Top Trust Accounting Mistakes Real Estate Agencies Make, and How to Avoid Them
Trust accounting mistakes are rarely made because someone doesn’t care.
More often, they happen when someone is busy, working quickly, relying on software to do what it normally does, or simply trying to get through a long list of transactions.
And if you’ve worked in trust accounting for long enough, chances are you’ve made at least one of these mistakes yourself.
The important part is having processes in place that help you catch mistakes early — and knowing when something isn’t right before a small error turns into a much bigger problem.
Here are some of the most common trust accounting mistakes I see in real estate agencies.
1. Receipting money to the wrong tenant
This would have to be one of the most common trust accounting mistakes.
We’ve all done it.
You get into the zone receipting, you’re working at the speed of light, the software automatically matches a payment and, without realising it, funds are receipted to the wrong tenancy.
This is particularly common when tenants pay directly into the trust account and the agency relies on them to enter the correct reference number.
One incorrect digit can create a surprising number of headaches.
Sometimes there’s no reference at all. Instead you receive something like:
“SMITH 24 HIGH”
and suddenly you need to become a code breaker just to work out who actually made the payment.
How to reduce the risk
Getting your tenant payment process right from the beginning is incredibly important.
There are many payment options available to agencies now, so take the time to work out which system suits your office, your software and your demographic of tenants.
The easier you make it to identify incoming funds correctly, the less time your team will spend investigating unidentified or incorrectly allocated payments later.
And if you’re unsure which payment process would suit your agency, this is something a specialist trust accountant can help you work through.
2. Using adjustments simply to make the reconciliation balance
This is probably the mistake that concerns me most.
Adjustments should be used sparingly and only when there is a genuine reason for them.
To put that into perspective, across the accounts I manage, I might use an adjustment only a handful of times in an entire year.
If you’re trying to reconcile the trust account and something doesn’t balance, don’t enter an adjustment simply so you can tick “reconciliation complete” off your list for the day.
Stop.
Work out what happened.
It is far better for the account to remain unreconciled for another hour or two while you investigate the discrepancy than to enter an unexplained adjustment just to force the figures to balance.
While investigating, it may also be appropriate to pause further transactions so that you aren’t adding more activity while trying to locate the original discrepancy.
Why unexplained adjustments become a problem
An amount sitting in adjustments doesn’t actually explain why your reconciliation was out.
If adjustments are repeatedly used as a balancing mechanism, discrepancies can accumulate.
Eventually someone has to work backwards through the transactions and determine what actually happened.
I’ve seen situations where an external specialist then needs to spend hours, days or even weeks untangling historical transactions.
It is much easier to investigate the difference when the transaction has just occurred and everything is still fresh.
If you’re regularly using adjustments to reconcile your trust account, I would see that as a sign that the agency may need additional training, stronger procedures or more specialised trust accounting support.
3. Entering supplier bills incorrectly — or twice
Duplicate bills are another very common problem.
Our property management software has become much better at identifying potential duplicates, but those systems aren’t foolproof.
Invoice numbers are a great example.
A tradesperson may issue:
INV-123
One team member might enter the invoice number as:
123
Another person could later receive the same invoice and enter:
INV-123
Depending on the software and settings, the duplicate check may not recognise those as the same invoice.
Create a consistent bill-entry process
A few simple procedures can significantly reduce the risk.
Have an agreed office process for how invoice numbers are entered and use the same format every time.
Where possible, limit bill entry to one or two trained people rather than having a large number of team members entering invoices differently.
It’s also worth educating suppliers.
If a tradesperson is following up an unpaid invoice, ideally they should send a statement rather than continually resending the original invoice. Multiple copies arriving through different inboxes can easily lead to duplicate entry.
And always check the invoice date.
You don’t want to accidentally enter an invoice from last year simply because it has just landed in someone’s inbox again.
4. Using the wrong account code
This one can look minor at the time, but it can create problems later.
Owners rely heavily on their managing agency to accurately record property expenses throughout the financial year.
That means the account code selected when entering a bill matters.
For example, an invoice for an electrical repair could accidentally be coded as electricity usage.
Those are two very different expenses.
When owners or their accountants rely on the end-of-financial-year information supplied by the agency, incorrect coding can create unnecessary confusion and additional work.
Bill entry can sometimes be treated as a simple administrative task and handed to the least experienced person in the office.
In reality, it deserves proper training.
The person entering bills needs to understand not only how to enter an invoice, but also what they are actually entering and why the information matters.
5. Processing payments incorrectly
I’ve saved the scariest one for last.
Payment errors can be serious.
Depending on the circumstances and the trust-account legislation applying in your jurisdiction, incorrectly handling or disbursing trust money can create significant compliance issues.
There are two risks I pay particularly close attention to.
Paying uncleared funds
Before disbursing money, ask:
Are these funds actually cleared?
Your agency should have a clear process for identifying funds that are still uncleared.
Funds — and any fees associated with those funds — should not be disbursed simply because a receipt appears in the trust accounting software.
You need to know that the money is genuinely available in the bank.
If money is paid out and the original deposit subsequently dishonours, you can create a serious trust-account discrepancy and potentially a compliance issue.
This is why your process for uncleared funds is so important.
6. Uploading the wrong payment file
This is another mistake that can become very expensive, very quickly.
Before uploading a payment file, you need multiple checks confirming that it is the correct file.
Otherwise you could:
- upload yesterday’s payment file again
- upload the wrong payment batch
- accidentally upload a file twice
- process payments that weren’t intended to be made.
Imagine paying more than 100 owners twice.
I’ve seen it happen.
Thankfully, I wasn’t the person who processed it, and ultimately the funds were recovered — but recovering those payments was a long, stressful and expensive process.
Create checks before every payment
At minimum, cross-check:
The date.
The total payment amount.
The batch or file being uploaded.
The transactions being approved.
I also strongly recommend separating responsibilities where possible.
Having one person prepare or upload a payment and another authorised person review and approve it creates an incredibly valuable second set of eyes.
And if you’re responsible for both sides of the process, create your own checklist and follow it every single time.
Don’t rely on memory simply because you’ve processed the same type of payment hundreds of times before.
Good trust accounting relies on good systems
Most trust accounting mistakes aren’t complicated.
They’re often simple human errors made during repetitive daily tasks.
But because trust money belongs to someone else, those small mistakes can carry much greater consequences.
Good trust accounting isn’t about never making a mistake.
It’s about building processes that make mistakes less likely, easier to detect and faster to correct.
If your reconciliations regularly don’t balance, adjustments are becoming common, bill entry feels inconsistent or payment processing makes you nervous, it may be time to review the systems behind your trust account.
Sometimes the solution is better procedures.
Sometimes it’s additional training.
And sometimes handing the day-to-day trust accounting to someone who specialises in it gives the agency the confidence and consistency it has been missing.
Reliance Property Accounts works with real estate agencies across Australia to provide outsourced trust accounting, trust account optimisation, clean-up and temporary trust accounting support.
If you’d like another set of eyes over the way your trust account is currently being managed, get in touch with Reliance Property Accounts for a confidential conversation.
