In the last article, I talked about the importance of properly maintaining a trust account for security deposits and rent payments. Below are procedures you may want to implement, if you aren’t already doing so, along with things to avoid at all costs. Following these suggestions won’t prevent your property management company from being audited, but it could make the audit easier.
Reconcile Your Bank Statements
I’m always amazed at how frequently this process in pushed to the back of the priority list, or ignored altogether. With most property management accounting programs offering bank reconciliation modules, there really is no excuse to leave these documents piling up in the corner of your office. As a rule of thumb, there should never be more than one bank statement per account to reconcile.
Keep Good Records
While this brief statement may mean different things to different people, the bottom line is that when an auditor comes into your office, you should be able to find requested items within minutes. Being organized will help you keep your sanity during an audit, and have the additional benefit of impressing the auditor (usually) with your organizational skills. Running a paperless office can also make record keeping (and finding) an easier and more efficient process.
Maintain Solid Banking Records
Your deposit slips should correspond with the deposit amounts on your bank statements. Dates should mesh, and checks should be able to be identifiable in each deposit you make. Keep solid documentation for any expenses incurred that are directly related to the trust account. If you pay for checks out of that account, keep a record of that purchase, but be aware that some states will not allow any non-tenant related expenses to be debited directly from a trust account.
Keep Official Documents Easily Accessible
This includes property management agreements and bank signature cards. Having these records easily accessible for the auditor will lessen or eliminate the threat of penalties being accessed.
So what do you want to make sure you never do?
- Never deposit broker-related funds into the same account as client funds. It’s not okay. Ever.
- Never use tenant security deposits to pay for business operating expenses. This is one of the easiest misdeeds to track, and auditors will find it almost immediately.
- Never use owner funds on another property. This is another item that can be easily found by auditors, and you’ll end up paying the price.
Following these suggestions may not eliminate the threat of an audit, but at the very least, you’ll be more organized and better prepared for whatever follows.