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 whether you and your team follow acceptable accounting principles and comply with your local real estate regulations.

Red Flags – Negative cash balances and irregular fees may signal inefficiencies, noncompliance, or mismanagement.  

Auditors look for seamless continuity. It is important that you invest a little time in the beginning to understand your financial reports inside and out and to really understand 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 such as prepaid rents, security deposits, non-refundable deposits, and other reserves or undistributed income must be managed appropriately.

What is 3-way Reconciliation?

You have probably performed a two-way reconciliation at some point when balancing your checkbook. You compare the latest bank statement (the bank balance) to your check register (the book balance)  and adjust 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 the total balance of the entire bank account, while the client’s ledgers are the balances of each client’s trust funds within the account. The sum of the individual client ledgers (client ledger balances) must equal 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 make some of us want to run and hide.

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

It is important to reconcile monthly to identify errors and resolve them quickly. Failure to reconcile in a timely manner could result in financial losses arising from fraudulent transactions against your trust account. Knowing your business and having the right documentation to share if anything might look questionable to your auditor.

Keep in mind that 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 across your accounting system to determine whether you and your team reconcile transactions each month. Your property management software will help you compile 3-way reconciliations.

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 the convenience fees reflected on your bank statement that are not reflected 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 the 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 for each Owner
• Account Ledger B Report for 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

To survive an audit, it is very important that you print these reports every month to ensure proper record reconciliation and provide adequate 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

What are Trust Accounts?

There are specific rules governing how a property management company handles business funds and transactions.  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