‍

In layman’s terms, SOP’s are essentially step-by-step guides for how a process should be completed. It serves as a clear map for your team to follow, taking any nuances and necessary controls into account.

A good standardized accounting process in property management enhances the overall accounting control environment. Through the process of defining and creating policies and controls, a management team will need to think through their key stakeholders, risks, and potential mistakes. The result of this is increased efficiency and decreased fraud (due to stronger-than-even controls now being in place). Win-win!

Without SOPs in place, real estate accounting can suffer by experiencing loss of quality control and (worst of all) money. An inability to flag mistakes can also incur penalties and increase opportunities for fraudulent activity.

For an example to energize you during all this process talk, here is my SOP for getting caffeinated in the morning:

Policies and Controls:

• Policy 1 : I need coffee to be human
• Policy 2: If I’m going to travel to a location outside of my home and pay $6-9 for it, it better be worth it.
• Policy 3: Barista-made coffee drinks cannot cost more than $9 (unless prior approval has been granted by my checking account balance that morning)
• Control 1: (Preventative) Bring reusable straw in case I decide to get wild and order an iced cappuccino.
• Control 2: (Detective) Scone selection dwindles massively after 8am, so I must arrive at the coffee shop by 8am to ensure the best selection of scones are still available (p.s. I’m also getting a scone — don’t judge me!)

Step by Step Procedure:

1. Turn off my alarm (DO NOT press the snooze button)

2. If Snooze Button Was NOT Pressed (see Control 2 regarding timing)

• Walk to the closest coffee shop
• Order a $7.50 extra dry cappuccino from the Barista (adhering to Policy 2 & 3)
• Hope the Barista doesn’t think my order is pretentious
• Receive said extra dry cappuccino

3. If Snooze Button WAS Pressed

• Walk to refrigerator
• Take out can of cold brew
• Empty contents into mouth quickly

Though my coffee SOP may be thrilling to caffeine lovers, let’s get back to the real reason you’re here — accounting SOPs!  Standardized accounting processes are key to success because AR (accounts receivable), AP (accounts payable), and the financial statement close process are the foundation of a business.

In property management accounting, SOPs are needed for the following processes:

• AR (including move in, move out processes, etc)
• AP (vendor setup, payments etc)
• Bank reconciliation
• Month end closing process (btw, here’s how to close your books like an expert property accountant)

Though SOPs for getting caffeinated were a great example, let’s ground this in something more applicable to your property management business.

Here is what a sample SOP for management fees might look like:

Policies and Practices:

1. Management agreements are to be used as source documents for setting up the management fee workflow on the property page.
2. Management fees are due on the 5th of the following month.
3. The Accountant will calculate the management fees and perform the controls listed below.
4. The Accountant will send the preliminary payment batch to the Accounting Manager for review.
5. The Accounting Manager will review the payments. If changes are required, the Accounting Manager will send the batch back to the Accountant to make the corrections.  
6. The Accounting Manager will review the revised payment batch, sign off on the audit and forward the payment batch to the client for final approval.
7. The client will approve the batch and initiate payments for the management fees.

Controls and Process:

Control No. 1 – Management Fee Setup And Approval

1. The Accountant checks the property page to make sure the automated management fee workflow is set up correctly for all properties. The management agreement should be compared to the property directory report to make sure the following match:
2. Property name
3. Management fee type
4. Flat rate amount
5. Percentage rate – check the specified list of revenues included in the calculation
6. Management fee due date
7. Management fee payment type. (i.e. check, paper check, online bill pay, etc.)
8. The Accountant checks for any newly disposed of or inactive properties to make sure they are not set up for the management fee workflow and not included in the payment batch.
9. The Accounting Manager reviews the steps completed by the Accountant.
10. If the work is correct, the Accounting Manager approves and marks this step complete.
11. If the work is not correct or complete, the Accounting Manager sends it back to the Accountant to make the corrections.  

Control No. 2 – Close Checklist (ensuring completion of indirectly related pre-work)

1. The bank statement for the month that management fees are being calculated for must be reconciled and the triple-tie-out balanced.
2. The Accountant reviews the bank reconciliation report for unusual entries such as  adjustments and journal entries. If there are any of these types of transactions, the Accountant notifies the Accounting Manager.
3. The Accounting Manager reviews the transactions.
4. If the work is correct, the Accounting Manager approves and marks this step complete.
5. If the work is not correct or complete, the Accounting Manager sends the report back to the Accountant to investigate the causes for the rejected transactions.  
6. The Accountant makes the corrections if necessary and re-reconciles the bank statement.  
7. The Accounting Manager performs the final review and approval.

Control No 3 – Tenant Ledger Review (ensuring completion of indirectly related pre-work)

1. The Accountant reviews the Unpaid Balances By Month Report for tenants with outstanding balances.  
2. The Accountant makes sure all revenue types have been charged to the tenants.
3. The Accounting Manager notifies the client of the unpaid balances by revenue type and if any revenue type has not been charged to the tenants.
4. The Accounting Manager obtains approval from the client before moving forward with the management fee workflow, regardless of the unpaid balances.

Detective controls and process:

Control No. 4 – Analytics

1. The Accountant runs the T12 income statement and reviews the statement for the following:

Review for revenue trends month over month.

1. If there are anomalies in the trend, research the causes for them.
2. The Accountant checks the management fee expense account. It should follow the revenue trend within reasonable limits.
3. The Accounting Manager reviews the Accountant’s findings and gives the final approval.
4. If necessary, the Accounting Manager notifies the client of each month that is outside of the trend limits.

Control No. 5 – Recalculation

1. The Accountant checks the YTD expenses against the YTD revenues on a quarterly basis.
2. The Accountant manually calculates the YTD management fees. For example, if the management fee is 5% of all revenues, then the YTD revenue multiplied by 5% should equal the YTD expense.
3. The Accountant researches and identifies the reasons why the calculation is out of balance and then sends it to the Accounting Manager for review.
4. The Accounting Manager reviews the discrepancies and notifies the client of the best practice approach to resolve them and then obtains approval from the client to make the corrections.
5. Once approved by the client, the Accountant performs the necessary adjustments.
6. The Accountant will re-calculate the management fees manually and send the revised calculation to the Accounting Manager for review and approval.
7. The Accounting Manager reviews the YTD management fee to make sure the expense is now correct and approves it.  
8. The Accounting Manager sends the revised calculation to the client for final approval.

If you need help building your own SOP, you may find this guide helpful, but you should also be asking questions like…

SOP Creation: Questions To Ask Yourself

What are your controls for the process?
Let’s say your Cousin Sal is in charge of move-ins and move-outs. Who is ensuring that each policy and step is being executed and maintained properly?

What could go wrong?
If Cousin Sal rents a unit to a tenant who doesn’t pass the credit check and income requirements, you could end up with a tenant who cannot pay rent.

How are you lowering risk at every step?
Can Cousin Ronna also be working on move-ins with Sal so she can double check all his steps?

Are there any redundant steps?
Is Cousin Sal making personal trips to the property when the real estate agent is already collecting the necessary paperwork?

If anyone gets hit by a bus, can someone quickly step in? (morbid, I know, but essential to have documented SOPs)
God forbid, Cousin Sal passes (hopefully it’s peacefully in his sleep). Thankfully Cousin Ronna is up to date on all move-in SOPs.

What technology are you using?
If you’re not already using a cloud-based property management software, it’s time to upgrade.

Does a human have to take over or can a step be automated?
Cousin Sal doesn’t need to put paper rent notices under tenants’ doors when this can easily be an automated email.

Many property managers simply don’t have the infrastructure, manpower or access to expert property accountants to do all this. That’s where Proper comes in!

As a team of expert property accountants who are powered by machine-learning technology, one of the most valuable things Proper does for customers is review their current SOPs, and then collaborate with them to make significant (and often money-saving!) improvements.

Customer onboarding at Proper is extremely thorough. We gather detailed information on how every process is currently executed for things like:

• AP
• AR
• Reconciliations & Close Checklist

Then we propose more efficient solutions and test them until we know they’re perfect! This saves time, minimizes human error, and gives property managers the ability to make better business decisions.

What property manager doesn’t love having more time, more money, and fewer mistakes? Find out how Proper can streamline your accounting processes by setting up a call with us today.

‍