The National Association of Residential Property Managers has recently released a new National Accounting Standardization that includes a detailed Chart of Accounts, a Financial Controls Guide, and a Metrics Guide. These documents are not currently available publicly, but if you are a member, you do have access to these resources. If you are not a member, it might be a good idea to join so that you can have access to the source documents.
I like that an Accounting Standardization involves the key of what I call “Internal Controls”. Many of us are afraid to say the “A” word out loud but an Audit or more gentle way of saying it… a Trust Account Review is inevitable for some businesses. This is especially true for the Property Management industry. Too many times, I hear stories of Escrow funds being mismanaged, bank accounts haven’t been reconciled, and property trust balances are in the negative.
A Property Manager, typically a broker, must practice reasonable supervision of their business operations. To be fair to the Property Manager, they most likely didn’t get into business to be a bookkeeper or an accounting professional and they surely had no idea what was in store for them with trust accounting, not to mention the software such as Appfolio. However, it is crucial “to keep a finger on the financial pulse of your business.” While this is not the typical property manager’s forte, there are resources available to practice reasonable supervision of your Property Management Company.
Those resources can be found in an accounting professional such as Ala Carte Bookkeeping & Business Solutions. There are also other accounting solutions that are very good and maybe even more practical for the larger property management companies. I’m always happy to offer a free consultation. This might be to discuss solutions to clean up company books, to learn new software, to understand reports and track money, and to resolve errors of over-collecting of revenue typically caused as a result of additional fees. These are just a few examples of pain points that property managers experience on a daily basis.
Pain points can also include things like misapplying subsidized housing payments, lack of systems that might include charging applicable fees that are spelled out in the lease agreement, failing to apply prepayments and the dreaded “F” word…. FRAUD! It is not a pleasant subject, but one that needs to be discussed and internal controls are vital to stopping fraud in its tracks or preventing it from ever happening. However, there is still human error and internal controls will help in all situations.
How Can Internal Controls Help?
Let’s start with how internal controls can help by having Standard Operating Procedures (SOPs) as a mandate for your office. Don’t go to work without them! This all starts with a conversation. Initially the conversation would be with your accounting professional whether that be in-house or a virtual accountant, for the purposes of this discussion, I’ll use the term accountant and bookkeeper synonymously. Later, you’ll want to have a similar discussion with your team members and these discussions will be on different areas of the business as well as a thorough discussion on SOPs and processes in the office. The topics for these discussions need to be centered around specific processes such as Bank Reconciliations, Trust Account Balances for both operations and security deposit funds, etc. This writing is not intended to be all inclusive but more of a good look at the problem and suggestions as to how your Property Management company will avoid finding itself in the middle of an audit that reveals a deficit of funds, the possibility of losing a license and a cherished career ruined.
There’s things that you need to know and to do, people that you need to find that will advise you honestly and effectively, and processes that need to be implemented. This takes a lot of time and effort, but the right professional can assist so that you can still do what you do best and that is to build and scale a property management business.
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ManagingYourProperties.net is a division of Ala Carte Bookkeeping & Business Solutions specializing in Property Management Trust Accounting using the AppFolio property management software. Feel free to reach out if you have any questions or need any help. If you are ready to schedule a free 30-minute consultation, you can do that at https://calendly.com/tconway/30-minute-free-consultation.