The company in question has a significant presence in the leasing/ rental business in India. It has a prominent space spread across 1 million square feet and has more than 0.45 million square feet of prime retail space.
The company seeks detailed computation of its common area facility and related costs and assurance that its common area maintenance (CAM) charges  are reasonable and in accordance with the company's CAM policy and the agreements with its space buyers/ retailers. This, in common parlance, is referred to as the CAM Audit.
An elaborate audit of CAM and related costs was conducted to ensure that pricing is reasonable and in line with the company's concerned policies and relevant buyers/ retailers' agreements. The information was also used for billing tenants/buyers/retail space owners covering elements of resource deployment, upkeep, consumables, utility (air, water, and electricity), etc.
Each cost element of common area maintenance was thoroughly diagnosed as follows:
Audit Approach (Check-Points) Deployment Cost
Maintenance agency and outsourced employee costs are directly identified to the common area and segregated based on nature and work area.
Deployment cost is mainly segregated into the following areas:
Expenses related to facility maintenance like annual maintenance charges (AMC) of assets, pest control, whitewash expenses, etc.
Indirect materials utilised for common service operations like plumbing materials, paints, lubricating oil, spares,etc.
Water, electricity and air conditioning are utilised in the common area of the building.
Air-condition area shall mean the area within an entire building which is airconditioned through a centralised airconditioning system, such as Occupied Area, common circulation area, etc., excluding the common services area, which is not air-conditioned and basement parking area.
Created to replace/ upgrade/ add capital goods, including plant & machinery, lifts, pumps, electrical cables, etc
Charges like insurance, safety audit fees, professional fees, certification charges, testing charges and Mall décor expenses & printing charges
After rigorous deliberations, detailed analysis and continuous communication with the client for over a month, our team at Chandra Wadhwa & Co. presented the following conclusions/ observations:
Redrafting the Costing system per generally accepted cost accounting principles was proposed to secure a true and fair costing mechanism. Thus, cost should primarily be allocated/ identified at the cost centres level and absorbed into the final cost object. For, e.g. as per the earlier system, the G/L expenditure was incorrectly considered as the cost of water. However, following our suggestion, water cost was derived as follows:
Water Purchase cost
Electricity consumed to run pump
Employee cost for person deployed for water pumps
Repair and maintenance of water pump
Recommended to adopt a more meaningful/ refined basis of allocations. Eg. To replace the leasable area with customer footfall, etc.
Revisit assets sinking fund calculation and certify life of assets by a Chartered Engineer:
Consider salvage cost/ replacement cost/ scrap value in sinking fund calculation.
Calculate Assets sinking fund over a total area rather than common area alone.
Exclude expired CAM assets in the calculation of the sinking fund.
Recover advertisement and promotional expenses from occupiers at an ad-hoc nominal rate (e.g. Rs. XX per sq. ft. of super built-up area) instead of using true cost.
CAM charges were undervalued, and the actual increase in cost is ~10% after implementation of relevant suggestions as provided by our team:
Actual Cost Increase/ (Decrease)
Deployment cost re-calibrated based on true nature of the job
+03% of Earlier Cost
Repair and maintenance cost allocation revised based on the principle of cause and effect
+25% of Earlier Cost
Sinking fund calculation correction
-30% of Earlier Cost
+10% of Earlier Cost
1. ⌃ CAM charges are costs passed on to commercial property tenants to reimburse the maintenance agency for the expenses associated with maintaining the common area of a property. Generally, common area fees are chargeable based on a tenant's square feet area.
Reach us if you have any concerns regarding cost management accounting issues in your organization.
Partner, Chandra Wadhwa & Co. (Cost Accountants) | B.Com, FCMA, ACA, DISA | Certified SAP-CO Consultant | Executive Program on Management and Finance (IIM, Ahmedabad)
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