How Much Money Is Your Multifamily Complex Losing? - Part 2

A Simple Way To Conduct A Utility Billing Audit

Here's how to conduct a quick and simple audit:

1. Know the rules of the game.
2. Collect relevant billing data.
3. Build a spreadsheet and graph the data.

1.  Know The Rules Of The Game

Before starting an audit, familiarize yourself with the state and local rules that govern how you can bill residents for utilities.  These rules can be found at your state's PUC or at a local National Apartment Association (NAA) Affiliate;  a searchable directory is located here:  http://www.naahq.org/about/join/Pages/AffiliateDirectory.aspx.

In Colorado, assuming there's a proper lease in place, owners can charge 100% of the master-meter bill back to residents.  In Texas, however, owners must deduct a portion of the master-meter bill for common areas and other non-resident utility costs such as those for parking lot lighting, pools, hallway heating and air conditioning, etc.  Texas also has specific rules on how much of a service fee can be charged.

Understand that the onus is on the owner to ensure that resident bills are calculated correctly, regardless of whether you outsource to a third party billing provider or manage the process yourself.

2.  Collect Relevant Billing Data

Gather the following:

• Master-meter billing data for at least the last 12 months
• Amounts billed to residents for the same period.

A comparison of this data will help you gauge how your utility billing program is performing.

3.  Build A Spreadsheet And Graph The Data

A spreadsheet makes it easier to graph the billing data so that you can visually spot anomalies.  For example, assume you're reviewing water/sewer charges.  Create a spreadsheet with six columns and twelve rows.  Enter the following column headings:

1. Billing Period - (from the master-meter bills)
2. Complex Usage - total water consumption for the complex (from the master-meter bills
3. Master-meter Water + Sewer Bills - total of all fees billed to the owner (legally billable to residents).
4. Amounts Billed to Residents - (from the monthly billing summary reports).  Note:  Be sure to subtract resident service fees and other non-billable charges.
5. Resident Billed Usage - (from the monthly billing summary reports)
6. Usage Difference - this column subtracts the Resident Billed Usage from the Complex Usage.

An example Excel spreadsheet is shown in Figure 1.

Now create a graph that displays Billing Period on the x-axis and Amounts Billed ($) on the y-axis.  Add data points for Master-meter Water + Sewer Bills and graph the line.  Add data points for Amounts Billed to Residents and graph the line. 

Figure 2. shows trend lines that compare what the owner paid to what was billed.

The lines in Figure 2. are tightly coupled which is what you’d expect if the billing is accurate.  The one deviation that occurred in January-February 2011, was a water leak in an apartment unit that management elected to pay.

An example of a classic under-billing situation is shown in Figure 3.

Notice that these lines diverge over time as the owner continues to underbill.

Free Multifamily Utility Billing Audit

Utility billing audits involve collecting and analyzing a fair amount of data.  To assist with the process, American Conservation & Billing Solutions (AmCoBi - Utility Billing Services) is offering a free audit to multifamily owners who are interested in confirming the accuracy of their utility billing programs.  Contact us toll-free at: (877) 410-0167 x1 or via e-mail at: Bobby@AmCoBi.com to get started.

Summary

Billing errors, and the financial and tenant problems they create, are entirely preventable. Periodically comparing master-meter charges to resident billing amounts will help owners and property managers crosscheck the accuracy of their utility billing programs.  It also gives owners peace of mind that this important aspect of their business is being managed properly.