EOFY is fast approaching. No doubt it is gleaming out bright and clear in your diary like a beacon lost at sea. Well, we are taking it one step further and helping you to think about avoiding an audit breach post EOFY. Yep, we are thinking about beyond 30 June already. Even we cannot believe it.

We have touched on previously about why adjustments are the cardinal sin of trust accounting. So much so that we find the need to revisit again, just to really hone the point home. If you haven’t caught our drift yet, here it is in nice and clear, bold writing:

Trust Accounting Adjustments are Bad Accounting Practice

Yes that’s right. Bad, bad, bad. They simply give the impression of laziness to your auditor. That you couldn’t be bothered finding the real cause behind your mistakes, so you created a bandaid situation to fix the problem. The problem is that the longer bandaid stays on, the worse for wear they become. They fester, pick up a few more germs along the way before they fall off and leave a great big mess. You need to treat the underlying cause that required a bandaid in the first place.

Enter Every Entry on Your Bank Statement

We are seeing more and more agencies utilising adjustments to fix mistakes. Every entry on the bank statement must be recorded in the cashbook. This is regardless of whether it’s a straight in and out transaction. With many agencies making the move to cloud-based software, we are seeing a high prevalence of adjustments being carried over that have not been dealt with. So this is purely prolonging the bandaid for an even longer period instead of fixing the root of the problem.

So what does a +/- amount mean?

A negative amount means that funds need to be receipted to a particular ledger. A positive amount means that a withdrawal needs to be processed against a ledger. Let’s give an example. Say you paid $300 overdue water rates for an owner at the bank. Ah alas you forgot to record in the ledger! No harm done, just enter a payment against the owner to clear the adjustment as the funds have already left the account. No bandaid required!

What can you do if you no longer manage the property?

Unfortunately you’ll have to take this money from your management fees ledger. This is because the trust is owed $300 and you cannot recover the funds from the previous owner. Disappointing, but let’s move on.

How you can avoid an audit breach

Put strict policy and procedures in place to ensure that data entry always happens in the software prior to processing payments at the bank. It’s a simple ‘one must come before the other’ situation. This simple procedure will ensure mountains of headaches are avoided as well as unwelcome knocks at the door in the future.

Other common errors are not receipting rent to a ledger after a management is lost. Instead you enter as an adjustment and remove the adjustment when the money is refunded or you adjust unidentified deposits. Take the time to dig deeper to the real root of the problem and avoid the quick fix.

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 22 years industry experience. Don’t trust just anyone with your trust accounting. Book an appointment with an End of Month Angel today.