If your trust accounts were audited today, would your books pass? The answer may surprise you. Most property management companies are pretty confident that they would pass, and some aren't so sure. Unfortunately, most companies would not pass. APM Help is striving to set a new standard in the industry by helping companies like you clean up their books, and keep them so clean that you can pass an audit on any given day. So, let's answer the lingering question - are your books audit-ready?
What You Need to Pass an Audit
An auditor will look over some main categories, and if they don't find any issues with those, then you are generally in the clear. If there are any oddities in their first run-through, then they will dive deeper into your books, and may even request data from previous years. Here are the standard items the auditor will look for:
Bank reconciliationsin balance and current up to the most recent statement date
No negative property balances (this includes hidden/closed properties that you no longer manage)
Enough funds in the Operating/Rental Trust account to cover all prepayments
Enough funds in the Escrow/Security Deposit Trust account to cover all management held security deposits
No uncleared deposits from previous months
No uncleared checks older than a year or 6 months, depending on your local real estate regulations
There are other factors that depend on your state regulations such as:
An appropriate amount of funds held on your corporate property/ additional funds held in the trust accounts
No past tenants with outstanding liability (prepayments or security deposits)
Reports to Check Your Books
Bank Reconciliation Report (Uncleared Checks, Uncleared Deposits, In Balance)
Trust Account Balance Report (Property Balances)
The date will be as of the statement date
Make sure to customize the report to show ALL properties - not just the “Active Properties”. Your non-active properties should show $0.00 across the board
Under "Columns" add the following: Unused Prepayment Amount, Unpaid Bills Amount, Reserve Amount, and Work Order Estimates (the Operating/Rental Trust balance should at least cover the prepayments and reserves)
Run the report, you shouldn't see any negative balances on this report
Security Funds Detail Report (Liabilities Check)
The date will be as of the bank statement date
Make sure you’re only selecting the liability GL accounts that are management held (These GL accounts are typically offset Escrow/Security Deposit Cash)
Make sure to customize the report and select ALL properties and ALL tenants
Re-run the report for the Prepaid GL account to ensure that all of the prepaid balances are associated with Current, Notice, or Future tenants
General Ledger Report (Overview of cash transactions in that period)
The date range will be the same as the statement dates
Only select the Cash GL Account(s) associated with the bank account
Customize the report to show ALL properties
While you’re customizing the report, check the box at the bottom of the Filters screen to show reversed transactions
Again, depending on your bank account set up you may need to create a property group that is made up of all of the properties associated with the bank account you’re examining
Are your books audit-ready? Still not sure? Let us take a look and put your mind at ease. You can either email us at info@apmhelp.com, call 281-949-8755, or submit your information on our website: apmhelp.com. We will provide a free 30-minute consultation and get your books on the right track!
If you find this article valuable, please share this:
