Our client’s need

A real estate investment management company with more than $45 billion in total assets under management had concerns about the internal controls and processes of their property managers, including:

• Lack of documented internal controls
• Insufficient insurance coverage
• Insufficient segregation of duties
• Vendor setup not following policy, including no check against the Office of Foreign Assets Control (OFAC) database
• Lack of expense control and validation
• Adherence to company’s internal policies regarding capitalization, accounts receivable reserves, bank account setup and access
• Enforcement of tenant late fees

With a fiduciary responsibility to more than 300 domestic and international investors, the company wanted to address these issues to ensure accurate financial inputs and proper segregation of duties as well as maximize revenue opportunities.

Baker Tilly solution

Knowing Baker Tilly’s depth of knowledge in the real estate industry, the company engaged us to assess their current state and design procedures to ensure outsourced providers are complying with executed agreements. The service team:

• Reviewed internal control narratives and control walkthroughs to determine where cash disbursement and cash receipt controls were lacking
• Reviewed each property management agreement and certificates of insurance for compliance with insurance requirements
• Assessed compliance with OFAC standards
• Verified expense allocations and cash disbursements
• Validated business expense reimbursements and accuracy
• Reviewed and sampled account balances to ensure property manager is abiding by the organization’s internal accounting policies
• Ensured proper bank account ownership
• Reviewed related parties and associated transactions to validate reimbursement

Results achieved

As a result of the project, the organization was able to implement and improve many processes and saw immediate results. They documented and enhanced the effectiveness of their internal control practices, improved insurance coverage and revised property management agreements to ensure adequate protection as well as further segregate duties. The organization also improved cash flow by enforcing tenant late fees and improving controls surrounding expense reimbursements.

The company now has Baker Tilly do an annual review of selected properties to validate adherence to their third party agreements.

For more information on this topic, or to learn how Baker Tilly real estate specialists can help, contact our team.