January 2018 — It is important to keep accurate records. They can serve as a reference for historical financial and property data, and factor into the determination of future needs for a property. Records are also instrumental in proving that tax and legal requirements are being met. Records enable property or facilities managers to store raw data such as rental payments, utility bills, and salary figures. These records can then be analyzed and converted to information for reporting the results of operations, making decisions on future capital projects, developing strategies for marketing or leasing, and many other purposes. Therefore, property and facilities managers should keep and maintain records of all financial transactions at all locations or properties they oversee. To accomplish this, both paper and electronic records and files should be updated and maintained daily.
Property and facilities managers are the point persons concerning financial information about each property in their portfolios. They are responsible for many financial and managerial areas, including rent collection, verification of receipts, and payment of expenses. This information is used to prepare annual operating budgets, monitor expenses, and determine the financial performance of each real estate asset. Gathering and maintaining records on marketing and leasing trends, delinquency rates, tenant turnovers, maintenance, and competing properties are also often among the duties of property and facilities managers. These activities have a major effect on net operating income and are frequently requested by the owner.
Critical Needs for Record Keeping
Proper record keeping lays the foundation for a bookkeeping and accounting program. Accurate records are what allow stakeholders to take raw data and convert it to useful information from which decisions can be made. Having a budget without accurate and thorough records to support it can not only cause confusion and problems over the course of the budget year, but also when planning for the next year. In addition, proper records are critical when year-end reconciliations are prepared, in billing tenants for their pro rata share, and when defending expenses in the case of a tenant audit of the reconciliations that have been billed. Finally, proper records are required for compliance with tax and legal requirements. It is the responsibility of the bookkeeping, accounting, and property management staffs to create and maintain organized and accurate records. If one party does not take care of its assigned duties, this puts a greater burden on others and makes everyone’s job harder.
Every organization differs regarding the number of staff and the use of that staff. However, this does not mean that bookkeeping and accounting roles and responsibilities cannot be established, even if they are not an employee’s full-time role. Each organization can also have different processes and methods regarding bookkeeping and accounting. These methods need to be documented, and individuals should be trained to carry out their responsibilities according to these processes.
Controls for Proper Administration of Accounts Payable and Receivable
Keeping records associated with both accounts payable and accounts receivable is critical to good business practice. Accounts payable includes payments a company owes various vendors, suppliers, and service providers. Prompt payment will facilitate good relationships. Similarly, vigilant attention to receivables—monies owed a company in the form of rent or services—is crucial to maintaining cash flow and profitability.
Controls for accounts payable include ensuring that reimbursable expenses are backed up by receipts, signed work orders, packing slips, purchase orders, landlord approvals, or other documents as necessary. A capital construction project is an example of a project for which additional documents might be needed to track accounts payable. These documents may also include payment applications, lien releases, and copies of leases or contracts if the landlord is submitting these payments to a lender for reimbursement. Responsible staff may facilitate careful attention to accounts payable by making sure vendor and property account or identification numbers are included on invoices, checked for accuracy, and returned to appropriate parties if discrepancies occur. Other controls these staff members may apply include matching shipping receipts or work orders to the subsequent invoice, checking invoices and receipts against budget figures, reviewing items for reasonable cost, and comparing items against prior-year expenditures.
In terms of accounts receivable, rental properties require tracking payments, notifying tenants who are remiss on payment schedules, and collecting overdue payments. Bookkeeping, accounting, and property management staff need procedures or controls in place to ensure that cash is properly handled. Some controls, such as depositing all receipts daily and establishing checks and balances for detecting irregularities in bills, will help to safeguard cash. Additional controls check that bills are accurate, that they are sent to the right people, and that invoices are dated and numbered.
Additional controls for accounts payable and receivable promote a balance of record-keeping responsibilities among different roles. It is generally good practice to have different individuals perform different functions to establish a system of checks and balances. Those who authorize payments, for example, should not be the same people who issue checks or mail them.
Procedures should be in place to reconcile bank statements, as well. The bookkeeper or accountant who is responsible for reconciliation of bank statements is able to better perform this function if proper procedures and controls are in place for the coding and processing of invoices. For example, invoices should be routed in a prescribed manner. Invoice numbers should be included on checks, and check copies attached to the invoices for storage. Not only are these good practices, they are, in many cases, required by legislation and the organization to ensure proper accounting and to prevent fraud. Having two different individuals responsible for coding and processing invoices and reconciling bank statements makes it possible to detect fraud. Most internal auditors and all outside auditors will ask for documentation that these types of procedures are being used.
This article is adapted from BOMI International’s Budgeting and Accounting course, part of the RPA designation program. More information regarding this course or BOMI International’s new High-Performance Sustainable Buildings credential (BOMI-HP™) is available by calling 1-800-235-2664. Visit BOMI International’s website, www.bomi.org.