Audit Assistance & Three-Way Reconciliation

Here you will find more information about property management audits and helpful resources for your success, including:

What is an Audit?
What is a 3-way Reconciliation? (worksheet available below)
Audit Checklist (worksheet available below)
Rentec Direct – Audit Assistance
Trust Account Guidelines

What is an Audit?

In simple terms: An audit is an evaluation or examination by a person or group.

Audits are made to check something such as your documents/recordkeeping. Simple right? It is actually quite a painless process if you have your record-keeping in order. Property management software can help you stay organized and be ready!

The majority of auditors are not out to get you, they are looking to see if you and your team have acceptable accounting principles and you comply with your local real estate regulations.

Red Flags – Negative cash balances and irregular fees could be warning signs of inefficiencies, non-compliance, and mismanagement.

Auditors look for seamless continuity. It is important that you invest a little time, in the beginning, to know your financial reports inside and out and to really know your business.

Properly managing trust account balances (referred to as Trust Accounting) is a serious responsibility. Monthly reconciliations ensure funds are available to satisfy all obligations to owners and tenants. Funds like pre-paid rents, security deposits, non-refundable deposits, and other reserves or undistributed income must be managed appropriately.

What is 3-way Reconciliation?

You probably have performed a two-way reconciliation at some point when you balanced your checkbook. You compare the latest bank statement (the bank balance) to your check register (the book balance) and adjusting for checks or deposits that have not yet cleared. If you and your bank balances match you have reconciled.

When managing a trust account you have two sets of ledgers, the check register (the book balance) and the individual client ledgers. The check register balance is a balance of the entire bank account, while the client’s ledgers are balances of each client’s trust funds within the account. The sum of the individual client ledgers (client ledger balances) must total the same as your book balance and your bank statement (bank balance).

Your bank balance must equal your book balance, which in turn must equal your trial balance (your list of escrow balances). The formula is simple, however, at times it can become challenging and makes some of us want to run and hide.

If you forget to post a bank charge, returned item, or any error can make reconciling difficult. Even though tedious and frustrating at times, it is a required task by state and federal guidelines.

It is important to reconcile every month in order to find any errors and resolve them quickly. Failure to reconcile in a timely manner could create a negative financial impact of any losses arising out of fraudulent transactions against your trust account. Knowing your business and have the right documentation to share if there is anything that might look questionable to your auditor.

Keep in mind what you might know today you could forget tomorrow. So notes and documentation are very important so you are prepared in the future and don’t have to try to remember what happened days, months, or a year ago.

The auditor will examine checks and balances throughout your accounting system to determine if you and your team are reconciling transactions each month. Your property management software will help compile 3-way reconciliation for you.

Download and print this Sample 3-way Reconciliation Worksheet for your own use: Sample Three Way Reconciliation

Note: If your account appears to be correct, but still doesn't balance, you will want to review convenience fees reflected on your bank statement that are not indicated in your Rentec Direct account.

Audit Checklist – Reports You’ll Need During An Audit

Typically auditors will give you a complete list in advance of necessary reports and items they would like to review. If they do not here is a list to get you started:

Review all your financial reports
Account Ledger Reports for all Properties
Account Ledger Reports for all Owners
Account Ledger Reports for all Bank Accounts
Trial Balance Report
Delinquent Tenant report
Security Deposit Report (Tenant Deposit Report)
Bank Reconciliations
Bank Statements
Receipts/Invoices

A downloadable Audit Checklist can be found here: Audit Checklist – Rentec Direct – Audit Assistance

Rentec Direct – Auditing Assistance

Access these reports in your Rentec Direct account that will assist you in completing monthly reconciliations and surviving an audit.

Account Ledger B Report per each Owner
Account Ledger B Report per each Bank Account (Trust Journal)
Account Ledger B Report per Company Funds Ledger*
(*If you manage your company funds in the Rentec Direct property management software).
Trial Balance B Report
Vendor Ledger Report
Category Ledger Reports.
Deposit Summary Reports
Bank Reconciliation Reports
Balance Sheet

Instructions on viewing and pulling reports can be found here: Reports and Reporting Features in Rentec Direct - Pro Tips

In order to survive an audit, it is very important that you print these reports every month to ensure proper reconciliation of your records and to provide proper documentation during an audit.

A downloadable Audit Assistance – Rentec Audit Reports Checklist can be found here: Audit Assistance – Rentec Audit Reports Checklist

Need Further Auditing Assistance? Try Rentec Direct’s Audit Assistance Service

Rentec Direct will happily guide you through your audit to help you find the necessary reports that demonstrate your compliance with your state’s real estate commission accounting guidelines and principles.

Please call to schedule an appointment at 800-881-5139
or email success@rentecdirect.com

Did you Know Rentec Direct is Trust Account Certified?

Rentec PM software is certified by the strictest states to do trust accounting correctly and provide the necessary reports in the event of an audit.

You can confidently face an audit knowing you will have no issues with trust account compliance when using Rentec Direct’s accounting features to manage your portfolio, including three-way-reconciliation between trial balance reports, bank reconciliation reports, and general ledger reports.

More information about Trust account compliant Software can be found here: Trust Account Compliant Software

What are Trust Accounts?

There are specific rules about how business funds and transactions are handled by a property management company. Trust accounts for property managers are typically used to keep tenant deposits and rent payments separate from operating capital.

More information about Trust Account Guidelines can be found here: Trust Account Guidelines