[cue ominous background music, screams]
Let’s face it. The thought of an audit can strike fear into the hearts of even the most experienced property managers and property management company owners. You start thinking about storm troopers and bright lights shining in your face. Just reading the beginning of this article will probably cause a few nightmares. Take a deep breath, relax, and read on. You’ll do just fine.
Audits don’t have to be a scary event
Even after working with property management companies and community associations for the last 15 years, I still get feedback that there’s a negative connotation associated with audits and audit alternatives like agreed-upon procedures engagements. In reality, these fears are unfounded.
Property management companies employ experienced people and utilize advanced technology to ensure that their business and financial processes are sound. With few exceptions, we rarely find anything beyond fairly minor issues that can be quickly resolved, and a positive outcome can go a long way toward improving your relationship with the community.
Here are 5 reasons why property managers should embrace audits:
Proves your company has sound financial practices. Having a credible, neutral third-party (a CPA like me) verify your financial practices is a great stamp of approval. Beyond just appeasing that association, you can also highlight the accomplishment to other clients and use it as a differentiator when you meet with prospective clients (5 out of 5 successful audits this year!)
Builds or maintains board confidence. With annual revenues of $50,000 to over $5 million, community associations are businesses. Businesses require checks and balances, and an audit is a great way to verify sound business and financial practices. That confirmation instills confidence and justifies the board’s decision to maintain the relationship with you and your property management company.
Keeps the neighborhood dissenters at bay. You know who these folks are in every community. They liked your predecessor better, or for some unknown reason they just don’t like you. A quantitative financial review trumps any qualitative negative feedback they can dig up or make up, improving your relationship with the silent majority of homeowners.
The CPA firm does most of the work. Since most property management companies utilize management and financial technology like CINC and VMS, you’ll provide the audit team with direct access to the association’s data, and they will pull the information they need. Your time will be spent answering follow-up questions, some of which may lead to process improvements for all clients.
You can still lead the process. Be proactive, and suggest a list of CPA firms with substantial experience conducting HOA and community association audits. Work closely with the chosen firm to quickly provide the appropriate access and information requested, as well as accurate answers to follow-up questions. Then implement any requested process updates. You’re done.
Here’s a scary thought. Recommend audits in 2018
Now that audits no longer keep you up at night, why not recommend that all of your associations conduct an audit or audit alternative in 2018? Chances are that many of their covenants already require some sort of financial review, so you’re helping HOA boards comply with existing rules. Also, your proactive focus on good governance will earn you high marks, even if the board decides not to move forward.
Neal Bach, CPA