Finance is not a backroom role in Property! You have to have broad enough shoulders to start with what am I due to pay then have first class interpersonal skills when the Client invariably rambles off into issues such as their neighbour putting out washing on the balcony or the cleaner only spending 20 minutes on site.
Mary-Anne Bowring believes that all finance personnel working within the property industry should be extremely proud that they belong to the elite group, of Property or Service Charge Accountants, as they skills they learn to master are much more than those held by an Ordinary Accountant.
Any business owner or principal of a practice will admit that over the years they have invested huge amounts of their time training external accountants and auditors to become competent to carry out service charge accounts, in spite of the ICAEW guidelines. It still shocks me how many accountants nominated by Clients still seek to prepare a set of service charge accounts without any reference to the lease, or requesting the budget, says Mary-anne.
It is the existence of the lease that makes the job different and challenging. In theory anybody can make a transaction i.e. pay an invoice, or bank a receipt, arguably with training anybody should be able to balance a balance sheet and understand how this links into a profit and loss account. But, what it seems abundantly clear most finance professionals outside our industry can't or won't embrace is the lease. The facts are that in the service charge world, before one starts making even the simplist transaction, one should know if the property is new build or not, (if it is there are complicated schedules to be considered in respect of developers voids); even simple expenditure such as the electricity bill needs consideration, is it the electric for the list so just Block A pays, or for the estate so everyone pays?
Remember it is the lease that says what should be paid by whom. It may not even be one lease that needs to be referred to, as sometimes not all owners contribute to all items in the service charge schedule (for instance those not connected to communal parts may not pay for internal decorations). In complex schemes there may be five or more different schedules to which owners contribute. Finance personnel are invaluable in the year end process, as lets face it 8 out of 10 Property or Estate Managers are a little frightened of the year end accounts! All external accountants should be provided with a copy of the budget and lease as a matter of course. The budget is the most likely piece of paper to indicate an expenditure which has not been presented and should form accruals, and without an understanding of the legal structure that surrounds the particular building how is the external accountant supposed to guess from a list of bills, that there are several service charge schedules, i.e, one for the Block with a lift, one for houses and flats, and a further schedule for the flats communal heating system.
All this means that we are no longer dealing with a single profit and loss account (in the property world we call it the income and expenditure account. Why? Simple, because service charge schemes are not intended to be profit making!). Each scheme is in fact a income and expenditure account in its own right, deficits or surpluses for each service charge schedule (set out in the lease) need to be stated and apportioned just to the owners liable to contribute to that schedule. Even, the seemingly simple job of purchase ledger needs care and diligence as expenditure has to be allocated not only to the correct expense code but also to the correct service charge schedule. This takes finance out of the theoretical arena into a reality of needing to understand where the intangible meets the tangible. For example, whilst it may be common sense for a property manager to know that a mixed scheme of houses and flats, you would not expect the houses to contribute to the lift. If the finance officer treats a scheme as merely lift expenditure to the scheme, then of course the scope for getting it wrong is huge!
Of course, rubbish data in = rubbish data out so and the external auditor is somewhat reliant on the data presented, but to follow good practice and send them a copy of the lease and budget with every year end pack hopefully will give them some idea of your expectations on behalf of your Client as without this it is unlikely that the external accountant will make the connection between the numbers and the property a tangible one.
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