Lease_accounting_path

The Path to Easy and Profitable Desktop Audits

In the landlord – tenant relationship, the burden rests squarely on the shoulders of the tenant to verify that real estate expenses are billed accurately. Unfortunately, the tenant’s real estate group is typically understaffed and under prepared to handle the volume and complexity of managing these expenses and verifying their appropriateness.  With the proper processes and tools, however, companies can focus their resources in those areas that give them the highest return possible in the form of cost avoidance and recovery.

The problem starts with the audit process

With the right system in place, desktop auditors will uncover errors in the billing process of their landlords’ invoices and save money in areas such as common area maintenance (CAM), real estate taxes, and insurance. At the same time, those involved with the desktop audit process are overwhelmed with the volume and inefficiency of their current process – requiring them to approve CAM expenses when they are “close enough” or fall under an arbitrary ceiling; waste time as they comb through landlord invoices to find random mistakes; and build/re-build spreadsheets to analyze expenses.  A tool that makes it easy to do this changes the equation.

Although most tenants claim they are doing some level of operating expense reviews, most admit that they are not doing it consistently across their entire real estate portfolio. There are many reasons for this, but the bottom line is that performing and managing the desktop audit process is cumbersome; standardized process typically don’t exist or aren’t followed; and valuable resources are expended in wrong areas.

The solution starts with identifying opportunities for process involvement

This paper will (1) highlight the challenges making the desktop audit process onerous, (2) identify the characteristics that make a desktop audit software effective, and finally (3) review the top two benefits of streamlining the desktop audit process.

Benefit #1 – ROI

The desktop audit may uncover discrepancies in the landlord’s expense reconciliation methodology or calculations, which, if disputed and settled, can have a significant impact on the current year’s reconciliation invoice, as well as past year’s invoices and future reconciliations.

Benefit #2 – Improved data integrity

If a standardized process is incorporated for the entire real estate portfolio, every single lease will be reviewed at least once per year as part of an annual review to help reveal any data abstract discrepancies that may have occurred.

Seven desktop audit process challenges

While it is well known that desktop audits can result in substantial savings and/or a credit form the landlord, it is questionable whether or not it is worthwhile to always conduct an audit. From a classic return-on-investment (ROI) point of view, the answer is a resounding “yes,” if the savings found outweigh audit process costs.

To help determine the cost associated with performing a desktop audit, look at the process and identify where the following challenges lie within the process. Here are the seven likely desktop audit process challenges an organization faces:

  1. Complex calculations
  2. Data compilation
  3. Disputes
  4. Landlord information management
  5. Fragmented process
  6. Managing multiple leased locations
  7. ROI: Quantifying and analyzing savings

To read more about each of these challenges, click here.

The path to easier, profitable desktop audits

With the premise of substantial cost savings and a more efficient desktop process, it’s time to start surveying the market to see what kind of desktop audit software tools are available. Six best practices are consistently ranked a priority feature to include in a desktop audit tool.

  1. Ease of use
  2. Database-driven software
  3. Automatic calculations
  4. Information request management
  5. Process-centric
  6. Quantifiable savings log.

To read more about each of these features, click here.

A profitable desktop audit solution

Advanced Desktop Audit Manager (ADAM) from CoStar Real Estate Manager eliminates desktop audit challenges, simplifying the operating expense reconciliation process while helping both retail and non-retail tenants identify opportunities to recover excess payments that have resulted from errors. To generate a quantifiable return on investment for tenants, ADAM leverages the CoStar Real Estate Manager system’s dynamic form and document-generation capabilities to request documentation, issue credit letters and conduct year-over-year audit and savings analysis.

Whether a comprehensive operating expense review is needed, or a full audit, ADAM’s process-centric approach ensures data accuracy and control while speeding annual reconciliations. Additional product features include:

  • Easy-to-follow questionnaire-style interface
  • Online help screens
  • Lease-centric audit review
  • Real-time status and error checking
  • User-definable filters for easy review and workflow
  • Automatic error calculation flags potential savings
  • Integrated document generation for rapid correspondence and follow-up
  • Savings and recovery log to analyze ongoing
  • ROI
  • Integrated landlord correspondence and credit letters
  • Comprehensive audit reporting and ad-hoc report writer

Summary

From comprehensive audit software solutions to simple spreadsheets and databases, tenants struggle with a lack of solutions available for management of desktop audit process. Before selecting a product, lease administrators should conduct a needs assessment to help them select the best application for their organization.  For instance, it’s important to consider:

  • Overall business priorities
  • The number of properties, landlords and auditors the tenant manages
  • Resource availability, capability and experience
  • Reporting capabilities

No matter the business priority, lease administrators will find that CoStar Real Estate Manager’s Advance Desktop Audit Manager software solution addresses all business priorities – from cost savings and cost avoidance to data integrity.

 

 

 

Interested in reading the full document?  Click here.