Products & Services
Internal Audit Services for
Real Estate
In the present economic environment, there are
number of indicators showing that internal control
should receive an increased focus; first a slow-
down in business in the real estate sector, with a
Stabilization of investment portfolios and
development projects put on hold resulting in a
greater focus on asset management and property
management activities. Then, there is an incentive to
trim costs and to ensure that activities are well under
control in order to mitigate brand and reputation risk,
as well as increased financial risks for landlords
following tenant defaults and/or large incentives
granted to tenants to extend their leases and finally
we observe a need to strengthen investor confidence
and trust.
Your challenges in the Real Estate sector Our added value
As a property company, there are some specific challenges you We have listed below some of the benefits we provided
need to address: to Real Estate companies, when those companies
relied on Thames Management Consultants to perform
• Effective Value Engineering – considering the internal audits:
challenging market that require developer to provide value
for money product that should be affordable in price • An experienced central team combining internal audit
without deteriorating in quality of the product; experience with a broad knowledge of the different types
• Diverse Portfolio - different types of real estate of real estate properties;
properties have different dynamics, including office • A top down analysis by a core team of experts,
buildings, shopping malls, hospitality industry and encompassing risk assessments related to a specific
development projects; property and location, and with multilingual
• Project Management - effective management of the capabilities;
whole project which require careful selection and robust • A benchmarking of third party service providers
monitoring of consultants, contractors and sub- used in different locations;
contractors, in order to make sure the timely delivery of • A proven and consistent internal audit methodology
project with required quality; and approach;
• Compliance - need to manage risks such as compliance, • Access to local compliance rules and culture.
health & safety regulations, business conduct, physical
security and information security across different locations;
• Facilities and Property Management – need to be strata
law savvy to structure and manage the property effectively
and provide transparency to owners through Owners
‘Associations.
Products & Services
Typical risks and potential impacts
Below you will find a list of typical risk factors for real estate structures which outsource functions to third parties, and which we
identified in asset management companies (“AM”) and property management companies (“PM”). The relevance of those risk factors is
to be tailored to the operating environment of the real estate companies.
Risk AM PM Impact of failure
Control environment
Policies and procedures specific to each property do not exist X X
• Roles and responsibilities not clearly defined
Reporting deliverables are not clearly defined and/or X X
inconsistent • Management decisions made on inaccurate/
incomplete data
Inadequate procedures in terms of segregation of duties, X X
delegations of authority and approval limits • Exposure to fraud or error
Outstanding litigation and/or customer complaints are not X X • Loss of reputation and customers
communicated or properly evaluated • Decrease in property value due to inadequate
No maintenance plan is in place/monitored X maintenance
Financial reporting
Significant variations between budget and actual are not X X
sufficiently explained • Lack of transparency
Key reconciliations are not prepared and/or reviewed X X • Exposure to accounting errors
Manual adjustments are not reviewed/authorised X X • Regulation/brand risk
Income
Pricing strategy is not clearly defined and/or applied X
Non-standard terms for leases are not pre-approved X • Reduced margins
Properties are inadequately insured X X • Exposure to tenant damages
Contract terminations result in claims and disputes X X • Litigation costs incurred
Credit checks for new tenants prove to be inadequate X X • Cash flow leakage
There are significant overdue balances with tenants X X
Expenditures
No adherence to capital expenditure procedures for X X
acquisitions and/or disposals
• Expenses exceed budgets without adequate
Development projects are not supported by adequate X
budgets/cost monitoring explanations
• No cost optimization
Supplier invoices for operating expenses are not authorised X X
and/or matched to service orders • Unauthorized expenses
Formal tendering procedures are not adhered to X X • No optimal use of suppliers
Vendor pricing and performance is not monitored X X
Compliance
AM & PM agreements are not regularly reviewed X X • Loss of reputation
Bonus and incentive schemes to staff are not genuine X • Exposure to litigation
Cash management
Cash flow is not adequately budgeted/monitored X X
There are no regular reconciliations for key bank accounts X X • Cash flow is not optimised
Authorised signatures are not up-to-date X X • Unauthorised payments
Health & Safety
H&S policies and procedures are not well defined X • Loss of reputation
H&S objectives are not set and measured X • Exposure to fines
IT Controls
Users’ access rights are not adequate and/or regularly X X
• Inaccurate reporting
reviewed
• Manipulation of data
The DRP/BCP is not updated and/or tested at regular intervals X X
• Loss of data
There is no full back-up on a daily basis X X
Products & Services
Our service process overview
You will find below an example of a service process overview. This can be tailored to specific client needs.
Annual risk Annual risk and
Audit wrap-up Quarterly/Yearly
assessment and detailed risk Fieldwork
reporting reporting
audit plan assessment
Based upon list of real Summarised audits
Executive management
estate assets, discuss Communication on critical risks or observations Present final audit and
(CEO, CFO, Controler,
key risks and annual identified during these stages reports observations/follow-up
others)
audit plan for the quarter/year
Confirm audit timing
Communicate audit Key observations Summarised audits
Project’s stakeholders Present key risk areas
plan, locations to be through the course of Present final audit and
(asset manager, property and outline audit
visited and estimated fieldwork and present reports observations/follow up
manager, accountant) scope/approach
schedule draft report for the quarter/year
Continuous Contact Program
Performance Metrics
How can Thames Management Consultants help?
An independent internal audit will provide you with a fresh, independent assessment of your properties. Our reviews may indicate
weaknesses but will also provide suggestions on ways to improve and change.
Thames Management Consultants allows you to benefit from:
• A team of experts that is well grounded in both internal audit services and the real estate sector and abreast of any related
challenges;
• Industry experience and specialist skills. With our leading industry practice in real estate, your internal audit team has ready
access to relevant resources within the real estate industry.
www.thamesmc.com
