Reconciling your records

By: Emmet R Wood, Auditor/Investigator

Fallure to prepare monthly reconciliations! That's one of the most common problems found by Real Estate Commission auditors when they examine trust accounts, especially in rental management transactions. Therefore, if your company is audited by the Commission, your monthly reconciliations will probably be the first documents the auditor will ask to examine.

Recordkeeping by Computer

Computer technology has simplified recordkeeping in many offices. However, brokers who use computers to maintain their trust account records must be sure that their recordkeeping practices are in compliance with the Commission's rules and Trust Account Guidelines. For example, many "computerized" brokers mistakenly think that reconciling their month-end bank statement balance to their handwritten journal of funds on deposit is enough to satisfy the Commission requirements. But to be in compliance, brokers must reconcile the bank statement(s) with all records maintained on their computer, including transaction ledgers that comply with Commission rules.

Your computer program probably has a bank reconciliation feature (either with the basic software package or as a program upgrade), and it should maintain a running balance of funds on deposit. But many brokers either are not aware of or don't use these features.

Simplifying the Reconciliation Process

The monthly reconciliation process would be simple if brokers balanced their computer input daily. For example, after a broker deposits trust monies (earnest money deposits, rents, etc.) into the trust account and enters the information into the computer, the resulting computer printout should agree with the deposit slip. That printout may be referred to as a "Cash Receipts Report" or perhaps a "Daily Deposit Slip." Whatever it is called, it should be considered an integral part of the trust account records, and should be maintained by the broker as verification that the computer entry is correct. By repeating this procedure each day, the broker should have no problem in reconciling deposits shown on computer to the deposits listed on the bank statement at the end of the month.

The same daily procedure should be followed for disbursements. Brokers should print out a computer report each time funds are disbursed from the trust account. The broker should examine the printout to make sure that for each disbursement that appears on the report, there is, in fact, a corresponding check or other disbursement from the account. If the printout shows funds that have not actually been taken out of the trust account, the computer running balance will not agree with the bank's records resulting in an overage in the trust account.

Understanding your Computer Entries

When you enter information into the computer, you should make sure that your entry does not inadvertently affect another entry. For example, after entering a check which has been returned unpaid by the bank due to insufficient funds, a broker may decide to void the computer entry of the original transaction where the check was recorded. However, the computer cash receipts report on the date when the check was recorded would then be affected, causing disagreement between that report and the day's deposit slip.

Printing Out Trial Balances

Another feature of a good rental management computer program is the capability of maintaining and printing out trial balances of trust monies (rents, security deposits, advance reservation deposits, etc.) at almost any time. The trial balance should list each property owner and the amount of funds he has on deposit in the rental trust account, as well as a list of tenants, their addresses and the amount of their security deposits in the trust account.

Because brokers are required by Commission rule to maintain trial balances on a monthly basis, you should run a printout each month and keep it as a part of your rental trust account records. In addition, you should examine the list of deposits and compare it to the lease agreements to ensure the accuracy of the computer balances.

Closing Note

If you are the broker-in-charge of a real estate office, you are responsible for the proper handling of all trust monies, including the monthly reconciliation of accounts. If you utilize a computer to account for these monies and you do not understand the procedures discussed above, you should seek professional help to assure your compliance with the Commission's rules and Trust Account Guidelines.