Understanding the effect of software in audit compliance
As we come into peak audit time, it is a good opportunity to remind ourselves of importance of software compliance issues. We will outline the 11 most common issues agents face as a result of a recent software migration. The majority of cases we see come from the migration from server-based software to cloud-based. These issues are now raising their ugly heads as agents come under the spotlight in their audits.
Our 11 Software Compliance Audit Sins
1. Not entering conversion balances correctly
When you close your old software with $100,000 then the opening balance in the new software must reflect same amount.
2. Paying out of software manually instead of using ABA payment files
Paying out software manually means sometimes the amounts may be wrong. This will consequently throw out your reconciliation balance.
3. Inadequate training
Proper training is essential to ensure you are across your software compliance obligations. Some resort to online tutorials and videos however these are not for everyone. They are very dependent on the quality of the instructor and content and can vary considerably. As a result, agents are ill-trained in their compliance obligations and therefore put themselves at risk of breaches.
4. Spreading yourself too thin
You don’t have to excel at every area of your business. Stick to what you are good at. If that is sales, stick with sales! Delegate your trust accounting to someone who can excel in the task.
5. Discrepancies in closing balances
This is a simple area we see all too often. The closing balance of each month must match your bank statement. Simple.
6. Adjustment errors
Ensure to clear your adjustments regularly and don’t let them spiral out of control. We have previously highlighted why adjustments are the cardinal sin of trust accounting – find out why.
7. Lapsed unreconciled items older than 3 months
If you have withdrawals in your software that have not been presented at the bank, you need to chase them up. They will be one of two things. Either they are amounts that agents haven’t transferred from the trust or they are cheques that have been written that the other side haven’t banked. Fix the situation by looking in unreconciled items. Investigate and chase up anything older than 3 months.
8. Entering receipts into the wrong period
Once again, this is a more than common occurrence. Let’s look at an example. On the 31st March your closing balance after end of month is $1,000. When you look at the bank statement on the 3rd April, you notice that there are 4 credits for rental payments. All are dated 31st March however they were received after you processed End of Month. Therefore the closing balance as at 31st March is actually $5000. These 4 payments from the tenants MUST be dated 31st March and included as part of your March reconciliation. Not April. Otherwise the closing balance of March will be incorrect.
9. Closing the monthly period on the incorrect date
If the last day of the month falls on a Sunday, this is your correct End of Month date. Not the Friday. For example, if the last day of April falls on a Sunday, the date of the reconciliation must be dated 30th April. Not the 28th April as this date doesn’t represent the entire month. The last date on the bank statement for April may be 28th, but reconciliation needs to reflect the entire month. The April 30th is essentially the same balance as of the 28th April as no transactions will occur between these 2 days.
10. Having a single login for all users
All users need to have their own login. Additionally, their login must be appropriate to their role and responsibilities. You don’t want a junior or trainee reversing items in the system without complete competency. It could affect your audit and result in a breach.
11. Reversing entries from a previous month in a new month
This is our final point but is also the SINGLE worst thing that you can do! The situation: you have already disbursed for the month of May. You realise in June that you have made an error. The fix? The error needs to be fixed in the month of June and NOT reversed from the previous month. If you do, it will alter the trial balance and the withdrawal amounts for that month. It is important to remember, once monthly reports are locked, they should never be reopened. Any mistakes can be fixed in the new month.
Want to ensure you have a seamless software migration? Our team of Angels can assist with on boarding and migrating your software from one system to another. Give us a bell or get started with our Guide to Switching Trust Accounting Software. Don’t risk getting it wrong for compliance purposes.