Finance and accounting for family offices: Reduce risks and increase transparency 


In family offices, there are often opportunities to improve the finance and accounting function so it can run more transparently, efficiently and effectively. A few changes can lead to better long-term results for the family. Just as importantly, these changes can help reduce risks for benefactors and beneficiaries.

Here are a few of the most common risks in finance and accounting for family offices, along with ways to reduce those risks.

Lack of financial and accounting transparency

Many risks family offices face stem from a lack of financial and accounting transparency. This can be caused by outdated technology, a lack of centralized information and reporting, or even a lack of sophistication among staff.

Without financial and accounting transparency, both benefactor and beneficiary face risks such as:

  • Lack of clarity about the return on each of the family’s assets
  • Uncertainty about how much money current beneficiaries and future generations may expect to receive
  • Trouble obtaining accurate financial reports
  • Mistrust among family members
  • Challenges closing transactions or obtaining credit due to lack of accurate, current financials
  • Difficulties obtaining good professional advice

Family offices can increase transparency into their finances and accounting by leveraging technology, improving reporting and engaging outside professionals to assist.

Today’s technology can help manage the receipt and disbursement of funds, as well as make it easier to manage multiple types of assets. In addition, technology can make it possible for family offices to access real-time or near-real-time reporting and monitoring.

With this improved reporting, family members can receive automated, customized dashboards and reports, which has several potential benefits.

For one thing, staff can spend less time answering family members’ questions or preparing specialized reports for them. In addition, increased transparency can help to increase family members’ trust in the office’s work. And, greater transparency and ease of access to information allows individual family members to work more effectively with their professional service providers. They will be able to more effectively manage their funds, plan for their financial present and future, engage in estate planning, and make other important decisions.

Insufficient internal controls

Another potential risk is a lack of sufficient internal controls. The finance and accounting functions of many family offices don’t have the appropriate internal controls to minimize the risks of internal fraud. This makes them more vulnerable to a rogue employee, or even a previously trustworthy employee who is now facing significant financial pressure (one of the three fraud risk factors).

Adding to this vulnerability is the fact that many family offices have just a few employees, which makes it more challenging to monitor for fraud than it would be at a large organization with more segregation of duties and other controls in place.

A family office should document its internal controls, and those controls should be continually monitored for effectiveness. There are several internal controls that can disrupt the three elements known to increase the risk of occupational fraud: opportunity, rationalization and motivation (usually financial pressure, but sometimes malice). An external review of internal controls can help identify areas for improvement and points of risk.

Family office controls include segregation of duties, transparent procedures for disbursements and vendor selection, and receipt approval and retention. If an office is simply too small to properly segregate duties, a family may consider outsourcing some duties, hiring an independent accounting firm to prepare or review bank reconciliations, or having regular independent audits.

Compliance risks

Financial compliance requirements have multiplied during the past decade. In some cases, the finance and accounting team in a family office may not even be aware of all of these requirements.

Engaging outside professionals to perform a compliance-oriented review of the finance and accounting function can be a valuable exercise for a family office. This review can help identify any gaps in compliance, from minor issues with a simple fix to more complex issues that could expose the family to significant risk.

Transition risks

Often, a family office’s original benefactor has a major role in operations. They may make many of the decisions, hold operating procedures and goals in their head, and be the only person who understands the family’s full financial picture.

If the benefactor dies, becomes incapacitated, or simply wants to retire, the family office may become disorganized, or worse. Even a well-run office can suffer during a transition if younger generations don’t want to be as involved as the founders.

These same risks may also exist if one professional has been running the office for many years.

Transition risks can be greatly reduced by codifying institutional knowledge, developing and documenting standard operating procedures, and engaging in succession planning. It’s also a good idea to identify a backup staff member for each finance and accounting position; that person should be trained and briefed, able to take over if the main staffer goes on vacation, quits retires or otherwise cannot perform their duties.

Organizational risks

Having the right people in the right positions is crucial for any organization to achieve its goals. This is no less true for a family office, but it can be much more complicated.

Family members often feel a strong connection to staff in their office, and many family offices have staff members who’ve been with them for a long time. It can be challenging for the family to objectively decide whether employees have the right training and experience for their positions.

Sometimes, the right people are working in the office, but they’re not in the right positions. Or the office might need a new organizational design, with different positions more suited to today’s financial world. And some employees may not be a good fit for the organization at all.

Family offices may also lack formally defined roles and responsibilities, which can lead to disproportionate workloads, a lack of accountability and business continuity issues. They may also not have enough staff in key functions, which can constrain the current workflow and future growth.

This is another area where a family office can benefit from an independent third party with family office expertise. A third party can objectively evaluate individual employees, organizational design, roles and responsibilities, and the skills and experience the family office needs. A third party can also make recommendations without the burden of existing relationships, connections or histories. In some cases, it may make sense to outsource aspects of the family office operations directly to a third party.

Lack of long-term perspective

It’s easy for a family office to get caught in short-term thinking. Day-to-day functions may keep the entire staff busy. The benefactor or founder may be more focused on short- to medium-term planning, or simply may not have articulated long-term goals. Often, the people working in the office don’t have the time, or possibly the skills and experience, to look long-term.

This lack of long-term planning and perspective can prevent the family from taking advantage of opportunities to grow or preserve wealth and, down the road, this could result in less money than desired for future generations.

Many family offices can benefit from a consultant with family office expertise to help bring together the benefactor and beneficiaries and offer a long-term perspective that can help the family office maximize generational wealth.

Minimize risk while improving operations and governance in family offices

While family offices can be complex, steps to reduce risks are also likely to improve operations and governance.

In general, family offices have three main opportunities:

  • Modernize technology
  • Work to put the right people in the right positions
  • Increase transparency of investments

Ultimately, family office benefactors and beneficiaries want the peace of mind that they’re making the money they should be making, and that money is going to the right places. Sometimes, that means bringing in experienced consultants to help achieve transparency and operational effectiveness, and gain access to additional expertise. Other times, that may mean outsourcing some or all of the family office’s functions to outside professionals with family office expertise.

Kaufman Rossin’s family office services and business consulting services professionals help both new and experienced family offices with financial, compliance and organizational best practices; technology transformations; succession planning; internal controls; family governance issues and planning; cybersecurity; and more.

The firm’s family office services practice also provides outsourced family office services that help families to mitigate risks, streamline operations and meet their financial goals. Outsourced family office services include lifestyle and philanthropic management, accounting and finance, risk management, insurance analysis and oversight, and integrated planning for income taxes, estate and trust, relocation, life insurance, and more.

Contact one of us or another member of Kaufman Rossin’s family office services or business consulting services group to learn more about how we can help families improve the finance and accounting function, transparency and financial savvy of their family offices.

Todd Kesterson, CPA, is a Family Office Services Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.

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