“Fund investments, including their underlying sector investment allocations, are typically determined on different software to that used to administer the fund,” he said. 

“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.”

Mr Busoli noted this is an obvious issue for manually entered assets, such as shares in a private company, but often includes assets with data fed sector information as well.

The result is an audit query regarding a seeming divergence from the strategy.

Typical problems include investments with no underlying asset sectors at all and having no value such as $0 unit/share price, according to Mr Busoli. It can also include investments in 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,” Mr Busoli added.

“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.”

This comes as SMSF Alliance had also recently released a comparison tool that identifies assets that may require attention, accompanied by a simple process for users to advise of the discrepancy in the investment strategy.