Stay on Target With Regular Facility Auditing
Updated: Oct 1, 2018
#Landvestmgmt #SelfStorageManagement #Auditing #SelfStorageAudit
We've all heard the adage, "What gets measured gets done." Now put a spin on that: "What gets monitored will increase your revenue." This may sound far-fetched, but think about it for a moment: Whether you're a property manager, owner-operator or third-party management company, auditing (monitoring) can make the difference between a bad year and a good year, or a good year and a great year. This blog will walk you through four areas where auditing must occur, helping increase your revenue and minimizing the amount of money left on the table or walking out the door. You may think you have all your bases covered, but are you sure?
This is the most common form of auditing with operators, but it either isn't done properly or completed frequently enough. In order to conduct an accurate audit, you must first have accounting software capable of giving you up-to-date, real-time occupancy information to include units that are delinquent and should be overlocked. This information is crucial in performing an unannounced detailed and accurate space audit. I would recommend using a rent-roll or a unit-status report of the facility.
Once you have this in hand, you need to physically check every single door and space on your property by foot. This allows you to see issues you may miss while on a golf cart or in a car. When performing the audit, you should not have anyone present with you. Oftentimes, managers like to tag along. This creates a distraction for the auditor and also gives the manager the opportunity to divert the auditors attention from any problem areas on the property.
When auditing, the auditor should make notes of any discrepancies on the preferred auditing report, and note any observed property deficiencies. All vacant units should be open to make certain the units are rent-ready and indeed empty. Sometimes, tenants (even managers) will occupy units without your knowledge, so pay attention to the details and don't cut corners. If someone is occupying the unit and it shows vacant, you are leaving money on the table.
After you have completed a thorough audit of the property, you should return to the office and research any discrepancies. If you have units that show vacant but have a tenant lock, you need to pull the file and/or review the dead files. You also need to review account notes and the gate-activity log.
Look for a manual-payment receipt book. Maybe the manager is doing some off-the-book transactions with cash customers. If these steps do not answer the question as to why there is a discrepancy, then ask the manager. He is responsible for accurate bookkeeping and should be able to provide answers. Be careful not to accuse, but pay close attention to body language and mannerisms. It may be that he is not checking units frequently enough, embezzling funds, or just completely incompetent, all of which are a problem. You need to perform these types of audits to ensure you are maximizing your revenue.
Daily Deposits and Petty Cash
Any time you are dealing with cash, your business is susceptible to theft. To reduce that vulnerability, you must monitor your money. Your basic practice should include your manager making a bank deposit every day and obtaining a validated deposit slip. If your office is in a different location from the facility, then have the deposit slip faxed or scanned in daily. Then, double check that amount against the number input into the accounting software.
Implementing this practice into your organization reduces the chances of having an employee "borrow" from the deposits until the next payday. Employees who do go this route sometimes begin taking more than they can pay back. Thus, a fraudulent cycle begins.
Petty cash is another area of exposure. Typically petty cash is used at the site level to purchase various items such as postage, maintenance or office supplies. You should have a clear, written policy of what employees are and are not authorized to purchase with petty cash. Further, I highly recommend you disallow this fund to be used to pay contractors or temporary labor. This opens the door for fraudulent or unnecessary work.
Petty cash should be balanced at the site daily and tracked using a standard receipt tape that is initialed and dated. This practice will allow the manager and the auditor to determine exactly when the petty cash became unbalanced.
You should require all original receipts to be stored in the petty-cash drawer until they are submitted for reimbursement. By not auditing petty cash, you create the same "borrowing" issue that can arise with cash deposits.
In the event you conduct an audit and find a shortage, you should not allow or require the manager to replenish the missing funds. Inquire as to how the problem occurred and use this as a training opportunity to prevent the issue from happening again in the future. Note: A person willing to pull money from his pocket to cover missing funds will also pocket the money if there is ever an overage. If the shortage was an honest mistake, do not punish the employee. If you suspect theft, handle that situation accordingly. Side note: the best time to audit petty cash is on the Wednesday before payday. If the employee is "borrowing money" they may be so stretched by then that the money cannot be easily placed back in the box.
Boxes and packing supplies can be very profitable for your self-storage business. These are typically items of convenience; therefore, it is not nearly as necessary to have the lowest prices in the area. The primary problem with boxes and packing supplies is shrinkage.
Shrinkage is basically the difference between your actual inventory and reported inventory. It can result from customer or employee theft, damaged stock or inventory counting errors. Keep record of inventory so you know what you should be making from the sale of those products. You should also verify that the inventory ordered and delivered is what was actually accounted for correctly in your software. Catch these issues early, as this makes it easier to identify and correct the problem.
Performing an inventory audit is simple. Count everything in your warehouse area and display items. This makes up your actual inventory. Compare that information to the inventory reported in your accounting software. If there is a discrepancy, find out why. Boxes and merchandise are an expense until they are sold, so keep your eye on the ball.
Most people do not think of sales presentations as an area that should be audited. A sales presentation is the number one reason you rent to a customer. If your managers presentation is lacking, so will the performance of your property.
There are several ways to monitor the presentations:
Do it yourself
Have a friend mystery-shop your manager
Hire a company to monitor progress
The sales presentation should be audited as much, if not more, than the other items mentioned in this article. It has the biggest financial impact on your property.
Audits should be unscheduled and completely random. I recommend a thorough audit at least once per month and sometimes directly after a regular visit to keep your manager guessing. An honest manager will not take umbrage on your practice. If he does, you might want to dig a little bit deeper.
If you are interested in an audit of your property, give Brian at call. You might be surprised at the value!