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2010-08-26 20:25:09

Structural Audits

Structural or Internal Audits
By Jim Peters, RCE, CAE, e-PRO, Web 2.0
We live in a time of rapid change.  Five years of an incredible boom in the housing market, followed by five years of retreat, with massive inventories of unsold properties, and the first price declines in sixteen years. We have seen the birth of short sales and now housing is in a double-dip recession. The real estate industry has seen unprecedented forces impacting how REALTORS® do business. The needs of REALTORS® have changed as the demands of consumers have changed. This is the age of the Internet and technology. Consumers are better informed, more demanding, have more information than they know what to do with and they are looking for help from a real estate professional who understands their needs. It is no longer the REALTOR® who is central to the real estate transaction, but the consumer who is looking for a Trusted Advisor.
New business models have emerged and the US government continues to investigate the industry to ensure that no non-competitive practices exist. The real estate market has done a dramatic reversal, having moved from a strong ‘sellers-market’ to a ‘buyers-market’ with massive discounting taking place in many areas, particularly in the sale of higher priced or foreclosed homes.  
           As the industry and markets are changing, so must the REALTOR® association change. Meeting the needs of a diverse membership, where generally 20% of the members are doing 80% of the business, creates enormous challenges. Processes, procedures and policies must change to keep up with consumer demands. Education and training are critical, as is the need to provide the most advanced MLS/Information services and communications tools that recognize that the property is now the center of the real estate transaction, not the REALTOR®. Is the association catering to those who are truly in the business of real estate, or catering to the lowest common denominator? Does the MLS recognize the needs and demands of an educated and discriminating consumer who is going to go where he or she can find the most up-to-date and accurate information on housing and commercial properties.
           REALTOR® Associations saw incredible growth during the first half of the decade. In some instances, the membership doubled and even tripled during this period. Now we are seeing the reverse. In 2009 and 2010 REALTOR® Associations stand to lose anywhere from 20% - 50% of their members. Budgets are being cut, staff positions eliminated and services being cut back or stricken from the board. Are right decisions being made for those members truly in the business? Have focus groups and surveys determined exactly what the priorities should be for the association and the MLS. Failure to do this frequently leads to a disconnect between staff and volunteer leadership and the end result is a loss of confidence in the board/association by its members.

Q. What is a structural audit?
            We all understand the need for a financial audit—a professional CPA who examines the accounting procedures, the controls, the finances of the board/association and its fiscal strength.
           In the same way, we need a structural audit to review the associational strength, the governance, the facilities, technology, the staffing, the services and the communications with the members. Do members truly recognize the value proposition their membership brings?
             A structural audit is a top to bottom review of an association, looking at everything from the governance of the association to its ability to best serve the member needs in a rapidly changing real estate environment. The structural audit is designed to turn the association inside out and measure it against similar-sized associations that are ranked as ‘best’ in their category

  The review will include an in-depth examination of the following:
•        Governance of the association.
•        All Policies and Procedures, including those that may need to be developed.
•        The Finances of the association, including reserves, cash flow and controls.
•        Staffing and staff :member ratios
•        Staff association, position descriptions and professional development.
•        Facilities and adequacy
•        Membership records and maintenance procedures
•        Membership services in general
•        Technology and computer services
•        Education and training
•        Communications
•        Public Relations
•        Website
•        Professional Standards Administration
•        MLS/Information Services—all aspects, including regionalization and reciprocity
•        Lockboxes and procedures
•        Governmental Affairs and RPAC
•        Relationships with other REALTOR® associations
•        Relationships with non-REALTOR® associations
•        Legal services and an antitrust audit
•        Membership Meetings and networking
•        Strategic Planning and implementation

Q. What is involved in a structural audit?
           A structural audit begins with communications between the auditor and the association to determine the extent of the structural audit, the timelines, and the nature of the issues that are driving the need for a structural audit.  Usually, a questionnaire is sent to the Association Executive for completion and return to the auditor at least a week in advance of the audit. The structural audit itself will involve spending approximately one and a half to three days on site, meeting with staff and leadership, reviewing policies, procedures and financial documents and examining the facilities, technology and equipment. Following the audit, a detailed report and recommendations are prepared that should be sent to the leadership and the Association Executive for their review and action. The whole exercise takes approximately five to ten days and preparations for the audit should begin at least thirty to sixty days prior to the audit.
Costs of a Structural Audit:
            A structural is very intensive and the cost will vary depending upon the size of the board/association and the amount of time needed to complete the audit and recommendations. A fair estimate would be $2,000 - $4,000, plus travel expenses. 
The Role of Staff in a Structural Audit:
            The auditor will work very closely with staff, particularly the AE, prior to, during and following the structural audit. Staff has a major responsibility in preparing documents for review, including all policy documents, financial statements, audit reports, tax returns, IRS tax exempt letters, corporate charters, etc. The auditor will meet with the AE and all staff individually to determine their feelings about the association and its strengths and weaknesses. At the conclusion of the on-site visit, the auditor will meet with the AE (and often the president and president-elect) to go over the initial findings and discuss issues that may need immediate attention.
The Role of Volunteer Leadership in a Structural Audit:
            The involvement of volunteer leadership in a structural audit is critical. Some auditors will use the NATIONAL ASSOCIATION OF REALTORS® Association Models online instrument as a tool. This instrument is particularly helpful in determining the division of responsibilities between volunteer leadership and staff. It can be used to determine not only how the board/association is currently managed, but how the Directors or Leadership Team would like to see the association managed. 
            To this end, the Leadership Team or Executive Committee should be asked to go online to and complete the Associations Model document together, answering the questions as to how they would like to see the board/association managed, not how it is currently managed. Print out the model and provide the auditor with a copy.
            Go to: You will need your 4 digit NRDS number for this exercise.
            The auditor will also meet with the Executive Committee or Board of Directors and facilitate frank discussion about the strengths and weaknesses of the board/association and discuss their responses to the Association Models Survey. Generall,y this exercise will last two to four hours. This is one meeting where the association executive should not be present so that there is an open and frank discussion of the issues. For the same reason volunteer leadership should not be present when the staff are meeting with the auditor.
Q. Does my Board/Association need a Structural Audit?
            Every Board/Association, regardless of size, should have a structural audit completed at least every ten years, or more frequently if the following occurs:
  • The board/association has experienced a significant drop in membership (20% or more).
  • The board/association has grown by more than 40% over a five year period.
  • Budget cuts have led to the elimination or watering down of key services.
  • A new AE has been hired and there is a general consensus that processes, procedures, facilities and staffing are not adequate to best serve the needs of the membership.
  • Surveys or Focus Groups reflect satisfaction levels with board/association services at less than 70%, or declining by 10% or more since the last survey.
  • There has been an incident involving key staff that relates to misappropriation of funds, improprieties by board/association staff or an apparent or perceived breakdown in the relationship between the AE and staff.
  • A general disconnect exists between staff and volunteer leadership.
  • The association is in meltdown – all systems have broken down and volunteer leaders are struggling to determine why and what to do.
  • The association has recently merged, taking in another association.
Q. How Does the Structural Audit Process Fit with Strategic Planning?
            A structural audit is an integral part of strategic planning, however, structural audits are not used as frequently unless the conditions referred to above exist. Strategic Planning is an organized process whereby a board/association is taking charge of its strategic direction, business planning and its future.
The strategic planning generally does not get involved with issues of structure, policies and procedures, staffing and the division of responsibilities between volunteer leadership and staff.
            When appropriate, the structural audit is a vital and ancillary part to the planning process, helping the board/association maximize its relevance to its membership. In most instances, the structural audit report and recommendations will drive the strategic planning process and help the board/association overcome any shortfalls in staffing, communications, technology and services.
A structural audit should not be considered a substitute for strategic planning, but an adjunct to strategic planning that will provide beneficial results for both the board/association and its members.
Q. How do I find a structural auditor?
            While NAR does not offer Structural Audit services, it is important to look for a consultant who understands the industry, where it has been, where it is currently and where it is going. An Association Executive with a strong background in REALTOR® Association management, or a REALTOR® volunteer leader who has been very actively involved in association management as a consultant, would probably be your best fit.
            One of the best sources of information on qualified consultants is Gar Anderson, Vice President of AE and Leadership Development. Gar travels extensively and nobody knows the industry better than Gar who spends much of his time facilitating strategic planning retreats for local and state associations. 

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