T.R.E.C.Audit

OverviewPresented By,Ahmad Lewis

STATE OF TENNESSEEDEPARTMENT OF COMMERCE AND

INSURANCETENNESSEE REAL ESTATE

COMMISSION500 JAMES ROBERTSON PARKWAY

NASHVILLE TN 37243-1151

AGENDA BROKERS RESPONSIBILITIES

COMMON ISSUES

PROPERTY MANAGEMENT

RECORD KEEPING

TREC AUDIT

QUESTIONS

BROKERS RESPONSIBILITIES

Brokers owe a fiduciary duty to exercise reasonable care, skill, and diligence to their principal.

An important aspect of the broker’s fiduciary responsibility to the client is the maintenance of adequate records to account for trust funds received and disbursed.

BROKERS RESPONSIBILITIES Pursuant to T.C.A. § 62-13-321 a broker must maintain

records showing the following for at least 3 years

(1) The depositor of the funds;

(2) The date of deposit;

(3) The date of withdrawal;

(4) The payee of the funds; and

(5) Other pertinent information that the commission may require.

BROKERS RESPONSIBILITIES

Brokers are required to supervise the activities of affiliates and employees pursuant to TN Rule 1260-02-.01.

TN Rule 1260-02-.09 – Deposits and Earnest Money an affiliate broker shall pay over to the broker

with whom he is under contract all deposits and earnest money immediately upon receipt.

COMMON ISSUES Days of delay in depositing/disbursing EM Depositing/Disbursing EM funds far in

advance of contract binding date/contract closing date

Co-mingling funds Misuse of funds (Paying bills, payroll, etc.)

PROPERTY MANAGEMENT Rental deposits must be held in a separate

escrow Maintain an individual <or subsidiary> ledger

for each tenant Maintain bank reconciliation for Rental

deposits escrow

RECORD KEEPING Keeping complete and accurate trust account

records is easy when there are procedures in place.

The accuracy of the records is verified by reconciling them at least once a month. Reconcile the bank account record with the

bank statement

RECORD KEEPING The purpose in reconciling the trust account is

to obtain a level of assurance that the balance on the bank account record is correct.

Keeping complete and accurate trust account records is easier when specific procedures are regularly followed.

RECORD KEEPING The following is a list of a few suggested

procedures:1. Record transactions daily in the trust/escrow bank

account.

2. On a consistent basis use the same specific source documents as a basis for recording trust receipts and disbursements.

3. Calculate the account balances on all applicable records at the time entries are made.

RECORD KEEPING4. Reconcile the records monthly to ascertain that

transactions are properly recorded on both the bank account record and the applicable subsidiary account records (i.e. any account that flows in to the general ledger).

5. If more than one trust/escrow bank account is maintained, keep a different set of records for each account.

RECORD KEEPINGActivity Documents

Receiving trust funds • Real Estate purchase/sales contract

• Collection receipts

Depositing Trust monies • Bank Deposit slips

Disbursing trust monies

• Checks issued• Supporting papers for

the checks, such as invoices, escrow statements, billings, receipts, etc.

TREC AUDIT The Commission has established an ongoing program

of examining brokers trust/escrow records.

Pursuant to T.C.A. § 62-13-312(d), “The director of the division of regulatory boards or the director’s duly authorized representatives may, at all reasonable hours, examine and copy such books, accounts, documents, or records as are relevant to a determination of whether a licensee has properly maintained and disbursed funds from escrow or trustee accounts…”

TREC AUDIT As necessary audited licensees will be made

aware of deficiencies in trust fund handling and record keeping.

During the mail in audit process the information on the following slides will be requested and some or all documents may be applicable to your firm.

TREC AUDIT Audits are randomly selected from our

database of firms on a monthly basis

If you receive a mail in audit letter than you will have 30 days to respond and provide the following kinds of information

TREC AUDIT Bank Statements

Copies of Bank Reconciliations

List of individual ledger balances or individual tenant security deposits

List of earnest money amounts held, disbursed and interpleaded

HUD-1 statements for selected closings

Copies of Purchase/Sales agreements

TREC AUDIT Release of earnest money form

Lease agreements for selected leases

Copies of the journal or check registers, including a record of daily balances

List of outstanding checks and deposits by month

List of all licensees affiliated with your firm currently

CONTACT INFORMATION

Ahmad Lewis – TREC Auditor

Ahmad.Lewis@tn.gov

Phone:(615) 741 – 7548

QUESTIONS