A trust account is essentially a way for a property management company to be able to receive and hold funds until they are reallocated appropriately. Due to the nature of these accounts, annual audits need to be done in order to ensure that all of the received funds have been disbursed properly and that there have been no mistakes or instances of intentional fraud.
If all of your documentation is in order and everything in your trust accounts has been handled properly, then an audit is nothing more than a formality. That being said, even if you are sure that everything is in order, doubts always creep up in these sorts of situations and you might get a bit paranoid even when you know you probably did everything right.
Here are some tips on what to avoid doing to ensure that you really have done everything right when doing your trust accounting and that the auditor won’t find any mistakes.
Don’t accept cash if you can help it
The best part of handling all of the rent payments through a trust account is the paper trail that shows both your and the tenants’ activity in the account. This immediately removes any uncertainty from the transactions, and ensures that everyone is on the same page as to exactly how much is in the account, how much is owed and where it needs to be allocated.
And there’s also the digital trail — carrying out the rent payments electronically is quick, clean, and the only way to do it honestly. However, there will be times when your tenants will come to you and say that they don’t want to be late with their payment but they can’t make a transfer since they only have cash. In cases like this, you might need to make an exception, but you’ll need to be incredibly careful.
Always make sure that you provide them with a receipt for the exact sum that you were given, otherwise, if any funds are misplaced by either party, the only proof that either of you will have is your word against theirs.
Also, make sure that the cash you have on hand is deposited in a bank as soon as possible, and that the funds are logged and receipted electronically. If you fail to do this and an inconsistency comes up during the audit, it could mean big trouble.
Make sure to do your reconciliations daily
The end-of-month reconciliations are an essential part of any property manager’s job. They are intended to make sure that your internal trust accounting records match up to the activity in your trust bank account. A good way to ensure that all of your accounts are properly sorted is to never skip your daily reconciliations.
The biggest reason for doing your daily reconciliations is due to the snowball effect that problems can have if they’re not caught on time. Regardless if we’re talking about an innocent oversight or intentional fraud by one of the agency’s employees, solving the mistake is much easier if it’s detected sooner rather than later.
Doing your daily reconciliations also means that all of your records are organized and ready for when you need them, which helps you avoid a whole lot of stress when the end-of-month close comes around.
Keeping your records in order also means that you can ensure that everyone is paid exactly what they are owed, and that all of the funds are properly allocated when you need to do a disbursement.
There are also a few other reasons why daily reconciliations are crucial for any business that deals with trust accounts, but we believe that we’ve already made our point on their importance.
Keep untrained members of staff away from the accounts
If you’re in an office that has a dedicated accountant or at least team members that specialize in the accounting portion of the business, then the tip above goes without saying. However, if like a lot of offices, you also train each property manager to be able to personally reconcile the funds and take care of the paperwork for the trust account audit, you might want to be careful.
While reconciliations aren’t all that difficult once you get the hang of them, there are still quite a few things that could go wrong if you’re not careful. A lot of people don’t properly document their processes and as a result, open themselves and the company up to problems during the audit. Others may simply not have been trained enough or haven’t had enough time and practice to work on their own without a superior watching over them.
Now, that isn’t to say that untrained personnel is going to be assigned to do the reconciliations because of negligence, but rather, most likely it will be due to extenuating circumstances. For example, if the company currently doesn’t have enough property managers to keep up with the workload, this might seem like a promising way to divide the labour and make sure everyone is doing as much as possible.
If you’re just starting out and aren’t sure that you can handle the accounting procedure on your own just yet, then you might want to ask that a more experienced accountant or senior member of staff be assigned to offer you assistance when needed. This way you can make sure that you’re not making any mistakes that will come up during the trust account audit, and you might also learn a few tricks for when you’re the one looking over your juniors in the future.
Let the software do most of the work
Speaking of untrained personnel, a lot of problems may arise if the staff aren’t capable of using all of the tools at their disposal properly. The most vital tool is naturally going to be the particular property management software that your company uses.
A well-designed software will allow you to do all of your accounting procedures with a click of a few buttons. As long as the layout is simple enough, and the accounting options that it provides are suitable for your needs, then a good property manager will be able to learn all of the necessary functions in no time.
However, the reverse is also true, and a property management software that isn’t well suited for your needs might just hinder you more than it can help you. For example, if you need bulk processing options in order to disburse the funds of the commercial properties that you manage, the software in question might not have the necessary tools to accommodate the sort of accounting tasks that your company needs it to.
Luckily, if you aren’t satisfied with the property management software that you’re currently using, there are many other options available that have a plethora of useful features and workflow menus that can help you with your trust accounting. Additionally, a lot of them also have a knowledge base and instructional videos that will train your staff in how to use all of the features so they can get the most out of them.
- Try to avoid payments in cash, since direct payments to the account are much easier to keep track of and provide a paper trail for when the time comes for an audit.
- Doing the reconciliations on a daily basis will allow you to stay on top of the accounts and allow you to fix mistakes as soon as they arise, instead of having them revealed when you’re audited.
- The company should make it their policy to train their employees in how to handle each aspect of the accounting procedures, or simply have more skilled property managers with a background in accounting handle the bulk of such work.
- Make sure that the software you’re currently using is the best choice for the type of accounting you’re doing, or maybe think of upgrading to a different one.