Are You Ready for an Audit?
Isn’t it amazing how a simple five-letter word can create such panic and anxiety in so many of us. While tales of audit disaster are found everywhere, most audits are simple and straightforward, involving little drama and a lot of paperwork.
Of course, even with these reassurances, being audited, whether it’s by the IRS, the Real Estate Board, or by an outside firm, can be stressful. The good news is that solid preparation can go a long way towards reducing that stress, while also keeping your office compliant, should an audit become a necessity. Here are a few suggestions that can be easily implemented and monitored:
- Keep all of your bank accounts reconciled. While the act itself may not seem critical, the information you garner as you reconcile your accounts is important. If you don’t reconcile your bank accounts, how will you know if there are unusual or unauthorized charges on the account, or that checks have been written that should not have been written? Keeping your accounts reconciled will give you a clearer picture of the health of your business than just about anything, and go a long way towards making an audit quick and easy.
- Have trust accounts for your security deposits and use them properly. Almost every state requires property managers to maintain a separate bank account for security deposit monies. It’s important to learn the rules of your state and follow them accordingly. Mis-use of trust accounts is the number one reason why property management companies are audited by their state real estate departments. This is an easy one to fix. Establish your trust accounts and use them properly.
- Be up to date on filing. I know in a busy property management office, the task of filing is way down on the priority list. But it’s important to have all of your resident files up to date, meaning that everything that belongs in that resident file needs to be in that file, in that cabinet – and not in a pile on your desk. Spend a few minutes at the end of the week filing away all of your paperwork. It will make an audit much easier.
- Have a process in place for everything from approving invoices to processing security deposit refunds and be able to document that process. If your state requires security deposit refunds to be processed within 30 days of move-out, make sure that you honor that requirement and are able to document it accordingly.
By instituting these processes, you’ll have no reason to fear an audit, now or in the future.