We understand people make mistakes, especially in business. Let’s say it is all part of the learning curve. However, when we see the same mistakes occur day in, day out, then we think we need to do something about it. There is no doubt there are common errors agencies make within their trust accounts on a daily basis. Through our experiences, we have compiled our top 10 trust accounting rookie errors. We hope that by highlighting these errors, it may help guide you as a new agency to not walk the same path!
Top 10 Rookie Trust Accounting Errors
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Not backing up daily
We really cannot overemphasise the importance of backing up daily. If there is one thing to take from this article it is to back up daily! It only takes one power surge to lose days, weeks or possibly months worth of data. And that means a whole lot of manual entry to make up for the loss. Agencies that have experienced this unfortunate turn of events, now back up at least 3 times a day. Read Jerome’s 3-2-1 principle of backing up for the ultimate checklist to ensure this never happens to you.
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Not reconciling daily
Reconciling daily means you avoid end of month stress and avoid the inevitable snowballing of errors. How are you going to remember an adjustment from two months ago? You’re not. So reconcile daily and see how this will help keep the auditors at bay.
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Not holding back rent cheques from owners disbursements at End of Month
It is no fun having a cheque bounce 3 days after end of month, You’ll need to walk with your tail between your legs and ask the owner for the funds back. Most Trust Accounting software programs will allow you to hold back cheques paid by the tenant if paid on the last day of the month.
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Using funds held in trust to pay for non-Landlord expenses
This really should be a no-brainer. But unfortunately it is not. To keep it really simple – do not pay for other bills out of the trust account. It is not a huge pile of money that you can use at your free will. Fair Trading will have a whole lot to say if they see this occurring. Think of your trust account as sacred funds – do not touch.
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Inadequate management of your trust account
We have unfortunately seen the ramifications of agencies employing unqualified or inexperienced people to manage their trust accounts. The End of Month Angels team have been called in on more instances than we can count to help agencies resolve the messes they have got themselves into due to inadequate trust account management. Outsourcing your trust account management is worth its weight in gold. You know your accounts are in the best of hands by qualified people who walk the walk and talk the talk day in, day out.
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Not keeping copies of daily banking records or proper monthly records
Ensure to keep all records as you can bet your bottom dollar, these will be the ones your auditor will want to see. It is not worth the risk of a qualified audit report.
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Paying Landlords cash cheques
Unfortunately, another doozy that happens on a regular basis. Some agencies will withdraw cash from a trust account to keep their clients happy. Let me tell you it is not worth the risk! You will risk both a huge fine and losing your license.
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Uploading EFT payment files twice and overdrawing the Trust
This can happen to the best of us when rushed or distracted. What follows are frantic calls to the bank to stop the funds going through. Ensure to delete every electronic file after uploading it through your banks online product. Once the funds are transferred then you no longer need to keep the file. As long as you keep a copy of the payment list then you remain compliant.
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Being questioned by Fair Trading and thinking they will go away
Make life easy for yourself. Comply with any requests from Fair Trading and show them the documents they need to see. They want to work with you – not against you. Their aim is to educate, not make your life unbearable!
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Using Licensee’s personal credit card to pay for Landlords expenses to earn Frequent Flyer Points
All that can be said about this pearler is that it is morally wrong. Full stop. Just don’t do it.
If you can avoid these top 10 trust accounting rookie errors then you are on your way to a successful and breach free agency! Get in touch with our friendly team if you are looking to outsource your trust account management so you can get on with growing your agency.
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 23 years industry experience. Don’t trust just anyone with your trust accounting. Book an appointment with an End of Month Angel today.