Blogging VRMA East: Trust Accounting 101

by Bill Furlong, CEO

At the VRMA conference in Charlotte, Christopher Smith, former NC state real estate auditor, provided an overview of trust accounting issues:

• Chris provided a lot of "war stories" with examples of agencies that have gotten burned by not following appropriate accounting procedures -- whether getting taken by dishonest employees or not being prepared for an audit by a real estate commission staffer.
• Agencies with more than 100 units should make sure they have adequate accounting staff.  He gets nervous when he hears of an agency with one person doing accounting for 100+ units.
• Why bother with trust accounting?:  Most states have laws requiring it.  Also boosts confidence in the integrity of your company's reports for owners and clients.
• Who is required to have a trust account?  The Broker in Charge, Property Manager in Charge.  Trust account has be to designated in the company name.
• When should you deposit cash? -- between "immediately" and 3 banking days depending on the location.
• Where should you deposit cash? -- Federally insured bank or savings and loan. Note that you should watch out for sweep accounts where banks will take funds in an account over a certain balance and invest them in money markets to increase returns.  Those are typically not FDIC insured.
• Know your trust account balance.  Ask for it every day so you can be on top of any changes that don't seem right.
• Monthly reconciliations -- Bank rec with ending blanace, outstanding deposits with detail, outstanding checks with details and any adjustments (interest, service charges, etc.).  Need to tie this out to your books.  Trust account balance sheet does this to reconcile the bank statement to the the GL/Journal balance (and ensure that the subsidiary ledger balances). 
• Balance sheet should balance - Assets (cash in banks) should equal liabilities (subsidiary ledger balances).
• What are the big potential problems/mistakes/issues.  Comingling of funds is a big issue.  You cannot mix the liensee's money with money held in the trust account for others.  Conversion is when trust monies are used for a purpose other than the intended purpose (e.g. using it for personal or agency business use or using one client's money for the benefit of another client or transaction).
• Fraud goes up when the economy goes down (like it is today).  Stay on your toes!

Chris's seminar was a good overview why vacation rental software like EscapiaVRS with a dedicated accounting module tailored to the vacation rental business is a critical protection for VR managers.  Chris clearly has phenomenally deep knowledge on vacation rental accounting and is a valuable resource for managers.  Two of the bigger agencies in the room mentioned that Chris does internal audits for them and they strongly urge having someone like Chris audit your books before the regulators do.

Comments

[Vacation Rentals By Owner]

Do a lot of states require money to be put in trust fund accounts for rentals of less then 30 days managed by a broker.

I have talked to a few states and they say trust fund regulations don't pertain to stays of less then 30 days...