Auditor’s Corner – Examining Your Bookkeeper’s Trust Account Trial Balance

By Emmet R. Wood, Director, Audits and Investigations

Part of the trust account records reconciliation is to prepare a trial balance of funds on deposit in the trust account.  What is a trial balance?   It is simply a list of all funds in the trust or escrow account and the identification of the owners of those funds.  The trial balance must identify each ledger and show the ledger balances as of the date of the trial balance.

What are some of the things that a Broker-in-Charge should check on a trial balance?  Let say you receive the following trial balance from your bookkeeper:

Your Realty Company, Inc.

Trial Balance as of May 31, 200X

 

Property

Owner

Amount

  Your Realty Company Funds

$500.00

1362 Main Street Clay

$2,500.00

143 North Boulevard Howard

$500.00

2500 Johnson Street Ward

$1,000.00

1601 Queen Street Walker

– $500.00

  Total

$3,000.00

 

The Broker-in-Charge should be

 

(1)

 

 

 

 

(2)

 

 

 

 

(3)

 

 

 

 

 

 

 

(4)

 

 

 

(5)

 

 

 

 

(6)

Checking the math.

 

 

 

 

Comparing the total of the trial balance to the reconciled bank balance.

 

 

Looking to see if there is a line item for personal funds.

 

 

 

 

 

 

Looking for negative balances on the trial balance

 

 

Comparing trial balance to the ledger cards for agreement.

 

 

Comparing supporting documentation to the trial balance.

You will note that the total of the ledger balances is $4,000 not $3,000.   A bookkeeper whose trust account books are out of balance may very well try and hide being out of balance with a math error.

 

The total of the trial balance ($4,000) should agree with the reconciled bank balance as of the same date shown on the bank reconciliation.  If the reconciled bank balance is $3,000 there may be a shortage in the trust account.

 

If some company funds are deposited into the trust account, there should be a line item on the trial balance for the company funds.  In this example, your will note that there are $500 in company funds on deposit in the trust account.  This, of course, would most likely be a violation of the Rules because you are only allowed to deposit and maintain $100 in personal funds or such other amount as may be required to cover bank charges.

 

Negative balances may be an indication of a shortage.  Remember that disbursements on a particular owner not property must not exceed the money on deposit in the trust account.

 

There should be a ledger card to support each balance on the trial balance. Compare the balance shown on the trail balance for each ledger to the ledger card balance as of the same date. They should equal.

 

Obtain all sales contracts where the earnest money deposit is held by your company and trace the amount and address to the trail balance. Compare security deposits amounts shown on rental leases to the trial balance.

 

This article came from the May 2008-Vol39-1 edition of the bulletin.