How to Manage Your Government’s Tenant Rental Receivables Safely

​Does your government receive rental revenue? Most governments have small amounts of rental revenue or similar receivables. Sources can include low-cost housing, rental of unused office buildings, monthly rental of parking spaces, and concessionaires. Because most governments typically don’t have huge amounts of receivables to report (besides those that are due from other governments or from utility customers), they often do not have adequate receivable modules in the financial system and may not have staff that are adequately trained to track and manage tenant rental receivables. This can become a problem.
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​One of our clients experienced a fraud related to its rental revenue (see this blog post about Minimizing Your Government’s Risk to Billing Fraud for more). This client is a state agency that owns an office building. It rents the ground floor of the building to various retail tenants and rents excess space on other floors to office tenants. The Rental Manager was responsible for billing and collecting tenant revenue. She submitted checks collected to the Finance Department for deposit. The Finance Department did not track whether amounts were billed timely nor whether billed amounts were collected. Over the course of several years, the Rental Manager embezzled several hundred thousand dollars. She did this by writing “/PLOT” on the payee line after the name of the government and was able to deposit stolen checks via ATM into a not-for-profit bank account that used the acronym PLOT. She served as volunteer treasurer for PLOT and from there she was able to access the funds.

“Separating the billing and collection of rental revenue tasks is the single most control to ensure is in place.

This fraud highlights two things:

1) You cannot rely on bank internal controls to assure checks written to your government are not cashed by others; and
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2) separating the billing and collection of rental revenue tasks is the single most control to ensure is in place.

​If your government has rental revenue to manage, consider the following recommendations to minimize your risk of loss:
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1. The Rental Manager can prepare tenant rent bills, but they should send the bills to the Finance Department for review and approval before sending them to tenants. This ensures there is a second set of eyes on billing accuracy and timeliness and allows the Finance Department to create a record it can later use to verify collection.
2. Rent revenue should be received by someone other than the Rental Manager, since they are already responsible for negotiating leases. This minimizes the risk that the Rental Manager can send a bill and collect it without the Finance Department knowing about it. Also, the bills should state where tenants should submit their payment; that must not be to a location that can be accessed by the Rental Manager.​

1. The Finance Department should regularly review the tenant rental ledger. The tenant rental ledger shows the amounts billed and collected for each tenant as they occur. (We’ve included a Sample Tenant Rental Ledger file – which can be customized to your government’s needs – for you to download here. Or click the image below.) The Finance Department should use this ledger to ensure amounts billed are reasonable and timely, and collections are received and deposited. The totals of the ledger should be reconciled to the general ledger periodically. The ledger can be maintained by the Rental Manager and/or the Finance Department, but should be readily available for use by both, perhaps via a shared drive.

Sample tenant ledger excel file screenshot

Even if your government’s rental revenue is small, it is important to for the Finance Department to adequately segregate billing and collection duties. Using the attached sample tenant rental ledger is a good start to encourage adequate Finance Department oversight.

Download the Sample Tenant Ledger as an editable Excel file here.

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If you have more questions on how to manage your government’s tenant rental receivables better, feel free to reach out to Kevin directly:
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Kevin Harper, CPA
kharper@kevinharpercpa.com
(510) 593-503