Part 3 of 3 (Read Part 1 and Part 2)
The final installment in our series on operational strategies for accounting and month-end reporting delves into the reconciliation of the components of net investment. This critical aspect of the reconciliation process involves ensuring that all elements contributing to net investment are accurately accounted for and aligned with financial records. We will discuss the key components that make up net investment, common discrepancies that can arise, and detailed methodologies to reconcile these components effectively.
Accounting reconciliations are crucial for ensuring that financial records are accurate and complete. By mastering these reconciliation techniques, you will be better equipped to maintain the integrity of your financial statements and achieve a smoother month-end close.
As stated in the earlier posts, we explain these strategies using Solifi’s Portfolio Management system. If you use a different lease accounting portfolio software, the terms/nomenclature may be different, but the concepts should still apply.
Several common issues can arise during the reconciliation process, including:
- Timing differences -- transactions might be recorded in your servicing system and not recorded in your financial system
- Data entry errors
- Duplicate entries
Key components of Net Investment include:
Net Investment Balance Remaining
Year-to-date loan and lease activity that ties to Net Investment Balance:
The template above is a comprehensive example of each activity performed or recorded in your servicing system during the month. These activities are incorporated in different reports and should be captured in your reconciliation strategies and procedures.
Best practices for your reconciliation strategies could include:
- Reconciling weekly to ensure all activity during the week has been captured in your servicing system and your financial system
- Automation of repetitive tasks
- Interdepartmental collaboration – ensure that all departments submit relevant data in a timely manner
Best practices ensure the efficient management of loan and lease accounts, providing accurate reporting to both borrowers and internal stakeholders while staying in compliance with legal and regulatory requirements.
YTD Rolling activity:
Below is an example of the YTD Rolling activities that make up the Net Investment Balance; this is another spreadsheet that could be incorporated into your monthly reconciliation process using the balances in your Main, YTD reconciliation as pictured above.
MTD activity:
See below for an example of MTD activity that makes up the Net Investment Balance; this is another spreadsheet that could be incorporated into your monthly reconciliation process using the balances from your YTD rolling balance.
The MTD activity balance section is calculated by subtracting the YTD changes, month over month, from the rolling YTD spreadsheet. This allows you to verify that your MTD roll forward calculations agree with the MTD activity on your Monthly Reports.
Once you set up your reconciliation spreadsheets, month-end is as simple as running your reports and updating your YTD Balances from your month-end reports.
Did you know:
- If you book and dispose of a contract in the same month, it does NOT appear on the New Contract Summary Report, and it is a reconciling item to account for in rolling forward the Net Investment balances, using reports.
- If you restructure a deal with IDC, the portion of IDC “disappears” from your New Contract Summary Report, and it is a reconciling item to account for.
- You can track Payment Transaction numbers in the Administration Dashboard / System Parameters / Transaction Data. This allows you to also run the Payment App Report by selecting only those transaction numbers for that month. It is an important double-check exercise.
The Contract Receivable Trial Balance Tax Report is another Payment Application report that is useful to include in your portfolio reports for month-end; it shows all payments posted during the month, whether the payment-received date was in the current month or not. It captures payment posting errors which can be especially useful in the reconciliation process.
Adding reviewer lines and having a sign off will be much appreciated by your auditors!