client-specific processes, and guide you around potential errors that could sour a client relationship or cause you to miss an important deadline.

Unfortunately, finding a perfect-fit plug-and-play year-end close checklist is not that easy. In my role as CEO of Accusource, a firm that provides outsourced portfolio accounting solutions to RIAs and family offices, I have seen my share of January nightmare scenarios that could have easily been avoided with a little December preventive maintenance.

Here are some pitfalls to avoid and 3 tips for a smoother end of year closing.

Year-End Closing Calendar : Begin With the End in Mind 

It is natural to think through processes as sequential steps in chronological order. However, this rule does not apply to designing the perfect year-end closing calendar. For best results, you must start at the end, not the beginning.

Let’s assume that client reports must go out on business day 15. Knowing that marker, and understanding the typical timeframe for activities that precede the release of the statements, you can map out the entire schedule. If the print vendor needs 3-5 business days to generate the statements, and the internal review of the reports takes about 5 business days, your year-end close calendar might look like this.

  • Business days 3 – 4: Conduct data checks.
  • Business day 5: Generate preliminary reports.
  • Business days 5 – 9: Review and trouble-shoot the reports.
  • Business day 10: Reports sent to the third party print vendor.
  • Business day 15: Reports go out to the client.

Given the condensed timeline, why wait until business day 5 to generate the first round of reports? In my experience, late changes and reversals of trades and data processed by the custodian after business day 1 are not unusual. For example, a client with an equities-only investment strategy might have 10,000 bonds allocated to his account in error. Re-allocating the trade and correcting the portfolio holdings may take the custodian a day or two. So, even if the data is available sooner, I recommend waiting to be sure you are starting with the cleanest dataset possible.

Review Realized Gains and Losses

One of the first checks you should do in early to mid-December is to run a realized gain and loss report by client. This is both important and urgent, since the window for action closes on December 31. You might imagine that this step is obvious, but I have seen advisors miss it and hurt client relationships. I recommend making it a part of your close checklist.

Keep in mind that simply flagging large realized gains or losses is not enough. The focus of the review should be on identifying all unintended tax consequences. The direction and the level of undesirable tax impact will vary based on the client’s financial situation and goals, so be sure that you assign this task to the individual with the background knowledge to make the right judgment calls.  (See The Truth About Cost Basis Reporting for more ideas on optimal account reconciliation)

Change Procedures that Don’t Serve You

You have a standard month-end close checklist and your staff follows it reasonably well. Are you done? Not so fast! I have seen many clients stick with outdated procedures that ultimately do more harm than good.

Take a recent example of a client who had a considerable volume of foreign equity trades to reconcile. The standard operating procedure was to reconcile everything monthly, but because the volume of trades was so high, the team kept running out of time.  The reconciliation process would turn into a disaster as staff predictably scrambled to research all the variances before the deadline. The team never had a good comfort level with the accuracy of the reports. In short, everyone hated the recon process, but stuck with it anyway.  (See Four Guidelines to Procedures That Actually Work)

If you have accounts with significant transactions in foreign equities, currencies or with a history of errors, I recommend reconciling them more frequently. Of course, weekly or daily reconciliations requires more effort on a consistent basis. In exchange, you and your clients benefit from work completed without the frantic rush, which minimizes errors. It can also free up your staff to focus on other activities at month-end.

I encourage all of my clients to review key procedures, identify any that might be less than optimal and tweak them accordingly. Do not wait until some future time when you might be less busy. That time will most likely never come!

Every client’s perfect year-end close calendar will look different. However, all well-designed year-end workflows include an opportunity to catch and correct unintended tax consequences and reporting errors. Preventing mistakes is often less costly than fixing them in terms of time, money and reputational risk.  After all, no detail is too small when it comes to exceeding your clients’ expectations.

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