Daily Bank Reconciliations

Hedge Fund & Private Equity Fund Operational Due Diligence Since 2009



Best practice for cash management across any client account, specifically a private fund, is for manager back offices to produce daily formal cash reconciliations. However, standard practice in the market continues to lag, in that many managers rely on their fund administrator to produce those reconciliations; even when the fund administrator is the signatory on those bank accounts. Further, reconciliations by the fund administrators are often done only weekly or at month end. Some people believe that the cash activity is minimal, so the accounts are lower risk and don’t warrant daily attention. However, fraud and theft usually happens in smaller amounts, and wire errors can happen in all sizes. To avoid uncaught erroneous transfers or incorrect amounts of incoming wires, a manager’s back office should review cash accounts and document the reconciliation of these accounts daily. This situation especially holds true with private equity style funds where these bank accounts handle deal funding, capital calls, and interest and other current income receipts.

All cash accounts should be reconciled daily by the investment manager to ensure that the in-house general ledger matches the bank account. Problems could arise such as theft, wire errors, bank errors, incorrect income receipts, lagging releases on wires, cyber theft, counterparty risk concentration, etc.