Finding Text
Tenant Security Deposits
Our audit revealed that the recorded security deposit liability exceeds the corresponding security deposit asset. As of December 31, 2024, the security deposit liability of $16,323 did not agree with the security deposit asset of $15,324. In accordance with Generally Accepted Accounting Principles (GAAP), security deposits collected from tenants should be held in a designated account and recorded as a liability. A corresponding asset should be maintained to ensure funds are available for refunds when tenants vacate. This occurred due to management oversight. Failure to maintain proper account balances can result in financial risk or disagreements with tenants.
Recommendation
We recommend that management conduct a reconciliation of security deposit liabilities and assets to identify any discrepancies monthly, establish or reinforce controls to ensure all collected deposits are held in a separate account, and review accounting practices to properly record and track security deposit transactions.