How to Track Owner Balances and Prevent Commingling
Property balances are extremely important and are often overlooked, or put on the back burner. This can lead to disgruntled owners, failed audits, and over-drafting your bank account. Get ahead of the curve and check your owner balances regularly using the Trust Account Balance report. Learn more about this report and owner balances in today’s blog.
Trust Account Balance Report
The Trust Account Balance (TAB) report is vital to keeping your books in check. You can use this report for a number of things, but today we will focus on Owner Balance Auditing. To customize the TAB report to review owner balances please set your customization settings as follows:
- Select today’s date
- Select “All Properties” from the drop-down menu
- Under “Grouping” select “Group Rows By Category” > “Owner”
- Go to “Columns” and add the following: Unused Prepayments, Unpaid Bills, Work Order Estimates (if you use that feature), and Reserve Amount
Once you have your report customized scroll through and check for any negative balances, both on the individual property level and the owner group as a whole. If your bank account is positive overall, but you have negative owner balances, you are commingling funds. But don’t worry, we will walk you through correcting these!
With your customizations, you should be able to easily see if there are owners who have negative properties but enough funds in their portfolio to still be in the positive. In that case, the best practice is to use the “Transfer Owner Funds” function under “Payables” to even out the properties to clear up the negative balances. This is especially helpful to avoid overpaying an owner through their distribution since distributions are based on the property balance rather than the overall owner balance.
If you do not have any properties with negative balances, then congrats! Keep up the great work. Make sure to recheck the TAB report periodically to make sure you’re never commingling!
How to Handle Negative Balances
If you do have properties with negative balances, you’ll want to address those issues as soon as possible. There are several ways to resolve negative property balances. Depending on the situation you may need to:
- Ask the owner for a contribution
- Transfer funds between owner properties (if the owner has other properties with excess funds not covering reserves, prepayments, or unpaid bills)
- The PM company can deposit funds into the trust account to cover the negative until the property receives income, then the funds can be reimbursed
- If you are unable to retrieve the funds from the owner (this often happens when a closed/hidden property that is no longer being managed is carrying a negative balance) then ultimately, the property management company is responsible for contributing the funds to bring the property back up to zero. Record this via Other Receipt under Accounting > Receivables towards the income GL of your choosing.
We recommend that you run the TAB report at the month-end as a part of your routine. This will help you stay on top of owner funds before the property sells, or before the balances get too far into the negative. If you would like further assistance from one of our AppFolio Experts, or if you have additional questions, please reach out to us at email@example.com or call 281-949-8755. You can also visit our website at apmhelp.com to learn more about our services.