Are You Guilty of These Trust Accounting Mistakes?
We understand in life, mistakes happen. Like leaving an open tin of milo in the house unsupervised or leaving your washing out on a rainy day. Yep – those are passable mistakes. Unfortunately, the mistakes we see on a daily basis with agents and their trust accounts are not on this list. They are on the ‘Should never happen’ list.
And yet, time and time again we see these same errors happening in agencies wherever we go. To make sure you don’t fall victim to these common doings, we’ve listed the top 10 ‘AVOIDABLE’ trust accounting mistakes.
- NOT BACKING UP DAILY
We write about backing up daily on perhaps… yes, a daily basis. Why? Because this is by far and foremost the most common and avoidable mistake agencies make. By not backing up daily, you are exposing yourself to a giant loss of precious data – it could be weeks or even month’s worth. Minimum regulations state once a month – but we disagree on that one. Getting into the habit of backing up daily is the best habit you can make. All it takes is a power surge, a blackout or even worse, fire or flood – and you could lose everything.
Those in the know, who unfortunately have learnt the hard way, back up, up to 4 times a day. Better to be safe than sorry.
- NOT RECONCILING DAILY
Once again, regulations state once a month – again we disagree! Why make things harder for yourself by needing to remember a month’s worth of data entry notes you made in your mind. Reconcile daily to keep yourself up-to-date and safe.
- NOT HOLDING BACK RENT CHEQUES
Not holding back rent cheques from owners disbursements at End of Month is all very well and good until the cheque bounces mere days after End of Month and you are forced into the awkward situation of asking the owner for a return of funds. It equals a big mess that is completely avoidable by holding back cheques paid by the tenant if paid on the last day of the month. Most trust accounting software will support this.
- MISUSING TRUST FUNDS FOR EXPENSES
As obvious as this point my seem we still see agents using funds held in trust to pay for expenses that are not allocated to that Landlord. Not only is this bad practice it will result in a firm discipline from Fair Trading or equivalent. You simply cannot pay bills from funds that are not yours.
- UNQUALIFIED TRUST ACCOUNT MANAGEMENT
Trust account management is a specialised field and as such should have specially-trained personal responsible for its oversight and management. By allocating inexperienced and unqualified staff to manage your trust accounts, you are setting yourself up for potentially more work, money and time than if you had spent the time and resources staffing effectively. Cleaning up trust fund messes can quickly run into the thousands in the blink of an eye, therefore, paying the right people the first time is strongly recommended.
- BAD RECORD KEEPING
Not keeping copies of daily banking records or proper monthly records is a bad habit that you’ll want to quash as soon as you can. Without fail, if audited, you will be asked to show all those records you deemed non-essential and sent packing. Save yourself the heartache and keep everything! You will be glad you did come any future audit.
- PAYING LANDLORDS CASH CHEQUES
This one is up there with misusing trust funds. Just the same as paying expenses from a trust fund, you should never, under any circumstances, withdraw cash from a trust fund to pay landlords (or anything for that matter). Keeping your clients happy is not worth the breach and substantial penalties and possible loss of licence that will follow. The scary thing about this one is the bank will actually allow it, despite it being an immediate cause for breach in your audit. Even if the bank allows it, legislation does not.
- OVERDRAWING THE TRUST
Mistakes can happen when we are busy, rushed and short of time. A common one is uploading EFT payment files twice and overdrawing the Trust. This happens more times than we can count. The result is frantic calls to the bank to stop funds going through. To stop this from happening, take a breath and delete every electronic file after uploading it through your banks online product. Once transferred, there is no use for the file. Keeping a copy of the payment list is sufficient for the agencies compliance obligations.
- IGNORING FAIR TRADING
Fair Trading aren’t like a pesky puppy – if you ignore them, they won’t just go away. Thinking otherwise is, well, crazy. Your life will be a whole lot better if you comply with their requests and show them the information they require. As much as it may not seem like it at the time, they are here to work with you – not against you. They would much prefer to educate you against further breaches than to fine you. So embrace them – don’t hate them.
- USING LICENSEE’S PERSONAL CREDIT CARD TO PAY FOR LANDLORD EXPENSES TO EARN FREQUENT FLYER POINTS
Oh the lengths some will go to rack up those points. This should not be one of them. Although nowhere does it state that this is unlawful, it is ethically wrong – and that is just as good. This is particularly worse when it is not disclosed on the agency agreement and is being done so without the landlord’s knowledge. Starting habits like this can quickly lead into further, more dubious behaviour – so just don’t start.
~ Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. Jane knows the legislative requirements of running a successful Real Estate office through her 19 years industry experience. Don’t trust just anyone with your trust accounting, trust End of Month Angels and get back to what you do best – growing your business.