A client referred me to a colleague in California who was in need of a database review. After speaking with the potential client, I recommended that we move forward with a reconstruction in their AppFolio database, instead of a financial re-migration. Afterwards, we would engage in monthly reconciliation services to ensure they’re staying on track and support internal controls.
Reconstruction
This method examines the properties, owners and tenants where there may have been accounting errors. By zeroing in on such issues, the database owner can easily assess what happened to cause the error and resolve directly. This method also maintains all financial history for all parties involved. Con: This is more costly and requires a higher level of expertise in trust accounting and experience with AppFolio. Depending on the amount of diagnostic issues and how long it has been since the bank accounts have been reconciled, a reconstruction can take anywhere between a 1-4 weeks.
Re-Migration
This method involved the engineers/migration specialists of AppFolio. They coordinate with an appointed person to literally wipe all financial history and import accurate data. Any balance issues will be allocated to a non-managed “corporate” property within the database. This allows the database owner to start with a clean slate and resolve any balance issues as a collective, instead of individually. There is a fee AppFolio collects to complete a re-migration and can typically take about 2-3 weeks to complete, depending on the size of the database. Con: All property and tenant ledgers will be completely wiped.
Course of Action
I completed the reconstruction and 30 months worth of reconciliations for both trust and escrow accounts in about three weeks. I was able to identify all property ledger issues, brought them to the client’s attention with recommended resolutions and coordinated with the auditor from the Real Estate Commission. I also provided clear instruction to avoid such issues in the future.
The most common issue was security deposits that were deposited into the owner trust account, then disbursed to the owner instead of allocated/transferred to the tenant escrow account. By doing this, it put the escrow account in a cash deficit compared to the broker’s liability. When the tenant was moved out, AppFolio created the transaction to move the funds from the tenant escrow account into the owner trust account to either refund the tenant or forfeit to the owner. Without properly checking the cash vs. liability, the property now held a negative cash balance in the escrow account.
Resolution
A year later the same auditor returned to review the client’s progress on how they are managing owner and tenant funds. The client passed the review with flying colors and requested that they maintain their current processes.
The client was pleased with the results, the payment flexibility to complete the reconstruction and the ongoing service SFL provided. Knowing that a reconstruction was a higher cost, the client values the financial data remaining intact/accessible vs the cheaper option of zeroing out ledgers.
Where we are today: The client is still engaged with SFL for reconciliation and year-end reporting services. He knows that when I reconcile his accounts each month, if he/his team has made an error in regards to cash vs liabilities, I’ll be quick to point it out, make the adjustment and provide him with any actions for follow-up.
Happy Ending! He can sleep at night and kept his broker license.
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