No matter how well you prepare for it, when you receive your first breach from your auditor, it may very well come as a shock. We want to help before any potential meltdowns occur. So we have compiled a list if you have been found in breach from your auditor. It highlights the top 10 list of the most common breaches from last years audit.
THE 10 MOST COMMON BREACHES
- Using non-compliant software
Using software that is not compliant such as Xero, Quicken, Quickbooks and MYOB can result in a hefty $1,100 fine in NSW. At the start of the financial year, double check your software is compliant to avoid this simple, yet costly error.
- Not banking your trust money in time
Creating good habits from the outset will ensure you don’t run into any lazy errors – such as holding on to your trust money for too long. Bank your trust money regularly and on time.
- Failure to reconcile within the prescribed period
Same goes as above, set yourself regular monthly deadlines to avoid a pileup of overdue tasks. Apart from avoiding potential breaches, it will keep your office in better order with more efficient and timely systems.
- Failure to backup data
As we have covered in previous blogs, it is crucial that you back up your data to avoid losing vital records, which can result in missing information come audit time.
- Failure to display the words “Trust Account” on source documents
The auditor enforces the regulations which specify that identifying your trust account documents very clearly and simply with the words “trust account”. This also helps your own administration processes by keeping trust account documents separate from trading account documents.
- Incorrect bank account name
Your bank account name must match your trading name exactly on all accounts. A simple error such as leaving off the ‘Pty Ltd’ on your trust bank account can mean the difference between a breach-free audit and not.
- Failure to retain original blue form when opening a trust account
Only relevant to those operating in NSW, but be sure to retain your blue form when opening your trust bank account. Keeping your own records in good working order is a must.
- Failure to keep correct trust records
Regardless of whether your trust account balance is $100,000 or $0, you need to produce accurate trust records when requested. Even if there have been NIL transactions in a particular month.
- Closing monthly records too early or inconsistently
Another good habit to start at the beginning of the financial year is setting the same date in your yearly calendar for your end of month. It will ensure a consistent end of month process. Breaches occur if you are closing accounts on different dates each month. It results in inconsistent end of month reporting which is not considered “end of month”. For example, closing on the 25th of the month in one month, 27th of the month thereafter and the 29th the month after that.
- Using unexplained or undefined adjustments to balance monthly transactions
Your auditor likes to see correct, identifiable and explainable adjustments in your monthly ledger that result in a balanced trust account. Any regular undefined adjustments to balance outstanding discrepancies will raise the red flag immediately.
I’M IN BREACH – WHAT NEXT?
Chances are if you are new to trust accounting, you may very likely be called up for a breach in your first 12 months. Don’t let this alarm you! Use it as a learning process. Take the time to understand where your errors occurred. Implement the actions you need to ensure your breach is not repeated.
Your auditor will instruct you on where your breach has occurred and what you need to do to rectify it. Listen to instructions and ensure you understand everything that is required. Always follow through as most breaches involve a follow up by Fair Trading (in NSW) or relevant state regulatory department.
Take the time to know and understand your responsibilities in regards to audit breaches. Cooperate with your auditor and relevant state department. Deliver the information they require in a prompt manner. Ensure you implement the steps needed to not repeat the same mistake the following year. The fines will be hefty and worst case scenario, may be as severe as loss of license.
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~ 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.