Lauren Kropp is an experienced property management professional with a deep understanding of people, properties and accounts. As our guest contributor this month, Lauren takes a look at how to protect your trust account and make sure that your reputation stays in tact.
Your trust account and the way you operate it is your lifeline. When dealing with thousands of dollars there are 2 types of people.
- Honest
- Dishonest
There is no in between!
As a managing agent landlords are trusting you to handle their income with honesty and integrity. After many years in the industry I have performed end of months with as little as $2000 in the trust account and as great as $200 000 in the account. Each time the money, system and process was treated exactly the same……with care.
One property or 1500 properties, each state of Australia has regulations and rules in place to ensure that the correct rental money and commission are deposited in the correct bank accounts by following streamlined procedures.
Unfortunately in the news of late we have seen an overwhelming amount of fraudulent trust account cases. I have personally been involved in purchasing a rent roll that the OFT had investigated. It was a very unfortunate case in that the Principal of the agency in question lost their Real Estate license however the Property Manager at the time was the culprit. As a Principal it is your responsibility to investigate and understand the operation of your own trust account. It is your license on the door. As a consultant when performing a pre audit check and reporting back to the Principal I cannot tell you how many times that I am told to please discuss this with the Accounts Manager or Senior Property Manager. My reply is always the same: “you have employed me to check over your trust account and I want to make sure that you understand the seriousness of rectifying these abnormalities”.
Following are some tips to make fraudulent activity virtually impossible.
- Do not accept cash. Even if it is a bond – In most cases banks will take two working days for funds to clear into a trust account. This is generally more days than a tenant has been informed that they are approved for a property. Once approved there is no reason the tenant cannot transfer the bond and any rent to your trust account.
- Appoint an Accounts Manager, someone to perform end and mid-month however do not make this person solely responsible for the trust account. If one person is solely responsible there is no one to check or come across any abnormal transactions.
- Suppliers – this is a common way to transfer money to team members’ own bank accounts. ABC Supplier is entered as a tradesperson. However this ‘tradie’ does not exist and the bank details belong to the Property Managers boyfriend! All new suppliers must be questioned and have the appropriate insurance forms completed for authorisation.
- Principals must hold fortnightly/monthly checks of the trust account. The Principal should take the reins and investigate the trust accounting software themselves. Principals I urge you to be trained in ‘what to look for’. You must know what every report in the end of month process means. All Adjustments must be explained and your Accounts Manager must be able to show you proof as to why it has been entered. The statement balance must coincide with what has been entered into your software.
As Property Managers we say it all the time, “yes we are in balance”. But what exactly does that mean? It is very easy to be in balance if you adjust the statement balance. It is much better to look for a three way balance, which includes:
- Trust Account: How much money is in your trust account (Statement balance)
- Cashbook: How much you have receipted in & expensed out (Debits and Credits)
- Ledger Balance: Where it has been allocated to. Which ledgers: owners, creditors, bonds etc. have these funds.
Once again I cannot stress the importance of understanding your trust account. The numbers and dollar signs can scare a lot of people however I guarantee you that once you spend the time understanding it you will feel a lot more comfortable in ‘using it’.
Lauren is the Owner/Director of Real Strategix and provides Property Management consulting and temporary recruitment to the Real Estate industry.
