Auditor’s Corner – What do I do now? Help!

As broker-in-charge of a real estate firm, you have no shortage of things to do. And it may be that you are so busy, some never get quite the attention they deserve – like your trust accounting.

It could be that you believe your bookkeeper to be experienced and competent and therefore does not require much supervision. Perhaps the bookkeeper worked for another firm and came with good references or is a relative and, therefore, “must” be trustworthy.

But, when you finally do get around to looking at the trust account books, you discover important omissions. If that proves to be the case, here are suggestions about how to make corrections:

•  If the trust account reconciliations are not current,

•  Ascertain when the last bank reconciliation and trial balance were prepared that balanced with each other.  This will establish a starting point to catch up the trust account bookkeeping.

•  From your starting point,

•  Prepare bank reconciliations and trial balances to current.

•  Have someone other than the trust account bookkeeper do this work.  You may want to call in an independent accountant outside of your real estate firm to perform this work.  (Usually when a bookkeeper is not preparing trust account bank reconciliations, there is a reason. Most likely, the bookkeeper had trouble getting the books to balance and was not able to figure out why they didn’t.

•  If there are trust account shortages in a rental management business and you cannot fund them because of their size (most likely, in this case, the bank reconciliations have not been done for years),

•  Segregate future collections of trust monies (rents and security deposits) from the old trust funds by opening a new trust account to deposit incoming rents and security deposits.

•  Prepare trust account books (journal, ledgers, etc) and reconciliations on the new trust account in compliance with the Commission Rules and Trust Account Guidelines.  If you are using software to maintain the trust account records, contact software support for assistance in setting up the trust account books.

•  By doing this, you are not commingling the old tainted trust funds with incoming trust funds.

•  Contact the Real Estate Commission to report your problem.

As the broker-in-charge, you are responsible for the maintenance of the firm’s trust accounts.  Don’t ignore your trust account.  It can cost you your real estate license and your livelihood.  If your trust account reconciliations are not done, take action now.  Don’t wake up and find a large shortage in the trust account that you cannot fund.

This article came from the May 2009-Vol40-1 edition of the bulletin.