Audit Checklist For Real Estate Company

An audit is a method of verifying whether or not your transactions comply with state and local real estate regulations. A real estate auditor will examine your documents and records to make sure you’re operating within the law.

An auditor will first scrutinize your firm’s file review for evidence of earnest money documentation. Your transaction folder should provide evidence as to who received and delivered the money into escrow.

1. Prepare for the Audit

As soon as you know when your audit will occur, start compiling essential documentation. Whether the state real estate department conducts an on-site visit or correspondence audit, expedited compliance begins when all relevant paperwork is available on day one.

Be available during an audit to answer questions and provide explanations. Keep the auditors updated if any requested data is unavailable, working together to identify viable alternatives.

An effective and simple way of organizing and tracking broker activity is using transaction checklists. They allow you to meet the stringent requirements set by your state real estate department, or you could also utilize a property management software like Rentec Direct that offers reports that make auditing simpler.

2. Organize Documents

Once you know that an audit is forthcoming, it is wise to begin organizing your documents immediately so you will be ready to provide all necessary records within the specified timeline.

Gather all of the key documentation, such as profit and loss statements, balance sheets, property management agreements or funds, office policy manuals, zoning compliance certificates and insurance paperwork in order to avoid compliance breaches and speed up the process.

An online transaction management system is an efficient and effective way of storing and organizing critical documents, and giving access to those who require it – like auditors. By investing in this tool you’ll save both time and money over time.

3. Reconcile

Account reconciliation involves comparing two sets of financial documents to verify their numbers are consistent, an essential accounting practice that helps businesses quickly detect errors or discrepancies that need addressing.

Reconciling accounts is especially essential for real estate companies that must comply with state laws and regulations regarding money handling. Faulty or incomplete bank reconciliation increases fraud risk and could even lead to regulatory penalties or legal ramifications.

Preparing for an audit requires having all of the required documentation ready, which generally includes financial statements, brokerage records, sales transaction files and trust or property management account details. Broker/brokerage firms that perform property management also need to prepare monthly 3-way reconciliation reports along with a transaction file and retention checklist for audit purposes.

4. Prepare for Questions from the Auditors

As part of an interview, it is crucial to be ready for whatever questions the auditor might pose. They will want to know about your approach to prioritizing tasks, managing workflow and keeping records organized.

Interviewers will want to understand your approach to quality issues. Be able to provide examples of how you evaluate the quality of products, services and processes and take corrective actions when necessary.

Additionally, it’s essential that you can outline your process for documenting and reporting fraud. This means identifying any red flags like negative cash balances or irregular fees before notifying those involved. In addition, provide examples of any actions you have taken previously when fraud has been detected.

5. Prepare a Response

Sometimes auditors will raise an issue that has already been addressed in your internal audits, in which case be prepared to explain how and when your corrective plan will be completed.

If you cannot respond directly or in writing to questions raised, make it known immediately and in writing. However, governance or oversight agencies will likely ask for further details or clarification from you.

An organized response gives your brokerage the best chance of avoiding additional scrutiny, whether or not it is audited at that moment. A well-documented response shows the state that you have robust processes in place that ensure compliance with even the strictest requirements; investing now in your reporting and record-keeping could save valuable time down the line.