Software Compliance One Size Fits all Approach
When it comes to trust accounting software compliance we believe that one size does not fit all. Just because one product is compliant in one state, does not make it compliant across Australia.
There are many Trust Accounting software products offered on the market that skate a fine line between compliance and non compliance. Some are really good at meeting the regulations and most could be better. As agents, this is something that we need to be mindful of as this could be the difference between passing or failing our trust account audit. Yes, you can be breached for something that your software allows and it is up to you to maintain compliance within your state’s Regulations.
It is wrong to put your faith entirely in a software, you need to do necessary research.
The question is, why do these big software companies fail in this area? Surely if it’s offered on the market as a ‘Real Estate Trust Accounting’ software product then it must be compliant right? Wrong! As many of our NSW clients have found out through their audits, there are several failures of many trust accounting software products in meeting the requirements of the Property Stock & Business Agents Act 2002 & Regulations 2014.
We write this article not to name and shame but simply point out many of the inadequacies of trust accounting software in meeting compliance.
So what things should you be mindful of when it comes to meeting compliance?
- Unique Identifying Numbers (UID) displayed on trust reports
- The trust reports are audit friendly
- The software allows negative transactions
- The system closes off before the last day of the month
- The ledgers can be manually altered or changed
- The receipt numbers aren’t sequential
- The software allows records to be deleted
- The receipts aren’t set up for your state
UID numbers
Good software providers introduced this as soon as the changes were effective in the NSW legislation, 1st September 2014. The deadline for compliance was 30th June 2015 and some software providers still have not responded. You need to discuss with your software provider to ensure that there is a space for this in the software. The trust identification number is required to be printed across all of the mandatory reports. You don’t need it on the trust receipts.
User friendly reports
Are the audit reports able to be understood by your auditor and does each transaction have a traceable audit ID? You cannot be expected to know if the reports are suitable from an auditors perspective so if you’re unsure then you should send your auditor some examples and have them comment on it’s compliance and friendliness.
Negative transactions
The software allows users to enter a debit transaction which places ledger accounts into negative. Generally only power users (users that know the software really well) will know how to do this but if they’re doing it to fix mistakes then they’re going about it the wrong way. Every mistake can be rectified by a receipt, payment, journal or invoice. There is no need to place a ledger account into minus to correct trust accounting errors.
Close off
One of the massive failures of many trust accounting products is the inability to separate paying landlords and creditors from running end of month reports and closing off the system. Generally most softwares will incorporate the close off/end of month process in one large joint process. This fails to meet the requirement of capturing the entire months transactions up to the last day of the month.
Closing off the month on the 27th or 28th when you pay your clients is not compliant with Regulation 26 since many auditors interpret ‘end of month’ to be the 30th or 31st day of each month. Many agents have been breached simply because of this exact interpretation.
Ledgers
A really educated software user knows how to go into ledgers and change dates, details and even figures. Refer to Regulation 22 (5) A & B. Apart from the non compliance aspect of this capability this also leaves your business open to potential fraud and theft from staff. Believe it or not the software will allow this so it’s something to be really mindful of.
Receipt numbers
Must be sequential and hard coded into the program, unable to be changed by users otherwise there may be penalties for breaching Regulation 23 (4) and Regulation 26 (2) A to $4,400 in each case.
Deleting records
Regulation 22 states that the software must not be a package which allows records to be altered, amended or deleted in any way unless it can be retained in visible form (as it was before the deletion). A power user of a software may know how to delete transactions. You should never deleted anything. Old records should be archived in the system and able to be brought back at any time.
Receipt setup
Your software provider has issued you with a ‘stock standard’ receipt template which states the generic information however you need to check to see if the words ‘Trust Account’ are on the receipt, this is imperative in NSW because it is a breach of Regulation 23. Additionally we are required to state on the receipt where the person has paid to (the period for which the payment is for) E.g. paid from 01/07/15 to 31/07/15
There are many competitors in the Real Estate software market, you’re not stuck with choosing a product that everyone else uses. Shop around and also read 10 Questions to Ask When Considering a Trust Accounting Software Provider to guide you through your decision.
Have you experienced any issues with your audit and your software? Were you aware of these legislative requirements. How would react to receiving a breach on your audit because of software compliance? We’d love to hear your thoughts. Comment below.
~ 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 18 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.