Mistakes happen. We get it.
But it is when we see the same mistakes, day after day, year after year, that we begin to question what is going on.
As with all industries, there are common mistakes that occur within Trust Accounting. So much so, we made a top 10 list out of it.
These are the top 10 breaches in Trust Accounting that will incur a breach from your auditor. Most are simple and straightforward to avoid. Others just require a bit of forward planning and good organisational skills to keep your office in good working order with clear processes.
So if you are new to the industry, or just need a refresher on the mistakes to avoid, we have compiled a list for you.
Top 10 Trust Account Breaches of 2022
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Failure to back-up
Those who have lost data know the pain. Take it from us. We have been there and lost data. We have dealt with numerous clients who have lost days and months of data because they had no reliable backup. Backup daily and you will never run the risk of losing data. All it takes is one storm surge or blackout and you’ve lost valuable hours of your time. Lost data means lost time. And none of us has enough time!
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Avoiding daily reconciliations
This is a very simple rule to follow. Reconcile daily. Not only will it help to avoid a pileup of overdue reconciliations, but it also allows you to spot an error easily and rectify it quickly. Your office will run more smoothly and there will be a lot less stress come audit time when you realise you are missing crucial data. The PSBA Act recommends reconciling once a month at a minimum. Tae our advice – reconcile daily. You’ll thank us for it.
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Failure to bank trust money in time
It is bad practice to hold onto your Trust money for too long. Bank it regularly and on time to avoid a breach.
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Using non-compliant software
There are fines in NSW for not using non-compliant Trust Accounting software. Ensure the software you are using in your office is applicable for Trust Accounting practices. If not, make the switch.
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Not keeping accurate records
It doesn’t matter whether your Trust Account balance is $0 or $10,000, you need to keep accurate records at all times. The reports you don’t keep are the ones that your auditor will ask to see. So be sure to keep a copy of your daily or monthly banking records.
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Paying Landlords cash cheques
No matter the circumstance, you cannot withdraw cash from a Trust Account. It doesn’t matter how much you are hassled by a Landlord, do not pay them in cash. It is not worth the risk of losing your license and copping a hefty fine.
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Using a Licensee credit card for Landlord expenses
No – just no! Whilst this is not technically illegal, it is plain wrong. There are Licensees out there who have been known to use their own credit cards to pay for Landlord expenses, simply so they can rack up loyalty points. Big no.
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Incorrect bank account name and ‘Trust Account’
As simple as this one is to avoid, it is one of the most frequent breaches. Your Trust bank account must have the same name as the trading account. This even includes the ‘Pty Ltd’ at the end of a company name. Additionally, the words ‘Trust Account’must be clearly displayed on all trust account documents.
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Closing the month off incorrectly
Close your month off on the same date every month to avoid a breach. Failure to close your month off on the same date results in inconsistent reporting. Set the habit of laying out your ‘end of month’ dates at the start of every calendar year and stick to it. Additionally, don’t close the month off too early.
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Unexplained adjustments
We end out the top 10 with a doozy – using unexplained or undefined adjustments to balance monthly transactions. The auditor will not like this! They like to see correct, identifiable and explainable adjustments in your monthly ledger. The result is a neatly packaged, balanced trust account. Any regular undefined adjustments will cause an immediate red flag.
What do to when you incur a breach
The main thing is, don’t just think it will go away! If you are new to the industry, you will likely incur your first breach in your first 12 months. It is to be expected. Use it as a learning experience and ensure to not make the same mistake twice.
Your auditor will instruct you on where your breach has occurred and what you need to do to rectify it. Be aware that you will likely receive a follow-up enquiry from Fair Trading (in NSW) or your relevant state regulatory department.
Cooperate with your auditor. Provide the information they need to see quickly and efficiently. It will save you a lot of heartache in the end.
Finally, rectify the issue to avoid the same breach the following year.
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 24 years’ industry experience. Don’t trust just anyone with your trust accounting. Book an appointment with an End of Month Angel today.