The link between capital adequacy and operation risk in Basel 11 further highlights the importance of the accounting and administration software all financiers utilise in their day to day business.

All asset finance companies have one function in common, namely portfolio management. There are three ways of controlling a portfolio: manually, a combination of off-the-shelf software packages or an integrated software solution. Manual systems are unsatisfactory and uneconomic because of the time spent in calculating, administering and accounting and they are, of course, prone to human errors. Off-the-shelf packages have the disadvantage of data duplication and a lack of integration. They can force companies to adopt rigid practices.

By contrast, an integrated solution provides total administration and control, reducing time, minimising errors, improving financial accounting and providing accurate management data. In an integrated solution, an integrated single database means a single end-to-end solution where the entire transaction is managed from cradle to grave with multi-currency and multi-lingual capabilities. A single integrated solution provides a superior insight into customer exposure, asset concentration and credit risk.

So given the importance of an integrated accounting and administration software how do you assess integrity.

One method is to ensure that the system, be it leasing software, a simple finance system or the full accounting and administration software, meets internationally recognized standards. A Federal Research Centre the Software Engineering Institute is one approach, the European arm can be found at www.sei.cmu.edu/about/europe

An addition or an alternative is to rely on the standing of the supplier though in all cases the asset finance systems require specific audit, ongoing monitoring and constant development. This remains so even if the accounting and administration software is owned and operated elsewhere and the financier is receiving an outsourced service. Though carefully worded service level agreements from financially strong providers may be the best method of managing operation risk for many asset financiers. An illustration of the services available Outsourcing: Lease Portfolio Management Ltd , Asset Finance Systems: NetSolCQ