The year-end accounting season in the first quarter may seem like a fire drill for some property management accounting teams, especially if due diligence through previous 12 months hasn’t been done. For the unprepared, a year’s worth of reporting and audit preparation gets boiled down to 90 fast days, and the end may leave even the most seasoned accounting pros looking to make a hasty getaway afterward just to recover.
It happens, says Kim Kowalski RealPage Vice President, SmartSource Professional Services. The day-to-day tasks of running a portfolio or property can detract from the behind-the-scenes accounting functions that are necessary for a successful year-end. Before you know it, the first couple of months of the year are like a whirlwind.
And the pitfalls of not being prepared become painfully obvious from late January to late March when the auditors arrive.
“You take your eye off the ball, and you’re cruising along, running your business, and you don’t necessarily do your monthly asset file updates so it’s ready for your tax accountant,” Kowalski says. “So, you get to the end of the year and you’ve got to prepare a bunch of testing files for your auditors. Or you have to make some year-end journal entries that you haven’t been keeping track of throughout the year.
“It’s a big headache.”
Engage auditors before year-end cycle
The former controller and accounting manager says that ringing in a new year can lose its glitter if filing and reconciliations aren’t maintained in preparation of annual audits. A lot can get lost in translation when playing catch up because key documents haven’t been kept or journal entries have gotten sloppy. The accounting team begins to scramble to catch up, instead of looking ahead to 12 months.
Kowalski, who helps manage a property management accounting outsource service, says apartment industry accounting professionals can stay on top of their game by employing some best practices. And it’s not too late. She says just improving documentation and filing and working with auditors earlier in the year so the audit process can begin in the fourth quarter is one of the first steps.
“We recommend to engage with auditors early in the summer,” she said. “They do their audit testing for the first nine months of the year during the fourth quarter, so you’re only wrapping up testing for one quarter in January when all of your reporting is due.”
Engaging with auditors to perform all audit testing for the first three quarters of the year ensures that your documentation is updated prior to year-end. The cost potentially could be lower because auditors aren’t as busy at that time.
Beyond that, the accounting team should commit to managing the day-to-day back office functions. Just keeping pace with monthly reconciliations in balance sheet accounts and quarterly reconciliation of fixed assets helps make for a smoother audit process, Kowalski said.
Manage key documents through a good filing system
Having a good filing system of permanent documentation, loan documents, lender agreements and any other financial information is another big step.
“If you refinance during the year, for instance, the files you submit should be put in your year-end files, or you’ll have to pay for them later,” Kowalski said. “Be very diligent about keeping your permanent documents in a location that can be easily transferred to auditor. You may have recorded your refinance but failed to keep the permanent signed docs that are required by the auditors.”
Kowalski also recommends recording fixed asset activity and depreciation estimates or monthly actuals as well as retaining dated documentation of any policy or process change for internal controls testing.
The ultimate time saver is outsourcing accounting
The ultimate time saver, Kowalski says, is to work with a third-party firm to manage the gamut of accounting practices from accounts payable, accounts receivable and general ledger, as well as other bookkeeping practices that come with property management.
“If your year-end went poorly, you may be saying, ‘How can I make that better?’” she said. “You want to get your ducks in a row and be prepared for next year. When you outsource, all of those reconciliations and other accounting functions are included.”
In the end, the year-end accounting process should be less of a scramble. And that getaway less of an escape and more of an adventure.