Own Rental Property? A Compliance Audit Can Help Protect Your Investment
Unless you self-manage your own condo or apartment building, chances are you've hired a property management firm. Some of these firms and/or their representatives are excellent. Others, perhaps not. By hiring a compliance auditing firm, you can make sure your building, and your livelihood, are in good hands.
What Is a Compliance Audit?
In a real estate management situation, a compliance auditor reviews the various management and accounting procedures as well as the overall handling of your account. This is done by an auditor familiar with the real estate business but not in any way connected to you or your management firm. This insures a fair and objective overview. Since most of today's offices are computer oriented, auditing programs are typically used. This streamlines the process and improves accuracy.
Things That a Property Management Compliance Auditor Looks For
A property management compliance firm can help you by auditing operational performance and by looking into situations that may lead to expensive mistakes. Auditors make sure that all the paperwork is accurate and complies with local bylaws as well as state and federal government regulations. Items of interest include the following services.
1. Renter leases must be properly executed, beginning with the application process. An auditor will make sure the management firm is doing the proper credit and background checks on each application and they're properly documented. The reason to accept or decline the application must be clearly stated. Auditors will look for possible violations in discrimination or other rental code laws.
2. They'll do spot checking to see if some of the decisions to rent or not were correct. If a potential problem renter did "slip through the cracks" and is now in your building, you can't evict without cause. But, you will have a heads up in case you run into problems later.
3. The accounting part of the audit goes over your books and makes sure rental deposits are kept separate from the monthly rental collections. These two accounts should be kept separate so you have cash on hand for a tenant move-out refund. Your books should balance and any questionable discrepancies should be easily explained. They'll look for items such as rental over payments, incorrect calculations on interest for past-due rents and for receipts for any payments to outside parties for goods or services.
4. The compliance auditor will also see if you have any rental delinquencies, and if so, what measures have been taken. Normally it's proper to send written reminder notices for late rent before you escalate the situation. There should be a record of such notices as well as notations if an agreement has been reached, such as a payment arrangement. If the renter is proving difficult, this should also be noted.
5. If your property management firm is or has dealt with evictions at your property, they should be familiar with the local renters' rights laws. In California, for example, if a property manager doesn't follow the prescribed eviction process, you may be liable for any damages to that renter's property. If your property manager is using his own methods, such as cutting off water or electricity to force tenants to move, that's a problem. The auditor will see if the proper documents are being filed at the proper times and that the evictions are carried out legally in court.
6. Taking a look at your property tax situation is also key in a compliance audit. Many businesses choose to make quarterly payments instead of waiting until the end of the year. If this is the case, your property management firm should make sure the estimated amount due is correct and that the payments are made on time. All paperwork and receipts should be readily accessible for an audit.
A compliance audit such as Steton Technology Group can be well worth the price. It can save you time and money. Best of all, it assures that your choice of a property management firm was a good one.