Preparing for Real Estate Commission Audit

Preparing for Real Estate Commission Audit

Preparing for Real Estate Commission Audit

There are a number of items that you can prepare to make an inspection or audit an enjoyable one. Below is a list of items that you can prepare:
  1. Have your bank reconciliations up to date for trust, commission trust and general. Although the registrars' office is primarily concerned with your statutory trust account, they require bank reconciliations for the other accounts.
  2. Make sure that all of your bank statements, cancelled checks, deposit records are organized by month and are easily obtainable.
  3. Make sure your trust account bank statement clearly indicates the words 'REAL ESTATE TRUST ACCOUNT'. (Tip - you can create a folder in Xero for all of your signed bank reconciliations - scan & upload each month for easy accessibility / printing as required). 
  4. See this article on best practices for reconciliation.
  5. Make sure you have a copy of the company license prominently displayed in the lobby of your office.
  6. Have a list of your current employees and their respective license numbers. (Tip - export your Agent list & have it handy from Brokerage>People)
  7. Have a sample of each employee's business card available.
  8. Have some samples of advertisements that your company has recently run. The registrar will check to make sure you have properly referred to the agent as a sales representative, associate or broker where applicable.
  9. You may give your auditor direct access to Loft47 so they can select the deals for audit, or export the deals list from Deals>Export. (Tip - you may wish to reformat the export ahead of time to remove the fields that are extraneous to the auditor.)
  10. If your auditing body requires deal by deal review / approval, see this article on using Loft47 to approve transactions.
The inspector will look at the number of different transactions, both closed and pending. The inspector may check to see if the transactions are approved, as well as banking information pertinent to that transaction. Direct your auditor to the Transaction page for any deal being audited. If your office is holding the trust / escrow deposit, the inspector will check that the funds were deposited within the specified time frame of the offer being accepted.  
The broker should be available in the office on the day of inspection.
At the conclusion of the inspection, the inspector will provide the broker a deficiency notice. If all goes well, the notice will have two or three minor deficiencies. The inspectors' job is to find something wrong, so expect to receive a few items to modify, which is common practice. Some common deficiencies include:
  1. Not depositing within # of days after the offer date (determined by your board)
  2. Not having the transaction approved by the broker
  3. Not having bank reconciliations signed by the broker
  4. Having other people signing on the trust account, not just the broker 

    • Related Articles

    • How Real Estate Transactions work and Understanding Accounting Entries

      Real Estate 101 Loft is an accounting platform for Real Estate Brokerages that manages the sale of real property. Closing a transaction involves many parties, including buyers and sellers, Agents, Brokerages,Lawyers, Escrow and Title companies. The ...

    • USA: Preparing 1099 Reports

      Loft47 does not file your 1099 tax reporting, we provide the information not the filing mechanism to file forms either digitally or paper based. We recommend Track1099 or Tax1099 to complete the IRS filing, or send the information to your accountant ...

    • Beginning Balance/Mid Year/Year End Commission & Deduction adjustments

      When switching Back office software Mid year we require to add ytd adjustments for agents commissions, production and fee information in order to have accurate 1099 and T4A information. This is also the case for agent's switching from being payable ...

    • Tracking who is paying commission - buyer / seller / combo of both

      With the new rules around the settlement with NAR. Tracking who pays Commissions on Sales and Purchase is now something Brokerages are required to do. How to track in Loft Role Setup When you add in a new Deal people role, this will create another ...

    • Canada: Preparing T4A Reports

      ** Loft47 generates information to create T4A information, we do not file this information with CRA. See filing information here. For the full tax preparation checklist, click here Tax Settings (Turn on Reporting) Turn on your reporting by adding the ...