Audits: Real estate
When audits are conducted
We conduct routine audits on a regular schedule, and may conduct special audits in response to customer complaints or other priorities.
You must keep records for at least 3 years. All records must be available to the auditor at the license location upon request.
The following are basic guidelines used by auditors when conducting audits. Auditors aren't required to follow these guidelines exactly, and may examine more or less than the areas listed. This information is provided only as a guide to licensees as they conduct their business.
During an audit, the auditor will:
- Observe business signage and advertising, including, but not limited to letterhead, business cards, websites, and promotional items.
- Examine the licenses of the firm, designated managing broker, managing brokers, and brokers to verify:
- The licenses are current and up to date.
- The firm and branch office licenses are displayed in an area visible to the public.
- The licensee's licenses are available to the public.
- The licensee's names are used properly.
- The licenses are at the firm appearing on the individual license.
- Verify that the firm's Business License and Uniform Business Identifier (UBI) numbers match the DOL license.
- Verify controlling interest in the firm.
- Verify all DBA and assumed names.
- Review the firm's written policy/procedures manual to include and any delegations of authority agreements between DB and managing brokers.
- Confirm that any civil or criminal actions have they been reported to the Department of Licensing (DOL).
- Determine if the office is a main office, a branch, or the only office for the firm.
- Determine where branch office records are kept.
- Determine how and where the records are maintained, i.e. online, hard copy. If online, are back up files in place.
- Review brokerage transaction files within the last 3 years, including but not limited to:
- Log to include any real estate brokerage services, i.e. PS, listings, REO, failed sales, multiple offers, etc.
- Listing agreements
- Closed and pending purchase and sale contracts, including addenda special agreements and attachments
- Failed sales, REO, and/or other real estate activity that the licensees may have performed.
- Relationship disclosures for dual agency
- Mutual agreement dates
- Closing statements
- Earnest money receipts (delivery of earnest money) for both listing and sales files
- All other documents and material correspondence related to transactions
- Reviews of brokerage service contracts involving any affiliated licensee with less than 2 years' experience.
- Review and reconcile brokerage trust accounts, including owners, tenants, associations, and earnest money accounts. The auditor will generally examine bank records for all trust accounts for the 3 months before the audit. However, he or she may request up to 3 years of records if necessary. The audit may review the following records:
- Bank statements
- Pre-numbered check stock
- Canceled checks — the front and back of canceled checks. If the firm utilizes online bank services the firm must have an agreement with the bank to maintain the front and back of canceled checks for 3 years.
- Deposit slips (receipted by bank)
- Wire transfer confirmations
- Voided checks (defaced)
- Check registers or other records of receipts and disbursements.
- Brokerage trust account reconciliations.
- Property Management trust accounts corresponding invoices or receipts (to verify actual expenses).
- Ledgers (liabilities) for both owners and tenants.
- Examine a sample of management agreements to verify that agreements are signed by both the designated managing broker and the property owner.
- Review current brokerage (firm) to owner property management agreements to make sure they comply with state laws and rules.
- Examine a sample of leases or rental agreements, and compare the security deposit liability in the lease/rental agreement to the liability in the security trust account.
- Review current tenant leases for compliance with state laws and rules.
What happens after the audit
- The auditor will prepare a written report to be signed by the designated managing broker or their representative.
- The auditor will deliver the report to the audit manager, who will determine if more documentation or clarification is needed.
- The audit manager/supervisor decides what action to take. He or she may decide to:
- Take no further action.
- Send a letter asking for more information or documentation.
- Send a letter asking for compliance.
- Send a letter of education or a closing letter if findings were discovered during the audit.
- Refer the report to our legal staff for a disciplinary action or fine.
- If the audit is referred for legal action, we will contact the broker with the results when the audit investigation is complete and has been reviewed by the legal staff.
If the audit finds problems
The designated broker should immediately start correcting any problems found in the audit.
- If the audit finds overages or shortages in trust accounts, the designated broker should identify the source of the overage or shortage and immediately take corrective action.
- If the designated broker disagrees with the auditor's finding, he or she should contact the audit manager/supervisor to request further review.
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- If you're a managing broker, you may want to be familiar with so you can be aware of any potential civil liability associated with property management.