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Is Your Business Ready

for an Audit?

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AppFolio

Complete Solution Includes:

• Property management and accounting

• Online rent collection (free)

• Prospect / guest card tracking

• Vacancy Marketing

• Website

• Online applications & lease

• Resident Screening

• Mobile Inspections

Web-Based Property Management Software

…So You Run a More

Successful Business

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Stacy Holden

Project

Director

AppFolio

Adam Wells

Associate Product Manager

AppFolio

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Agenda

• What to do when the audit

notice arrives

• Record keeping

• Understanding your

business financials

• Best practices

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Polling Question

Have you ever been audited by your state’s Department of Real Estate?

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I Got the Audit Notice…Now What?

• Not hoping for problems

• Checking for compliance

with your states

regulations

• Be ready and having

things organized adds

creditability

Don’t Fear the AuditorHave Reports Printed and Ready to Review

• Make sure you have any

supporting

documentation available

Invest the necessary time to be ready

• The more prepared

– the easier it is to

review- the faster

they leave!!

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The Best Way to Show Compliance

• Clean & organized records

• Understand your data

• Understand your exceptions

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Clean & Organized Records

• Data

o Electronic / Software

o Manual records

• Supporting Documentation

o Bank Statements

o Cleared Checks

o Leases

o Communications

o Invoices

o Other financial reports

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What Do I Need to Understand?

• Review Current Processes

• Understand your data

oWhere things go

oReports

• Understand your exceptions

oWhat they represent

oResolution??

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Polling Question

Do you currently have a process in place to prevent negative cash

balances?

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Review Current Processes

• Keep a close eye on property

balances

o Negative balances =

Red Flag for auditors

• Be sure to pay your management fees

on a regular basis

o Commingling funds =

Red Flag

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What Should I Understand

• Trust Account Balance

• Trial Balance

• Delinquency Report

• Aged Receivable Detail

• Security Deposit Detail

• General Ledger

• Bank Reconciliation

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Financial Reports

Trust Account Balance Report:

Listing of the current balances of all accounts

held in trust

• What to understand

o This balance should tie to the “Cash” account of the

balance sheet of the same date

• Exceptions

o Negative cash balance

• Supporting Materials

o Bank Statements

o Balance Sheet

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Financial Reports

Trial Balance:

Summary of financial results

• What to understand

o What are and where to find details of each

transaction

• Exceptions

o Debits/Credits do not balance

• Supporting Materials

o General Ledger

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Financial Reports

Delinquency Report:

Summary of delinquent residents

• What to understand

o What the delinquencies are and path to resolutions

• Exceptions

o Old balances

o Old credits

• Supporting Materials

o Receipts Journal

o Tenant Ledgers

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Financial Reports

Aged Receivable Detail:

Detailed report showing specific of all aged receivable

activity

• What to Understand

o What the receivables are and path to resolutions

• Exceptions

o Old balances

o Old credits

• Supporting Materials

o Receipts Journal

o Tenant Ledgers

o Balance Sheet

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Financial Reports

Security Deposit Detail:

Detailed report showing details of all security deposits

• What to Understand

o Report’s total will tie to Security Deposit Liability

account on the Balance Sheet

• Exceptions

o Report does not tie to Balance Sheet

o Old deposits from past residents

• Supporting Materials

o Balance Sheet

o Receipts Journal

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Financial Reports

General Ledger:

Detailed report show all financial transactions

• What to Understand

o What represents income versus expense

o Where initial transaction came from

• Exceptions

o Unusually large balances

o Accounts that show incorrect balance (credit v debit)

• Supporting Materials

o Disbursements Journal

o Receipts Journal

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Financial Reports

Bank Reconciliation:

Reconciles bank account to financial statements

• What to Understand

o Balances from the statement tie to the Cash

account on Balance Sheet

• Exceptions

o Old outstanding checks

o Missing Deposits

• Supporting Materials

o Disbursements & Receipts Journal

o Bank statements with cancelled checks

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3-Way Tie Out

• Bank Reconciliation Report

o Reconciles bank account to

financial statements

• Bank Account Activity

o Receipts and Disbursements

• Bank Balance Detail

o Trust Account Report

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Polling Question

How often do you reconcile your bank accounts?

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Best Practices

• Review your reports monthly

o Tie back to other reports

• Balance Bank Accounts monthly

o Always be within 30 days of the last

reconciliation

• Address exceptions as they occur

o Have procedures around older transactions

• Have a software that is easy to understand

o Make review and knowing your business much

easier

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