It never ceases to amaze me the stupid things people do when it comes to managing their Trust Accounts. I decided to list some of the commonly made mistakes that (sadly) I see made more often than not. Hopefully this list will help you avoid making the same mistakes. I could come up with a lot more than 10, but these are the 10 most common things that I see on a daily basis. If anything you will be amazed by the lack of knowledge people have when it comes to Trust Accounts…you may even laugh at some of them. I’ll let you decide.
1. Not backing up daily
Big mistake!! If this has ever happened to you then you’ll know what I mean when I say that this is an absolute nightmare. It could be a partial or total loss of many weeks or even months worth of data. The PSBA REG tells us a minimum of once per month but that’s not often enough. You only have to experience a simple power surge and all your work has disappeared. The agents that have had this happen to them, now back up 4 times a day.
2. Not reconciling daily
Okay, so the PSBA ACT says we can do it monthly. But are you going to remember in a month what data entry you did today? Do it daily and you’ll always be safe.
3. Not holding back rent cheques from owners disbursements at End of Month
It’s all fun and games until the cheque bounces 3 days after end of month and you have to ask the owner for the funds back. It’s an accounting nightmare. Most good Trust Accounting software will allow you to hold back cheques paid by the tenant, if paid on the last day of the month.
4. Using funds held in trust to pay for expenses not belonging to that Landlord
Does this really even need to be said? This happens more times that I can even really say. It’s simple logic, you can’t pay bills from funds you don’t have. It’s an unfortunate reality that some agents see the Trust Account as some giant pool of money that they can freely pay expenses from. I’d like them to have a visit from Fair Trading.
5. Allowing inexperienced or unqualified staff to manage the Trust Account
End of Month Angels have been called to offices on many occasions to pick up the aftermath of when this has occurred. It’s far more cost effective to hire the right people in the first place. Even if you have to pay slightly more for the appropriately qualified people. It’s a sneeze compared to the cost of forensic auditing which could run into the thousands of dollars.
6. Not keeping copies of daily banking records or proper monthly records
From experience I can guarantee that the reports you don’t keep are the ones that your auditor will ask to see. It’s not worth the risk of a potential qualified (bad) audit report. Keep everything!
7. Paying Landlords cash cheques
Yes, you read correctly. This actually happens. I cannot believe the amount of times that I have seen agents withdraw cash from a Trust Account. Just because the bank will allow you to do it, doesn’t mean it’s right. Despite this being a breach in the ACT and large penalties applying, agents will do this to keep their clients ‘happy’. No client is worth risking your license and receiving a fine. Don’t do it!
8. Uploading EFT payment files twice and overdrawing the Trust
Sorry, but you only have yourself to blame if this happens. The result is tears and frantic calls to the bank to stop the funds from going through. My advice: Slow down, think about what you’re doing and 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’re compliant.
9. Being questioned by Fair Trading and thinking they will go away
They won’t! Comply with their requests, show them what they want to see. They are there to work with you and not against you. More often then not they are there to educate you rather than fine you.
10. Using Licensee’s personal credit card to pay for Landlords expenses to earn Frequent Flyer Points
There is nothing in the PSBA ACT or REG that states that this is unlawful. But I believe that it’s morally wrong that the Principal or Licensee is benefiting from paying their Landlords bills and earning points so they can jet across the globe.
What are your thoughts?
I would love to hear your feedback and comments to these Top 10 Mistakes. Have you been guilty of any of these? What would you do if this was happening in your office? Do you think that paying Landlords bills with the Principals credit card is acceptable? Do you think that the penalties should be greater for agents that make Trust Accounting breaches? Comment below.
~Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. She knows the legislation, and the requirements of running a successful Real Estate Office because she practiced Real Estate herself for 15 years. 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.