Achieving Financial Accuracy and Compliance with Balanced Asset Solutions
A property management firm based in Washington who wished to remain anonymous, faced challenges during Department of Real Estate audits in 2019 & 2020. Despite their efforts to address the flagged issues, their reconciliations were not cleared by the auditor, prompting the need for assistance. They enlisted Balanced Asset Solutions to ensure compliance after the second audit in 2020.
Challenge
This client encountered challenges during their 2020 audit when their financial reconciliations were flagged by the auditor. Despite their diligent efforts to address the issues and their responsiveness to the auditor’s concerns, the Department of Real Estate requested further clarification.
The discrepancies arose from inputs from the past and were difficult to uncover.
- Trust account was not reconciled including old and uncleared items
- Security deposit liability and cash were not reconciled
- Property cash balances had adjusting entries
- Journal entries
- Transactions between corporate and trust accounts
The auditor continued to pry, and despite their responses, the issues persisted. Involving BAS was crucial for maintaining their license and successfully passing an audit.
Approach & Work
Balanced Asset Solutions implemented a structured and and compliance related approach to address their financial reconciliation issues.
Financial Diagnostic Review
BAS conducted an in-depth financial diagnostic and forensic accounting review to identify the causes of the discrepancies and establish a clear path to rectification. This included leveraging AppFolio’s robust reporting and audit trail capabilities to pinpoint the issues.
Significant Time Investment
Allocated 3,200 man-hours to thoroughly examine and correct financial records, ensuring every detail was meticulously reviewed. This included unreconciled accounts dating back 6 years
Extensive Transaction and Reconciliation Review
The team reviewed 36,000 transactions and fixed/ completed 330 bank reconciliations, providing a comprehensive overview of financial activities.
Detailed Bank Reconciliation Review
Over 213 hours were spent reviewing bank reconciliations, adjustments, and journal entries to ensure precision and accuracy in the financial records. This included fixing 380 bank adjustments that weren’t logged as transactions. AppFolio was used to generate various reports such as the bank activity report, trust account balance report, and JE register report for validation, correction and reconciliation of trust account balances.
Comprehensive Balance Sheet Review & Reconciliation
Focused on critical balance sheet items including security deposits, clearing balances, accounts payable/receivable, negative items, prepayments, post-month adjustments, and the separation of net income. AppFolio’s financial diagnostic tools were crucial in automating management fees, intercompany accounting, and validating property cash balances. Additionally, AppFolio’s audit log allowed BAS to stitch together what happened in the past and provide a path on how to remediate.
Results
The collaborative efforts between the client and Balanced Asset Solutions led to passing the audit and being cleared by the state of Washington. Reports pulled directly from AppFolio were used to share with the auditor, not requiring any manipulation outside of the accounting system.
Audit Clearance
They successfully cleared the audit, receiving approval from the state of Washington, validating their financial integrity. This was achieved just in time for Christmas Eve, showcasing the effectiveness and timeliness of the intervention.
Enhanced Financial Accuracy
A higher level of accuracy in financial records were achieved, rectifying past discrepancies and ensuring future reliability. BAS helped establish a process to ensure this wouldn’t happen again, including SOP around intercompany transfers, corporate books and dealing with move ins and move outs. AppFolio’s reporting helped validate and clean up financials, providing the auditor with a clear and accurate set of financial records.
Improved Confidence in Financial Data
The anonymous client gained greater confidence in the integrity and reliability of financial data, reinforcing trust among stakeholders. For the first time, corporate accounting is now incorporated into their books in AppFolio. AppFolio’s detailed audit trails and reporting features played a significant role in this achievement.
Operational Efficiency
Streamlined financial operations, reducing the time required for reconciliation and reporting tasks, allowing them to focus on strategic growth. By automating routine tasks and ensuring accurate intercompany transactions, AppFolio significantly improved operational efficiency.
Positive Client Perception
They demonstrated their commitment to financial integrity and transparency, enhancing their reputation and strengthening relationships with investors and auditors.
Conclusion
The proactive decision to partner with Balanced Asset Solutions highlights their dedication to maintaining financial accuracy and operational efficiency. AppFolio’s robust report, financial diagnostic and audit reporting provided the team with the tools necessary to pass the audit.Through meticulous efforts and strategic collaboration, this process not only resolved their audit issues but also set a new standard for financial management within the company.
With our extensive experience as CPAs, full representation of clients during audits, and a 100% success rate in passing audits, we want to share why being audit-ready is crucial, how to stay prepared, and how to fix issues yourself. We want to cover GAAP compliance, the importance of trust accounting, conducting self-reviews, preparing for audits, and using AppFolio to stay on track.
