9 Tips To Survive a Real Estate Audit

Audits are a nightmare for anyone however, audits that involve real estate can be particularly complicated due to the many moving components. If you're an investor in real estate, particularly when you've made investments in multiple properties -- it would be prudent to adopt best practices for business from the beginning which make your finances simple to comprehend and adhere to the regulations of your state. Being organized and being well-prepared will ensure you're audit-ready at all moment.

A general rule is that an audit is a thorough examination of a company's documentation and records to verify that the actions and procedures are in compliance with the state's regulations. Based on your license and company structure, you could be subject to various types of audits, including an audit of your broker Audit, Department of Real Estate Audit and a Housing Audit.

Based on the location where your properties reside, your business could be subjected to a routine audit or required to report monthly. If you're operating in a country that doesn't have an audit plan or audit plan, the IRS may still demand the auditing of financial documents as well as business documents at any point.

How To Make Sure You’re Ready for an Audit

Be prepared to be audited at any point in time can not only guarantee that your management and accounting practices comply with state laws and laws, but it will also aid in making the audit process more efficient and less stressful should you have to undergo one. Preparing yourself will help minimize your legal and financial risk, saving you time and money while safeguarding your reputation.

There are several steps you can follow in regards to your business practice before you ever get examined.

Take into consideration the use of property management software. The best companies rely on precise records and accountability procedures which are accessible at any time. Utilizing a robust property management program (especially in the case of managing multiple properties) will help you keep all of your important data organized and available.

Schedule time to record data and analysis. It's likely to be time-consuming in the moment however, you'll be grateful when you're older for making the effort to take a step back and keep your records in order every day. Plan monthly or weekly reviews of your data into your calendar, based on the business's needs.

The more details more specific, the more precise. Make sure you document and/or write memos for invoices, checks and similar transactions , as needed. Include notes in correspondence. The more information you have about your financials and business procedures more organized you'll be in.

Ledgers aren't the best space to experiment with your ideas. Think about using an accounting program or software for property management that provides the tools you require to upload transactions, post files, track security deposits and anything else that is related to finances that you'll need to keep track of.

Conduct an internal audit in your company. Whatever schedule you choose utilize audit checklists, or perform bank reconciliations to ensure your operations are running smoothly. Make use of this opportunity to discover areas for improvement. Check your business licenses frequently along with other forms of documentation. Also, make sure you set reminders each time a re-application is due.

How To Survive an Audit

If you're audited, it is important to be sure that you are aware of the process and ensure that your objectives conform to all regulations of the state. Your procedures and systems must be in line with the ultimate purpose of conformity. Auditors are searching for precision and accountability , and generally be focused on the bookkeeping side of your company. Consider your audits as way to assist your business in becoming the best it is for your customers owners, investors, and tenants.

The queries you will be faced with are mostly related to your accounting procedures. Auditors will be looking to verify that your business is doing things such as:

Create trust accounts in a proper manner by contacting financial institutions.

Maintain separate ledgers of accounting to each trust, the owner and property.

Maintain accurate records of the reserve and owner of property.

Return and hold security deposits in a manner that is appropriate.

Keep accurate reports, data and balance accounts.

An audit could also require information about licensing for businesses properties management agreements, operations agents and independent contractors licensing, policies and procedures as well as a review of the financials. Some suggestions to guide you during the process

Beware of the shortcuts. It may appear long and confusing, but be sure that you follow the instructions and do exactly what's requested by the person in charge. Don't do anything to speed up the process or in an efforts to speed up the process.

Make sure you record what transpired in the real world. Documents should show what happened as it occurred. For instance, you could create bulk deposits using the ledger of undeposited funds or a tool for bulk deposits to replicate what occurred in the banking institution.

Transparency is the key

Auditors not only want to have accurate and complete reports of your business however, your shareholders and owners should also have the same. Complete transparency can eliminate any suspicion about improper management, commingling or even fraud.

Seek help if you require help. Be sure to make the effort it takes to maintain an exact record of your company and accounting procedures. You might consider hiring a bookkeeper, an accountant who is your own personal assistant, office associate and even an intern who can help with delegating tasks to other people.

Summary

The ultimate objective of an audit to ensure that your company is operating in compliance with the needs of the people you serve. This isn't too far from your own goals for business. To learn more for more information, the best source to contact is your state's real estate commission or board which will provide more details on the process of auditing and the requirements.