The Importance of Audits

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I recently looked at a self-storage facility that was up for sale with a reputable broker. During conversation, he told me the site should be able to produce more income based on its occupancy and rental rates. I admitted I was not overly impressed with the on-site manager. Apparently, since the manager had been hired, the site had produced less revenue with the same occupancy than with the previous supervisor.

I immediately suspected something was wrong. When I asked about the last time an audit had been performed on the facility, the broker said one had probably never been done, as the owner did not possess the skills, knowledge, time or willingness. The owner was trying to sell for a substantial sum, yet he did not know if the facility was producing the revenue to justify it. If I were a prospective buyer, I would somewhat rely on the seller’s information but would want to verify it for accuracy. A scenario like the one mentioned above could change or even kill a deal.

These sorts of issues are not unique, and there are many owners, operators and even management companies who do not regularly audit their stores. However, when you consider the effect income has on revenue and facility value, an audit can be critical to discovering problems and maintaining optimum performance.

What Is an Audit?

In simple terms, the function of the audit is to review financial transactions, physical-inventory reconciliation, banking transactions and other activities (not always related to accounting). Its goal is specific: to ensure the facility owner that all the funds received are properly accounted for in the appropriate time frame.

Audits are generally associated with negative deeds, but in reality, they are as important to your overall success as marketing or sales. If you are selling the product but not receiving the appropriate compensation, you are wasting time and losing money. On the other hand, it can be a relief to learn your employees have a solid grasp of your system and are performing duties honestly and correctly.

A lot of operators hire companies to review our sales skills (i.e., phone- and rental-skills checks), but how many confirm funds are being correctly deposited into their bank accounts? They spend hundreds and even thousands of dollars on training programs, but many are reluctant to spend an equal or lesser amount to audit their stores. Sometimes, a manager may be doing things honestly but incorrectly. In a worst-case scenario, you may have a thief working for you, benefiting from your lack of management controls and systems.

Owners sometimes assume that because they use a computer system in their stores that managers cannot steal or make mistakes without them knowing. Wrong! There are always people who can manipulate computers and circumvent the supposed controls to allow them to access files, change and erase data, etc. Simply having a computer system is not the answer.

How It Works

Let’s describe a simple audit and how it works. Usually, the task is performed randomly by an impartial third party to avoid personal involvement. It is important that you do not notify the party or facility being audited, since this could give them time to “fix the books.”

The auditor should have a written document from the owner/management company stating the purpose of the process (to ensure proper operating procedures are followed), an authorization for access to the information he will need, and a statement giving the manager permission to allow unlimited access to the physical plant and records. The auditor should provide the client a written description of the methods he will use, an estimate of the time frame necessary to complete the evaluation, and a disclosure statement ensuring the owner complete confidentiality of the audit results.

Once the audit begins, the auditor will follow the outlined procedures. He should not discuss any of the process with the manager other than what is necessary to perform the audit or discuss the results with anyone other than the client. He should also have detailed notes on any discovered discrepancies. The auditor should make it a point to ease the anxiety of the person being audited. However, if he concludes early in the process that unlawful acts are being committed, he should immediately notify the client to act on the discovery.

An auditor should never accuse a person of stealing, even if evidence is overwhelming. His job is merely to review the facility’s systems, not confront employees—that is the duty of the owner or supervisor. On the other hand, if results indicate an employee is honest and trustworthy and follows proper procedures, the auditor can let him know the results are good. This provides positive reinforcement and alleviates any anxiety the employee may have. The owner should acknowledge the positive feedback as well and perhaps reward staff with an appropriate token of appreciation.

There are many more details involved in the audit process. This article presents a brief but accurate description of a critical function an owner, operator or management company should perform as par of normal business practice. Costs for an audit should be evaluated and the benefits weighed. But in the end, you may find it is money well spent and will assist you in becoming a better self-storage operator.

Mel Holsinger is the owner and a managing member of Tucson, Ariz.-based Professional Self Storage Management LLC, which specializes in facility management and operations in Arizona, Mississippi, Nevada, Pennsylvania, Tennessee and Texas. For more information on site audits, call 520.320.9135; e-mail mel@proselfstorage.com; visit www.proselfstorage.com.

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