The Time When You Don’t Want to be #1

Each year we see trends come and go in the world of Trust Accounting. One month, it may be issues with cloud-based software migrations or reconciliations. The next, it may be keeping up with compliance or an increased prevalence of internal fraud. The regular theme for the month just gone was in regards to breaches. Throughout the month of July, we saw an increase in new clients coming to us due to breaches in their trust account from the previous 12 months. There appears to be a standout error making this the top audit breach of 2019 we have seen to date.

Keen to know the origin of this #1 breach?

So happens the #1 top audit breach of 2019 to date is clients not entering all the credits that appear on bank statements into the cashbook in their software. Every single credit on your bank account statement must have a matching record in your software. Likewise, each and every debit on your statement must also have a corresponding record in your software. So when you go to thee bank and make a transaction, it must also be recorded in your software. One must 100% match the other.

The #1 Top Audit Breach in Action

There appears to be a main area where clients tend to come undone.  We see errors come about when clients have changed bank accounts. They move from one trust to another with tenants continuing to pay rent into the old trust. These old transactions are not recorded into their software and appear as a simple CR or DR on the bank statement. This leaves nothing to connect the two transactions.

Example #2 occurs when an agent sells their part rent roll or loses management to another agent. Tenants continue to pay rent into the old trust.  It is important to note that each of these rent transactions must be recorded into a ledger within the software program. This means even if it goes into an unidentified ledger. There needs to be an identifiable trail for audit purposes.Unfortunately, simply putting these payments into adjustments does not create a trail.

An Example…

Let’s look more closely at when a client loses management to another agent. The tenant is still paying rent into the old agent’s trust account. How would you correctly manage this scenario? The correct process is to receipt the funds to the tenant deposit account or holding ledger. Next, set up the agency as a new supplier in your software. Then journal funds from the tenant to the new supplier. Lastly, do a disbursement to the agency. This will provide them with a breakdown of the expected payment and creates the CR and DR entry in the ledgers and cashbook.

Correct procedures and breach free!

We have seen several clients receive breaches for not following this process correctly within the last 12 month. When managing trust accounts, clients put trust in their agents to manage their funds on their behalf. For this reason, every trust transaction must be recorded as per legislative requirements. Know the legislation and stay breach free.

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.