Be sure to keep these common mistakes top of mind as you develop your trust accounting policies and procedures to minimise the possibility of error – the penalties for which can be as severe as losing your licence!
1. Not reconciling daily
One of the most common trust accounting mistakes property managers make is not reconciling frequently. You should make sure your accounts are balanced every day if possible, so as to maintain the most accurate, up-to-date records. This way, come mid-month or end of month, you can rest easy knowing that you’re not forgetting something crucial.
Additionally, any discrepancies in your accounts are easier to spot on a daily basis rather than on a monthly basis. This means that mistakes won’t be allowed to snowball and any unlawful transactions will be easier to detect.
Similarly, it’s crucial to reconcile your current software prior to upgrading to a new software. This ensures that your data is up-to-date and free of mistakes when you migrate over.
2. Misallocating trust funds
While this may seem like a no-brainer, some property managers give in to temptation and misallocate funds that belong to other clients in order to pay off mounting rent arrears. These discrepancies can not only snowball into a bigger problem but can also result in audit breaches and a potential visit from Fair Trading. Simply put, don’t risk it. Ever.
Likewise, you should never withdraw cash from your trust fund, no matter how insistent your owners or tradies are. This is bad practice and can result in loss of license and hefty penalties from the authorities.
3. Not establishing trust-specific rules
Every property management business should have its own set of trust-specific policies and procedures. They should be formal and detailed to ensure compliant trust accounting and consistency across the business. As part of the procedures, it’s also helpful to develop standardised forms and checklists to minimise any chance of error.
4. Not knowing the position of your trust accounts
Are you crystal clear about the exact position of your trust accounts? If the answer is no then you’re making a huge trust accounting mistake.
As a licensee, it’s crucial that you know what you’re signing off each month as any discrepancies will ultimately be your responsibility and can cause irreparable damage to your reputation.
5. Hiring the wrong person for the job
Similar to being hands-off with your trust accounts, hiring the wrong person for the job can be detrimental to your business. An inexperienced or underqualified staff member might make some small mistakes in the first few weeks. Over time, these can lead to an assortment of band-aid fixes, time wasted during mid-month and end of month and ultimately, a mess of a trust fund.
Rather than spending time and money cleaning up your trust fund in retrospect, it’s always better to spend a little more money hiring someone that has proven trust account management experience.
6. Lack of adequate backups
Imagine working on receipting rent, paying bills and disbursing funds all week, only to have your server-based trust accounting software crash. Bam. You’ve lost a whole week’s worth of precious data.
Not backing up daily is one of the most common and most avoidable trust accounting mistakes. While it can be a pain with legacy software systems, cloud property management systems like do it automatically for you so there’s no excuse.
Another benefit of cloud property management systems, is that they can integrate with cloud based accounting software, further simplifying your compliance obligations!
So if you’re sick of manually backing up your data, simply upgrade your software to ensure your data is protected at all times.
7. Disbursing funds before a transaction closes
Another common trust accounting mistake is early disbursement of funds. Under no circumstance should this happen before the keys are exchanged and the required paperwork completed as deals can fall through and last minute agreements may be made which would then require adjustments.
So not only are early disbursements a headache for your trust accountant but it also results in non-compliance – it’s simply not worth it.
8. Manually entering in data
The more manual data entry there is, the higher the chance of simple data entry errors that can eventually snowball into massive trust accounting headaches. While this can’t be avoided, it can be minimised with data entry policies.
9. Not making full use of your trust accounting software
As technology advances, cloud trust accounting software has become the standard, with new features being released all the time. However many property managers choose to stick to what they’re comfortable with to the detriment of the business.
It’s important to embrace change and make full use of your software in order to stay competitive in the real estate industry. Holding regular staff training sessions can help ensure that your team is leveraging the functionality to make your business more productive, cost-efficient and competitive in the long run.
All in all…
To stay compliant, avoid mid and end of month stress and streamline your business, be sure you aren’t making these common trust accounting mistakes!
If you enjoyed this blog post, you may also be interested in the 7 Habits of Highly Successful Property Managers.