Operational Audits for Dummies

By Bob Copper and RK Kliebenstein

Storage 101 is a new bimonthly column dedicated to exploring the common business issues of self-storage operators. To suggest topics for this space, send an e-mail to rk@askrk.com.

Auditing your self-storage facility is one of the most important tasks you can perform to deter employee theft, increase operational efficiency and ensure employees are trained to follow policies and procedures. Whether you are an owner, district supervisor or third-party manager, thorough and periodic operational audits are vital to maximizing your property’s success. Audits have a bit of mystery to them. Since most owners have never conducted one, they do not know what they entail or what to look for. As a result, too many choose to avoid the process. This article will point you in the right direction and give you the inspiration to add regular operational audits to your priority list.

» Why Conduct an Audit?

Audits should be done for several reasons, including the fact the owner of a property has a multimillion-dollar investment at stake. He is entitled to protect his interests from theft and neglect. In this highly competitive business, the value of a property can be severely affected by managers who are dishonest or fail to properly maintain a facility. Audits are done as a matter of course in every industry, whether it is manufacturing, retail or entertainment. Self-storage should be no different. Regular operational auditing is an inexpensive way to give ownership assurance that everything at the site is being done “by the book.”

Most self-storage managers are honest, and the backbone of our great industry; but there are always exceptions. Auditing performs the function of “keeping an honest man honest.” If managers know they are subject to random operations and paperwork inspections, they are more apt to remain trustworthy and reliable.

Some owners are reluctant to have their facilities audited because they are happy with the way they are running and don’t want to rock the boat. Some are concerned the onsite managers will feel their trust has been violated. Others worry a problem might be found and managers will have to be replaced. Too bad! This is a case of the tail wagging the dog. Owners have a right to know with 100 percent certainty that their best interests are being protected.

Does a third-party company manage your facilities? Who audits its work product? Are your sites being managed to your high standards? At least twice per year, you should enlist the services of an independent auditor to report his findings directly to you or your representative.

» Who Should Perform an Audit?

Audits should be done by the owner of the property or a qualified representative of the owner. This representative can be an independent audit specialist, a district or regional manager, a third-party manager or even an accountant. Onsite managers should know who has the authority to perform an audit at the bequest of the owner.

Third-party management contracts should include specifications regarding operational audits. The scope, frequency, timing, protocols and consequences of the findings should be defined.

» When Should an Audit Be Performed?

There is no set answer to this question—it varies based on the needs and goals of the individual owner. At the very least, however, a thorough, comprehensive inspection should take place annually. The yearly audit is best used by an owner who has a constant presence at the site, regularly reviews operations, and has a long-term relationship with strong trust in his onsite managers.

A more accepted and typical timetable for a complete audit is twice per year. This is the so-called “norm” in the industry. Some owners even require a quarterly inspection, which can uncover problems before they cost the owner money. Here are some other guidelines:

  • Conduct an audit every time there is a management change, including relief and assistant managers. This reveals what issues the new regime may be inheriting.
  • Perform audits randomly. Managers should have no suspicions their site is going to be inspected.
  • Audits should be conducted immediately before annual salary and performance reviews (and after, as a surprise tactic).
  • Times when managers may be short on cash are good times for an audit, like the Christmas season, tax time and right before payday.
  • Conduct audits right after monthly or quarterly bonuses, especially if an employee feels he received less than he deserved.
  • Since an audit will disrupt the daily work flow at a site, try to do it on a Tuesday, Wednesday or Thursday during the middle of the month. Those days see the least amount of phone and foot traffic.
  • Try to pick a day when the managers are present. You may have questions a relief manager is unable to answer. This will also minimize any hurt feelings and trust issues.
  • Some owners like to audit a site soon after one has just been completed. This is done to follow-up on a bad audit or can be done to surprise a manager who thinks he is “in the clear” for a while.

» How Long Should an Audit Take?

Typically, larger sites take more time to audit than smaller ones. Facilities with lots of issues take longer than those that are orderly and well-managed. The audit field-work will generally take a full day. If it takes less, that’s great; however, the audit may require a second day. An auditor should make the following day available if necessary. Ideally, the person performing the audit should arrive 15 to 30 minutes after the store is opened; this allows the manager the chance to perform the regular opening procedures uninterrupted.

» What Comprises an Audit?

An audit is a review of all operational functions and a statistically relevant sampling of tenant leases and ledgers, daily summaries, and bank-deposit slips. It does not solely examine the way money is being handled but covers each operational area. Every managerial procedure and function should be scrutinized. By expanding the role of an audit beyond money-related matters, the report provides the owner with valuable operational information. This data can be used to make changes at the facility and can also be useful for employees’ performance evaluations.

The following items should be a part of every audit:

  • Balance the petty cash and drawer.
  • Perform a complete unit inventory/walk-through.
  • Review bank deposits and credit-card batches.
  • Review discounts and fee waives.
  • Review the alterations/reversed-transactions logs.
  • Review the rate-variations report.
  • Review tenant files.
  • Review vacate files.
  • Review all units not in the rentable unit mix (i.e., those that are reserved, damaged, held for maintenance, unavailable and company units.)
  • Review the handwritten receipt book.
  • Inventory retail merchandise.
  • Inspect the facility for maintenance needs, potential liability issues, and neglect or abuse.
  • Conduct a personal-property inventory.
  • Do an inspection of the manager’s apartment.
  • Conduct random tenant-courtesy calls.

An audit might also cover other items. For example, if there is a moving truck for tenant use, its mileage and use should be checked. An owner may want to have the auditor review which tenants are due for a rent increase. Rates and specials can be monitored, and an apartment inspection may be required.

» The Before and After

Before the audit is conducted, the owner, management company and onsite management team should know what the standards are, what are considered egregious violations, and what are the consequences of those violations. The audit process starts with good policies and procedures. Although they do not have to be detailed, there should at least be a clear cash-management policy in place. On day one, your staff should read and acknowledge that they know what the company’s expectations are, and that if any modifications to cash procedures are called for, ownership and management approves them.

The only way a comprehensive operational audit can help you more effectively manage your facility is to review and use it as a training mechanism. A thorough audit will indicate suspected or real theft and operational deficiencies and recommend improvements to help your bottom line.

Once the audit is complete, review the documents and contact the auditor if necessary. A professional independent auditor will expect to consult by phone or in person to adequately explain his findings. You may also want the auditor to review the findings with your third-party management contact.

The most important step of the audit process is the review with the onsite manager. This should be treated as a valuable training opportunity—unless theft has been detected or serious issues have gone unresolved since the last audit, whereas disciplinary action may be more appropriate. A specific and uninterrupted time should be set aside for the review, which will indicate the audit’s importance.

After the issues have been reviewed—including negative and positive findings—the owner or his representative should commit to follow up on items requiring attention with specific remedies. The agreed solutions and timelines should be reasonable and documented in writing.

For less than the cost of a few missed rentals, you can have your self-storage facility audited regularly. An independent audit specialist can help ensure that your site is being managed to your standards and can potentially find that extra revenue you’ve been seeking.

Bob Copper is the founder of Self-Storage 101, a provider of do-it-yourself management tools. The company empowers managers and owners to take control of their assets and compete with institutional players at a fraction of the cost. For more information, call 866.269.1311; e-mail management@selfstorage101.com; visit www.selfstorage101.com. RK Kliebenstein is the president of Coast-To-Coast

Storage. He can be reached at 561.638.1851 or via e-mail at rk@askrk.com.

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