As we discussed in our latest blog, people in business make mistakes. From the rookies through to those who have been in the industry for over 10, or even 20 years, can still make monumental errors. Yet, it never ceases to amaze the extent of the trust accounting mistakes we see on a daily basis. So it prompted us to revisit again the top 10 trust accounting mistakes of all time, and how you can avoid them throughout 2020 and beyond. In making this list, we are unsure whether these errors are made from a lack of judgement in the rush of the moment, or from just plain laziness.
We’ll let you decide.
The Top 10 Trust Accounting Mistakes of All Time
Failing to Back up Daily
This one always has, and always will, top our list year after year. You only need to talk to someone who has lost all their data to realise what a massive error this is. Those people now back up at least 4 times a day. By not backing up, you are opening yourself up to losing days, weeks or even months worth of data. And we can tell you from first hand experience working with many client in this boat – it is your worst trust accounting nightmare! The PSBA REG stipulates a minimum of backing up once a month. This is by no means frequent enough. Back up daily! If you need more convincing, check out our 3-2-1 backing up rule.
Failing to Reconcile Daily
Once again the PSBA ACT stipulates once a month. Really? We struggle to remember what we did yesterday as opposed to a month ago. Can you recall the data entry you performed on this day a month ago? Unless you have Rain Man type capabilities then we strongly advise against this. Reconcile daily and help keep the auditor at bay.
Failing to Keep Copies of Daily Banking Records & Monthly Records
The Cloud has made this a super simple process to keep records of everything. As you all know, the records that your auditor will request to see are the one you don’t have. Murphy’s Law and all that.
Using Trust Account Funds for Expenses Not Related to the Correct Landlord
This rule applies for everyone – whether in trust accounting or not. You cannot spend money that you don’t have! Unfortunately, some agencies see a trust account as an unlimited pool of funds of which they can draw from for this or that expense. Wrong. You can only use the trust account to pay for the relevant Landlord’s expenses. Period.
Not Holding Back Rent Cheques from Owners Disbursements at End of Month
This all goes belly up when a cheque bounces 3 days post end of month and you are walking with your tail between your legs to request funds back from the owner. Most trust accounting software will allow you to hold back cheques paid by the tenant if they are paid on the last day of the month. With the prevalence of cheque payments nearly non-existent, this error is indeed fading out.
Paying Landlords Cash Cheques
Yes you eyes do not deceive you – we see this happen. Agents withdrawing cash from a trust account to keep their clients happy. We cannot overemphasise what a no-no this is. It is a severe breach and large penalties do apply. We can tell you now – no client is worth the risk!
Uploading Double EFT Payment Files & Overdrawing the Trust Account
This is a very common mistake we see as a result of agents rushing and not concentrating on their task at hand. Take a moment to breathe and delete every electronic file after uploading through your online banking product. There is no need to keep the files once funds are transferred. Simply keep a copy of the payment list to remain compliant and avoid those frantic calls to the bank to stop a double payment going through.
Using a Licensee’s Personal Credit Card for Landlord Expenses
Yes, read it again. You don’t need glasses. We are dumbfounded by the number of cases whereby a Principal or Licensee uses their own personal credit card to pay for Landlord expenses so they can reap the rewards – such as Frequent Flyer points. Whilst there is nothing in the PSBA ACT or REG that states it is unlawful – it is plain wrong and bad business practice.
Thinking Fair Trading will Leave you Alone
Oh how you are mistaken! If you have had a call or visit from Fair Trading they will keep on you like a dog to a bone until you give them what they want to see. Just remember, they are there to work with you, not against you! They would much prefer to educate you than to fine you. Truly.
Leaving Your Trust Accounting to the Inexperienced
This is quite often where we receive a lot of calls. When an agency has left their trust account in the hands of an unqualified or inexperienced team member and it all fell to pieces. Whilst we love to come in and assist our clients, we would much prefer it not to be because of a huge agency dilemma that could have easily been avoided. It works out far more cost effective to hire the right, qualified and experienced staff in the first place. If you don’t have the capacity for this – outsource it. The end result will be a smoother trust accounting system and cost savings in the long run.
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.