Financial Audit of Your Apartment Complex and Closing of Accounts

Here we present the 7 step guide to a smooth financial audit and closing of of your housing society accounts, as key takeaways from the Webinar.

1. Understanding what is being audited

• Collections made by Association from Members in form of maintenance dues, usually collected monthly or quarterly
• Collections made by Association from non-members, like rent collected general store inside the apartment, etc.
• Payments made by Association to Vendors. This would include payments made to Housekeeping, Security, payment for common area electricity, water, etc
• Assets of the Associations like Elevators, Transformers, Generators, Water Treatment Plants, Electronics, Gym / Clubhouse equipments, etc.
• Investments of the Association which are typically Fixed Deposits

2. Understanding the parties involved in the audit

• Treasurer, who is a part of the Management Committee, who is also an owner
• Accountant, who does the day to day accounting entries
• Auditor, is a person who will be appointed by the Association for auditing the Society Accounts

3. Setting up your Accounting System for Success

1. Immediate entry of Collections into the Books is very important. With systems like a payment gateway for collecting maintenance dues, these entries happen automatically and hence save a lot of time and effort of management committee members
2. Daily entry of Expenses is very important
3. Bank Reconciliation (Matching the payments and expenses with the bank statement) should be done on a monthly basis
4. Monthly Payment of TDS, Service Tax, Professional Tax
5. Quarterly filing of TDS and Half Yearly Filing of Service Tax
6. Appoint an Auditor early on during the financial year. The Auditor would be able to advise you with regard to the right accounting practices which are to be followed. Its also advised if he keeps having a look into your book of accounts on a quarterly basis. This makes the audit process at the end of the financial year very smooth.

4. Accounting Discipline to be Kept in Mind

1. Zero Cash Collections: This is because accounting of cash is messy and at the end of the year, unaccounted cash causes the most amount of problems
2. Minimal Cash Payments: It is a best practice to enter into bulk contracts with vendors, so that small payments which necessitates payment by cash, are avoided. Other than petty cash payments like refreshments for meetings, etc. its best to avoid cash payments. Cash payments made should be entered into the system on the same day.
3. Publishing of Cash Flow reports to Members periodically: This helps in maintaining transparency and also catching hold of any discrepancy early, rather than later in the financial year during audit.

5. Audit Preparation

During audit preparation there are certain aspects of your Society’s accounting which you need to take care before the auditor starts looking into your accounting system. Its best to start the audit preparation around May-June, so that as an Association you are prepared for the closing of Society Accounts well within stipulated time.

1. All Financial Entries should be complete: All deposits, collections, payment entries should be done in the system
2. Bank Reconciliation Complete: The bank balance amount which your bank is showing should match the bank balance your financial system is showing minus some floating amounts like cheques deposited but not credited yet, etc.

6. Handling the Audit Process:

During the Audit, here are the activities conducted by the auditor:

1. He will review and drill down into the trial balance. A trail balance would show the balance across accounting heads, classified across assets and liabilities.
2. Review of bank reconciliation and matching with Bank Statement
3. Review of Tax Collection, Remittance and Filing
4. Auditor will help in Posting of Journal Entries
   1. Accrued interest of FDs
   2. Provision amounts which are payable in last financial year, but you do not have visibility right away
   3. Depreciation

The Auditor would thus generate the Income & Expense Statement, take a print out of the statement from the accounting tool and put his signature and stamp on it. This would end the audit process.

7. Avoid the Frequent Mistakes made by Apartment Association or Societies:

1. Not performing Bank Reconciliation Regularly
2. Mistakes related to Taxes
   1. Not deducting TDS from Vendor Payments
   2. Service Tax (Service Tax to be collected if collection is equal to or greater than Rs. 5000 per household per month)
   3. Income Tax: Any Collection from members (Owners/Tenants) is exempt from Income tax.Collection from Non-Members (Rent from Vendors, Sponsorships, etc.) is within Income Tax Scope

Here is a presentation which details out the various ApartmentADDA Features which help in making Society Accounting hassle free for Apartment Treasurers & Accountants.

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