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Who is managing your biggest risk?

May 11, 2018

There is not a real estate business in the country that doesn’t operate a trust account to manage rental funds or hold funds in escrow. I say this only to emphasise that, if everyone is doing it, it can’t be that hard. In most states, there is legislation around some basics of operating a trust account. These include balancing off once a month, keeping cash handling records and ensuring the Broker approves each signoff. These regulations are vanilla at best, and a business should be doing so much more to bulk up the trust money handling processes and to minimise the risk to the agency.  In a previous blog, I detailed the dangers of operating a trust account concerning missing or misappropriated funds. In this blog, I’m keen to focus more on the trust account operator.



Your trust account operator should be professionally trained in the process of operating a trust account. This includes, how to correctly receipt rent, journal adjustments, balance off and disburse funds. While most of these tasks may seem trivial, given you have a trust accounting program to do the heavy lifting for you, it is essential that you have full context on why you are doing these transactions and what the result of them are. I have been to many businesses where the trust account operator has inherited the job from a previous property manager after they moved on. They have no formal training and are managing hundreds of thousands of dollars for the business. I have witnessed a trust account operator fumbling their way through a journal entry, only to get it wrong and have to reverse the entry back out.


Here are three things to help assess the knowledge of your agency trust accountant:


Are they completely aware of the state-based rules and regulations around managing and record keeping of a trust account? This includes, understanding what money is in transit, time restrictions on receipting rent, documentation for handling cash, unallocated funds, where does interest go and how to disburse end of the month.


Have they booked an appointment with your trust account auditor? Each state has legislation that requires your trust account to be externally audited once a year. As the trust account operator, it is your responsibility to work closely with the auditor to ensure you are keeping the correct documents for audit purposes and the licensee has signed these documents.


Can they manually re-create a trust accounting ‘lifecycle’ using paper accounts, including receipting money, banking it and reconciling, and paying fees and disbursing money? Going back to basics is how a trust accountant indeed learns how to manage trust funds. They should be able to manually recreate the debits and credits of receipts, disbursements, held funds, journals, third-party payments and deductions.


There are plenty of great trust account trainers available. Ensure your agency trust account has reached out to these guys, to arm them with the correct knowledge, to manage the agency trust account. And minimise any risk to the agency.


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