Auditing is a requirement for the motivated owner if you want your business to achieve it`s maximum profit potential and to help keep your employees honest and paying attention to detail. Unlike California, which has random auditing and complaint driven auditing, Hawaii has NO auditing requirements. This makes it very easy for the “Dirty” realtor or property manager or dishonest employee to steal your money and your tenants identity.
The State of Hawaii makes it incredibly easy to obtain a realtors license. Almost any common uneducated moron can obtain one. A drivers license is more difficult to obtain. I do not agree with calling a sales associate a “manager”. Most realtors and property managers are creepy low end sales people at best. These type of jerk offs could not even manage a garage sale. They are a menace to society and are BIG time freeloaders of other peoples money, and are a fraudulent misrepresentation of a trained and experienced accountable manager in my opinion.
Most property managers are required to have a real estate license in the State of Hawaii. But that license does not mean they have been properly trained in property management. The 40 hours of online studying and the $200 dollar fee required for a real estate license hardly cover property management issues such as receipt and handling of rent and security deposits, use of trust accounts for the deposit of those funds and reconciliation of those trust accounts. Property managers are high risk employees. Mainland owners who do not live in Hawaii are exceptionally vulnerable.
If you are in need of a property management firm, protect yourself with a few simple steps:
Verify they hold an active real estate license in the state
Inquire as to level/years of experience in handling trust accounts
Search for licensing, court and disciplinary records
Do a credit check on any perspective agents or brokers
If your property manager is not responding to your concerns, has treated you unfairly, or you have experienced a financial loss, file a complaint with the Regulated Industries ( RICO ): https://web2.dcca.hawaii.gov/ricocomplaint/
With it`s poorly trained and inexperienced employees, the State of Hawaii is careless and offers very little consumer protection and is easily fooled: http://www.hawaiinewsnow.com/story/24401474/3-suspects-indicted-on-hawaii-mortgage-debt-scheme You MUST take control of your business! Even when a complaint is filed, it is up to you to protect yourself and your business. * A custom audit can be arranged to fit your situation *
Dirty and run down properties are always strong indicators that the property is being poorly managed and criminal activity may be occurring.
Property owners should have there property physically inspected for safety and cleanliness on a regular monthly basis. If you own a rental property, do not expect the Honolulu Fire Department to inspect your property and prevent losses before they happen. They are under trained and under worked. These asswipes do not even follow there own safety guidelines. This could result in a HUGE financial loss for you: http://www.hawaiinewsnow.com/story/36492623/hfd-fined-for-potential-asbestos-exposure-during-marco-polo-fire-response Tenants should be interviewed by the owner to get there opinion on the service they have been receiving or not. Contractor work should always be inspected every time a job is completed.
With very few State laws protecting property owners, business owners and consumers, local corruption has been on the rise for decades and has become an acceptable part of our daily lives and in the business world: http://archives.midweek.com/content/columns/justthoughts_article/hawaiis_culture_of_corruption/ Corruption and mistrust is at an all time high in Hawaii. If you think the person you have hired is beyond suspicion, this is for you: http://www.hawaiinewsnow.com/story/36645477/former-hpd-chief-louis-kealoha-and-wife-katherine-arrested-in-federal-public-corruption-case Can you afford to trust your agents, employees or contractors ? Your books should balance to the penny. DO NOT pay your employees or agents to steal your money! Have your business audited today. If not, “It is your business to bankrupt” Here a just a few of the areas that will be covered during the audit: 1. Failure to Retain Records for the Required Length of Time
Most states require property managers to retain records for 3 to 4 years. The types of records that should kept include deposit slips, cancelled checks, trust account records, and other transactions where a real estate license is required.
If paper records are kept, it is often hard to find them and it becomes burdensome to store years worth of records for more than just a couple properties. Not being able to produce complete historic records is a common audit finding. This could be due to a number of things; records filed in the wrong file, lost files/documents, or delay in finding and producing the document.
2. Not Maintaining Trust Fund Records
Whether a trust account is used or not, most states require tracking, usually in columnar format, items related to the collection of and disbursement of trust funds. States also allow the use of online property management software, so long as the records include the items below.
Date funds were received
Name of payee
Amount received
Date of deposit
Amount paid out
Check number and date
Daily running balance of the trust account
The most common findings related to maintaining trust fund records include failure to maintain trust fund records, maintaining records but not in a columnar format, using a standard checkbook as the record, recording incorrect amounts or dates, and not maintaining an accurate running daily balance of trust funds.
3. Not Reconciling The Trust Account
General guidance suggests that the trust account should be reconciled at least once a month. The first step in the reconciliation process, consists of matching up the transactions that were recorded on the ledger with the transactions on the bank account statement. Any discrepancies between the ledger and the bank account statements should be corrected and once all corrections are made the balance on the ledger should exactly match the balance on the statement. This results in what is referred to as the adjusted cash balance.
The second step is to then add up all the totals of all beneficiaries and compare this total to the adjusted cash balance. Both balance should match exactly. If they don’t then you have an overage or underage in the trust account. The more obvious reason for a trust fund shortage is the intentional misuse (conversion) of trust funds. However, simple record keeping errors that remain undetected could result in trust fund shortages and an actual loss of funds. Failure to record a disbursement, or understating the amount of a check disbursed, or overstating the amount of a deposit on the beneficiary ledger/record will cause the beneficiary ledger to show a balance that is larger than the true amount owed to the individual beneficiary. This overstated balance on the ledger is more likely to be paid and, consequently, the beneficiary will be paid more than what is due. The end result is a trust fund shortage.
Performing the proper trust account reconciliation should enable the audit to detect such causes of a trust fund shortage.
4. Commingling of Broker’s Funds with Funds Held in Trust
Brokers should NOT commingle their own money with the money they hold in trust for others. Often called, “Robbing Peter To Pay Paul”. If the property management fee is taken out of rents received, you are allowed to deposit the rents including the property management fee in the trust account, but usually the property management fees must be withdrawn from the trust account within a certain time frame of being deposited.
Audit findings related to commingling of funds usually include:
The broker depositing trust funds received in the broker’s general business account rather than a trust account
Keeping more than a couple hundred dollars of the brokers funds in your trust account
The broker not being aware of funds that are considered trust account funds.
For example, credit report fees are considered trust funds and must be maintained in the trust account until the bill is paid.
5. Failure to Keep Separate Records for Each Beneficiary or Transaction
Most states require property managers to maintain records for each beneficiary. Common beneficiaries are owners, tenants, and sometimes vendors. Beneficiary records should be maintained in columnar format, should show an accounting of all funds held in trust for each beneficiary, and can be maintained as an electronic record.
Information such as the date funds were received, deposited, and paid should be recorded in chronological order. Other items, check number and date, check amount, name of payee, and amount paid out, should be recorded as well. Common audit findings usually result from the failure to maintain these records, recording of incorrect dates or amounts, or not maintaining records in columnar format.
Putting The Grip On Dirty Business