What do you get if you cross property management accounting training with Dragnet? Here’s the answer.
Ladies and gentlemen: The story you are about to hear is true. Only the names have been changed to protect the innocent.
This is the industry: Multi-family property management. It’s been around since there have been apartment buildings. Some of it can be easy—collecting rent, handling routine maintenance, and making sure the lawn is mowed. Some of it can be difficult—dealing with upset residents, taking care of emergencies, and accounting.
That’s where I come in. See, I’m a financial analyst.
It was Wednesday, August 14. It was warm in Chicago. We were working the day watch out of the accounting division. The boss is Mr. Anderson, my partner is Ellen Johnson, and my name is Mark Parker.
We were assigned to handle training when we had just gotten our day started. We were told that an onsite property staff was incorrectly applying rent charges and payments and not posting additional fees and concessions. All we knew was that the staff claimed they knew how what they were doing.
We arrived at 417 East Maplewood and were shown into the office of the property manager, Miss Marcia Collins.
“Well, all my staff know how to enter rent and what-not,” Miss Collins stated by way of introductions. “It’s the people in the corporate office that don’t understand that we get busy here and maybe we have to cut corners sometimes.” She shrugged. “I don’t see what the big deal is.”
Ellen tried explaining the importance of properly recording payments and charges, but she was cut off by a voice that came from the office door.
“And besides, what difference does it make if we change a few rent charge amounts? Sometimes we just don’t have time to do it right.” Ellen and I turned around to meet the voice behind us.
He extended a hand. “Paul Michaels. I’m in charge of the leasing agents.”
“Well, Paul,” I started, “Are you aware that by changing rent charges, rather than properly applying rent concessions, it doesn’t accurately reflect your total rent? Or by not charging back utilities, you are missing out on collecting hundreds, if not thousands of dollars every year?”
Paul still looked a little confused.
“Look, we all want our properties to be successful, right?” Ellen chimed in. “In order for that to happen, Mark and I came in today to see what some of the concerns are, and how we can correct them. We’re all on the same team, so let’s work together!”
Both Marcia and Paul conceded they may have come off a bit strong, and they agreed to let us look around.
We started by pulling several random leases to see how accurately the information had been entered into the accounting system. The first lease had all the pertinent information properly loaded into the system, including the proper security deposit, rental amount and additional fees. The second lease was in much worse shape—the rent amount was incorrect and the security deposit, rent concession, and cable television charge were all missing. This was a good starting point.
Ellen took the lead. “Marcia and Paul, come look at this file. Who entered the information into the system?”
Marcia studied the file briefly and stated that Tim had handled that lease. Tim came over and wondered what the problem was. I took over. “Well, Tim, here the lease shows a $250 security deposit paid, there should be a $50 per month rent concession, and the resident should be charged for the cable television. But none of that information is entered into the system.”
“So, what’s the big deal?” said Tim.
“If you try to reconcile your security deposit account right now, you will be $250 off. Your bank statement doesn’t match your security deposit report. When this resident moves out, the ledger will show he never paid a security deposit. That refund is going to have to come out of the operating account.
“The resident’s rent charge is listed as the lease rate minus $50.00, rather than showing the concession. The concession needs to be listed in order to accurately reflect the total collected rent.
“And without the cable television charge in his ledger, your property is absorbing that cost. That may not seem like a big deal, but at $17.50 per month, that’s $210.00 coming out of any potential income. We don’t know how many other residents are not being charged the cable fee. Now, that’s a big deal.”
Tim’s only comment was that he never got properly trained on the accounting system. We told him that we were here to fix that. Ellen and I could tell that he felt like he just threw his bosses under the proverbial bus.
Over the course of the next several hours, Ellen and I found many similar mistakes. We took notes on as many lease files as we could and informed the entire staff that there would be training held next week. We tried to make them understand that the mistakes they made on site had to be fixed at corporate, and that fixing them took the accountants away from other tasks that they should be focusing on.
Thursday, August 15 started with a meeting with Mr. Anderson. Ellen and I informed him of the numerous problems that we found in the accounting system, along with the general apathy of the on-site staff. Mr. Anderson was pleased with our findings and directed us to spend the next several days organizing the training session we told him was needed.
For the next two days, Ellen and I compiled additional examples of mistakes that had been made. We found files without move-out dates, incorrect security deposit amounts, randomly changed rental amounts, and missing miscellaneous charges (pet fees, utility charge-backs, pool fees, and the like). We also determined that our training session would not focus on pointing fingers and placing blame. Our goal was to make sure that the entire staff knew how to properly work in the accounting system.
Monday morning found the entire on-site staff at the corporate office, eager and ready to begin the training. Mr. Anderson had invited Kevin McCoy to join us. Kevin is the assistant controller for the company.
Ellen and I thanked the staff for coming in, introduced everyone, laid the standard meeting ground rules, and then turned the meeting over to Kevin. He stated that the purpose of the training was not to point fingers, but to make sure that the entire team understood the accounting process and how errors on-site had a trickle-down effect on other departments. These errors could lead to lost productivity, lower staff morale, and lost financial opportunities.
Over the next several hours, Kevin gave several examples of the errors that Ellen and I had found during our investigation. These errors included:
7 missing rent concessions of $50 each, resulting in a $350 per month overstatement of total collected rent
An overstatement of the total delinquent rent (as these 7 residents thought they were paying the correct amount)
15 missing cable television charges of $17.50 each, resulting in the property absorbing $262.50 each month, which leads to lost income of $3150 annually
The missing rent concessions resulted in $4,200 in overstated rent.
Kevin continued by showing that it took his accounting team 30 minutes each month to correct the rent concession errors and almost 45 additional minutes each month to correct the cable charges. Over the course of a year, this resulted in 15 hours where the accounting team got pulled away from their other assigned duties. Suddenly, the staff realized the stress this put on other staff members, along with the financial loss to their own property! Ellen and I could almost see the light bulbs go off above each person’s head.
Kevin then went on by showing the importance of indicating correct move-out dates and that miscellaneous charges were added into each account. Every missed charge was a dent in the property’s potential income. After a few more examples, Kevin wrapped up the training just before lunch.
As the team was leaving, Marcia pulled Ellen and I aside. “I guess I never realized how deep an impact this stuff had across the whole company,” she stated, looking a bit glum.
“Everyone is trying to accomplish something, not realizing that something is made up of the little things,” Ellen replied.
Marcia thanked us and walked away, determined to develop a monthly training program for her team.
Postscript: Avoiding Your Own Property Management Accounting Problems
As you can see, training is very important. It should not be just a few one-on-one sessions when a new employee joins the team. Training needs to be ongoing. Perhaps it’s just a refresher course on company policies, or it’s for the introduction of a new software program or procedure.
Either way, we as managers need to keep training fresh and as exciting as possible for our team members. Too often, we hear that everyone is too busy, or that team members don’t need it, or that the staff “already knows how to do that.” Unfortunately, this isn’t always the case.
Additionally, we as employees need to know when to ask for training. It is imperative that we have the full support of our managers when we ask to review a procedure that we don’t fully comprehend. We need to understand the resulting problems if things are done incorrectly; and we need to know that there are ramifications if things are not done correctly.
How do you do property management training, whether for property management accounting or some other area? Please share your thoughts below so that all property management companies can train their way to happy endings.Read more on Accounting & Taxes