By L. Ted Gayle
Trust Account Auditor
Q. How are brokers selected for audit?
A. Brokers are selected at random from a roster maintained by the Board. Firms are selected without regard to the size of the firm. Usually the auditor will select a particular geographical location and then spend approximately one week auditing firms within a 50-mile radius of that location. (Our best estimate is that you will have a one-in-five (20%) chance of being audited within the next 12 months.)
Q. Will I receive advance notice that my firm has been selected for audit?
A. Trust account audits are scheduled without prior notification to the firm that is to be audited.
Q. How detailed will the audit be?
A. There are three general types of audits:
(1) The "Spot Audit"-This type of audit is simply a record examination where the auditor will determine if the broker has established a trust account; the account number; the depository; the transaction references to checks, deposit slips and other related documents; the types of records maintained; and the general condition of the records. The "spot check" audit generally requires from one to two hours to complete.
(2) The Random Trust Account Audit-This audit encompasses all of the above plus a random selection of transactions (usually from five to fifteen). Trust monies received in connection with these transactions will be traced from receipt to deposit to disbursement. Listing agreements, offers to purchase or purchase contracts, and closing statements will be compared to assure that the broker has complied with the Real Estate License Law and the Rules and Regulations of the Licensing Board in the handling and accounting of these funds. A bank reconciliation may also be attempted by the auditor. The random audit will generally take from two to five hours to complete, depending upon the number of transactions selected and the check activity within each transaction.
(3) The Complete Trust Account Audit-This audit resembles the Random Trust Audit except that all transactions within a particular time frame are audited (rather than a selected sample of transactions); the time frame will usually be a six-month or twelve-month period. The time required to perform a complete audit would depend upon the number of transactions involved.
Q. Will my license be suspended or revoked by the auditor based upon his findings?
A. The auditor does not have the authority to suspend or revoke a real estate license. However, he does have the obligation to report to the Licensing Board any apparent violations of the license law and/or the Board's rules and regulations.
Q. How will I know the results of my audit?
A. Following the audit, the auditor will discuss with the broker any problems which he found. If the broker's records are in poor condition and there are numerous problems, the auditor may order a follow-up-audit to determine if the broker has corrected these problems. A personal follow-up letter will also be mailed to all brokers who have been audited, pointing out an problems found during the audit; a copy of the follow-up letter will be placed in the broker's file for reference in future audits.
Q. Is it necessary to respond to the audit follow-up letter?
A. A response to the audit follow-up letter is not required, but it would reflect the broker's good intentions to correct the problems uncovered by the audit.
Q. Is there anything that I can do to prepare for the auditor?
A. To prepare for an audit, it is suggested that brokers review the Real Estate License Law and the Rules and Regulations of the Licensing Board and determine if their records meet all requirements; also re-read past issues of the Real Estate Bulletin, especially articles relating to trust accounts. Make certain that all records are up-to-date, and should you feel that your records are not adequate, write the Board for help in establishing a simple journal/ledger system. (Don't be afraid that your inquiry might trigger an audit of your firm!)