Operational Audits for Dummies

By Bob Copper and RK Kliebenstein

Storage 101 is a new bimonthly column dedicated to exploringthe common business issues of self-storage operators. To suggest topics for thisspace, send an e-mail to [email protected].

Auditing your self-storage facility is one of the mostimportant tasks you can perform to deter employee theft, increase operationalefficiency and ensure employees are trained to follow policies and procedures.Whether you are an owner, district supervisor or third-party manager, thoroughand periodic operational audits are vital to maximizing your propertyssuccess. Audits have a bit of mystery to them. Since most owners havenever conducted one, they do not know what they entail or what to look for. As a result, too many choose to avoid the process. Thisarticle will point you in the right direction and give you the inspiration toadd regular operational audits to your priority list.

Why Conduct an Audit?

Audits should be done for several reasons, including the factthe owner of a property has a multimillion-dollar investment at stake. He isentitled to protect his interests from theft and neglect. In this highlycompetitive business, the value of a property can be severely affected bymanagers 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 nodifferent. Regular operational auditing is an inexpensive way to give ownershipassurance that everything at the site is being done by the book.

Most self-storage managers are honest, and the backbone of ourgreat industry; but there are always exceptions. Auditing performs the functionof keeping an honest man honest. If managers know they are subject torandom operations and paperwork inspections, they are more apt to remaintrustworthy and reliable.

Some owners are reluctant to have their facilities auditedbecause they are happy with the way they are running and dont want to rockthe boat. Some are concerned the onsite managers will feel their trust has beenviolated. Others worry a problem might be found and managers will have to bereplaced. Too bad! This is a case of the tail wagging the dog. Owners have aright to know with 100 percent certainty that their best interests are beingprotected.

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

Who Should Perform an Audit?

Audits should be done by the owner of the property or aqualified representative of the owner. This representative can be anindependent audit specialist, a district or regional manager, a third-partymanager or even an accountant. Onsite managers should know who has the authorityto perform an audit at the bequest of the owner.

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

When Should an Audit Be Performed?

There is no set answer to this questionit varies based onthe needs and goals of the individual owner. At the very least, however, athorough, comprehensive inspection should take place annually. The yearly auditis best used by an owner who has a constant presence at the site, regularlyreviews operations, and has a long-term relationship with strong trust in hisonsite managers.

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

How Long Should an Audit Take?

Typically, larger sites take more time to audit than smallerones. Facilities with lots of issues take longer than those that are orderly andwell-managed. The audit field-work will generally take a full day. If it takesless, thats great; however, the audit may require a second day. An auditor should make the following day available ifnecessary. Ideally, the person performing the audit should arrive 15 to 30minutes after the store is opened; this allows the manager the chance to performthe regular opening procedures uninterrupted.

What Comprises an Audit?

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

The following items should be a part of every audit:

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

The Before and After

Before the audit is conducted, the owner, management companyand onsite management team should know what the standards are, what areconsidered egregious violations, and what are the consequences of thoseviolations. The audit process starts with good policies and procedures. Althoughthey do not have to be detailed, there should at least be a clearcash-management policy in place. On day one, your staff should read andacknowledge that they know what the companys expectations are, and that ifany modifications to cash procedures are called for, ownership and managementapproves them.

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

Once the audit is complete, review the documents and contactthe auditor if necessary. A professional independent auditor will expect toconsult by phone or in person to adequately explain his findings. You may alsowant the auditor to review the findings with your third-party managementcontact.

The most important step of the audit process is the reviewwith the onsite manager. This should be treated as a valuable training opportunityunlesstheft has been detected or serious issues have gone unresolved since the lastaudit, whereas disciplinary action may be more appropriate. A specific anduninterrupted time should be set aside for the review, which will indicate theaudits importance.

After the issues have been reviewedincluding negative and positive findingsthe owner or his representativeshould commit to follow up on items requiring attention with specific remedies.The agreed solutions and timelines should be reasonable and documented inwriting.

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

Bob Copper is the founder of Self-Storage 101, a provider ofdo-it-yourself management tools. The company empowers managers and owners totake control of their assets and compete with institutional players at afraction of the cost. For more information, call 866.269.1311; e-mail[email protected]; visit www.selfstorage101.com. RK Kliebenstein is the presidentof Coast-To-Coast Storage. He can be reached at 561.638.1851 or via e-mail at[email protected].