Property managers face increasing scrutiny from state licensing boards regarding trust account compliance. Buildium's trust reconciliation features and reporting tools provide the documentation needed to pass state property management audits successfully. The platform streamlines record-keeping and generates the specific reports auditors require.

Passing an audit requires more than just clean books. Even accounts that pass audits may not be legitimate trust accounts established at the bank. Property managers must understand proper setup procedures, common compliance errors, and how to leverage Buildium's features for ongoing audit readiness.

This guide covers the complete audit process using Buildium, from initial trust account setup through audit preparation. Property managers will learn how to avoid common mistakes, utilize reporting features effectively, and maintain compliance year-round through proven best practices.

Key Takeaways

• Buildium's trust reconciliation reports provide the documentation required by state licensing boards during audits
• Proper trust account setup at the bank level is essential even if your books pass audit requirements
• Regular use of Buildium's compliance features and reporting tools ensures ongoing audit readiness throughout the year

Trust-Account Audit Process with Buildium

The audit process requires specific documentation and systematic record organization to meet state compliance requirements. Property managers must understand common audit triggers and maintain detailed transaction records to pass regulatory examinations.

What Documents Are Needed for a Trust-Account Audit?

Property managers need comprehensive documentation for each trust account transaction during audits. Bank statements form the foundation of audit requirements.

Receipts and disbursements records must show every dollar entering and leaving trust accounts. These include rent payments, security deposits, maintenance expenses, and owner distributions.

Monthly bank reconciliation statements prove that recorded transactions match actual bank activity. Auditors verify these reconciliations to confirm accuracy.

Trust account ledgers detail individual owner balances and property-specific transactions. Each entry requires dates, amounts, and clear descriptions of the transaction purpose.

Client authorization forms demonstrate proper approval for disbursements. These documents show property managers followed proper procedures before releasing funds.

Financial statements and trial balances provide overall account summaries. Trust account audit compliance requires these reports to show accurate owner balances and transaction recording.

How Does Buildium Organize Trust-Account Records?

Buildium maintains separate ledgers for each property owner within the trust account system. This organization prevents commingling of funds between different clients.

The platform automatically generates required reports for audit compliance. These include trust reconciliation reports that state licensing boards commonly request during examinations.

Transaction categorization happens automatically when property managers enter financial data. Buildium separates income from expenses and tracks individual owner balances in real-time.

Managing trust account records becomes streamlined through automated bank reconciliation features. The system matches bank transactions with recorded entries to identify discrepancies.

Buildium's audit log tracks every financial transaction addition, edit, or deletion. This detailed record shows who made changes and when modifications occurred.

The platform stores historical data for multiple years, ensuring property managers can access past records during audits. Digital storage eliminates lost paperwork concerns.

What Are Key Audit Triggers for Property Managers?

Negative trust account balances trigger immediate audit attention from regulatory boards. These occur when property managers spend more than available funds for specific owners.

Missing or incomplete monthly reconciliations signal poor record-keeping practices. Auditors focus on properties with gaps in reconciliation documentation.

Large unexplained variances between bank statements and recorded transactions raise red flags. These discrepancies suggest potential errors or mishandling of funds.

Commingling personal or business funds with trust money violates regulations. Auditors examine account activity for unauthorized transactions or deposits.

Late or missing owner distributions without proper documentation create compliance issues. Property managers must justify delayed payments with written explanations.

Insufficient supporting documentation for expenses triggers detailed reviews. Every disbursement requires receipts, invoices, or authorization forms to satisfy audit requirements.

Setting Up Trust Accounts in Buildium

Proper trust account configuration in Buildium requires correct chart of accounts setup, specific account settings, and clear separation of owner and tenant funds. These elements work together to create audit-ready property management accounting systems.

How to Configure Chart of Accounts in Buildium?

The chart of accounts forms the foundation of trust accounting in Buildium. Property managers must create separate account categories for different fund types.

Required Account Categories:

• Security Deposits (Liability Account)
• Tenant Rent Receivable (Asset Account)
• Owner Distributions (Equity Account)
• Property Operating Expenses (Expense Account)

Each property owner needs individual sub-accounts within these categories. This prevents commingling and maintains clear audit trails.

Buildium automatically generates account numbers for each category. Property managers should customize these numbers to match their existing accounting systems.

The system requires balance sheet accounts for all trust-related transactions. Income statement accounts alone cannot track trust fund movements properly.

Trust accounting setup becomes more reliable when managers use consistent naming conventions across all accounts.

What Account Settings Prevent Audit Issues?

Trust account warnings in Buildium alert property managers to potential compliance problems before they occur. These settings prevent negative balances and unauthorized fund transfers.

Critical Settings to Enable:

• Trust Account Warnings: Prevents overdrafts and negative owner balances
• Separate Bank Accounts: Links specific Buildium accounts to real bank accounts
• User Permissions: Restricts access to trust account modifications

The system tracks every transaction against available balances. When enabled, warnings appear if transactions would create negative balances for individual owners.

Bank account linking ensures each Buildium account connects to the correct real-world bank account. This prevents deposits from going to wrong accounts.

User permissions control who can modify trust account settings. Only licensed brokers and bonded employees should have full access.

How to Separate Owner and Tenant Funds Properly?

Proper fund separation requires distinct account structures for each property owner and clear transaction coding. Buildium tracks these separately through its trust accounting features.

Owner Fund Separation:

• Each owner gets individual liability accounts
• Security deposits remain separate from operating funds
• Maintenance reserves stay distinct from rent collections

Tenant Fund Tracking:

• Rent payments go to designated trust accounts
• Security deposits enter separate liability accounts
• Late fees and other charges use specific income categories

The system automatically calculates owner balances based on rent collections minus approved expenses. Property managers cannot accidentally mix funds between different owners.

Monthly reconciliation reports show exactly how much money belongs to each owner. These reports match bank statements and provide audit compliance documentation required by state licensing boards.

Trust account reconciliation becomes automatic when property managers consistently use correct account codes for all transactions.

Common Audit Errors for Property Managers

Property managers face specific challenges during trust account audits, with most issues stemming from poor record keeping, missed reconciliations, and compliance violations. These errors can result in hefty fines, license suspension, or legal action from regulatory bodies.

What Transactions Are Most Often Flagged?

Security deposit handling creates the most audit problems for property managers. Many fail to properly segregate these funds or mix them with operating expenses.

Rent payments frequently show discrepancies when partial payments aren't recorded correctly. Late fees and application fees also trigger flags when they're deposited into trust accounts instead of operating accounts.

Maintenance disbursements cause issues when property managers pay vendors directly from tenant funds without proper authorization. Emergency repairs often lack adequate documentation.

Owner distributions get flagged when timing doesn't match lease terms or when property managers make trust accounting mistakes by distributing funds before clearing periods.

Interest calculations on security deposits create problems in states requiring interest payments to tenants. Many property managers fail to track or calculate these amounts properly.

Refund transactions show up as red flags when security deposits aren't returned within legally required timeframes or when deductions lack proper documentation.

How to Identify Reporting Discrepancies?

Daily reconciliation failures create the biggest reporting problems. Property managers should check that bank balances match their software records every single day.

Ledger imbalances appear when individual tenant accounts don't add up to the total trust account balance. This happens when transactions get posted to wrong accounts or when adjustments aren't properly recorded.

Missing documentation becomes obvious during audits when deposit slips, receipts, or authorization forms can't be produced. Digital records must be complete and accessible.

Timing differences show up when deposits are recorded on different dates than when they actually cleared the bank. This creates temporary discrepancies that auditors will question.

Duplicate entries occur when the same transaction gets recorded multiple times, often during manual data entry or when importing bank statements.

Property managers can use trust account audit preparation tips to maintain organized records and avoid these common reporting errors.

Which Trust Violations Lead to Compliance Risks?

Commingling funds represents the most serious violation. Property managers cannot mix personal money, business operating funds, or owner money with tenant security deposits and rent payments.

Unauthorized disbursements create major compliance risks when property managers spend tenant money without proper written authorization from owners or tenants.

Record retention failures violate legal requirements in most states. Property managers must keep detailed transaction records for three to seven years depending on local regulations.

Late reporting to state agencies can result in automatic penalties. Many states require monthly or quarterly trust account reports with specific deadlines.

Inadequate segregation occurs when different types of funds aren't properly separated. Security deposits often require separate accounts from rent payments.

Missing interest payments violate tenant rights in states requiring property managers to pay interest on security deposits. These violations can trigger class action lawsuits.

Improper fee handling happens when property managers deposit management fees or late charges into trust accounts instead of operating accounts. This creates compliance issues with state licensing boards.

Best Practices for Ongoing Compliance

Property managers must establish consistent routines for reconciliation schedules, record retention, and audit trail maintenance to ensure trust account compliance year-round. These practices create the foundation for financial management transparency and reduce audit stress.

How Often Should Reconciliations Be Run in Buildium?

Property managers should run reconciliations monthly at minimum for each trust account. Weekly reconciliations provide better oversight for high-volume properties.

Daily reconciliations work best for properties with frequent transactions. This schedule catches discrepancies quickly and maintains accurate balances.

Monthly reconciliation tasks include:

• Bank statement comparisons
• Owner balance verification
• Tenant deposit tracking
• Maintenance reserve confirmations

Property managers must complete reconciliations within 30 days of month-end. Some states require reconciliations within 15 days or less.

Buildium's automated reconciliation features help streamline this process. The system flags discrepancies and generates reports for easy review.

What Records Must Be Kept for Each Property?

Property managers must maintain comprehensive documentation for every trust account transaction. Records should include bank statements, receipts, invoices, and correspondence.

Essential records for each property:

• Lease agreements and amendments
• Rent payment records
• Security deposit documentation
• Maintenance invoices and receipts
• Owner distribution records

Most states require trust accounting records to be kept for 3-7 years. Property managers should verify their state's specific requirements.

Digital storage works well when properly backed up. Physical copies should be stored securely and organized by property and date.

Buildium automatically stores transaction records within the system. Property managers should still maintain backup copies of critical documents.

How to Maintain Accurate Audit Trails?

Audit trails require detailed documentation of every financial transaction and decision. Property managers must record the who, what, when, and why for each entry.

Every transaction needs supporting documentation attached. This includes invoices, receipts, work orders, and approval records.

Key audit trail elements:

• Transaction date and amount
• Account codes and descriptions
• Supporting documentation
• Approval signatures or electronic approvals
• Correction explanations with dates

Property managers should never delete transactions from Buildium. Corrections must be made through proper adjustment entries with full explanations.

User access controls help maintain audit trail integrity. Only authorized staff should have permission to enter or modify financial data.

Regular internal reviews catch errors before external audits. Property managers should review unusual transactions monthly and investigate any discrepancies immediately.

Utilizing Buildium Reports for Audits

Buildium provides specific reports designed to meet state audit requirements and documentation standards. Property managers can configure these reports with proper settings to ensure compliance and streamline the audit process.

Which Buildium Reports Support Trust Audits?

The Trust reconciliation report serves as the primary audit tool within Buildium's accounting software. This report collection includes all documentation commonly required by state property management licensing boards.

Key Trust Audit Reports:

• Trust reconciliation summary
• Individual owner balance reports
• Transaction detail reports
• Bank reconciliation statements

The Trust reconciliation report collection allows state auditors to verify that transactions are recorded accurately. Each owner's balance appears clearly defined in these reports.

Property managers also need the Audit log report for complete transparency. This detailed record shows every financial transaction that has been added, edited, or deleted from the account.

How to Export Data Auditors Request?

Buildium reports can be exported in multiple formats to meet auditor requirements. Most auditors prefer Excel spreadsheets or PDF documents for their review process.

Export Steps:

1. Generate the required trust report
2. Select the appropriate date range
3. Choose export format (Excel, PDF, or CSV)
4. Save files with clear naming conventions

Property managers should organize exported files by date and report type. Creating separate folders for each audit period helps maintain organization and quick access during the audit process.

Some auditors request raw transaction data. The transaction detail reports provide this information in a format that shows all deposits, withdrawals, and transfers within the trust account.

What Report Settings Should Be Used for Auditing?

Report settings must match the audit period exactly to ensure accuracy. Property managers should verify date ranges cover the entire audit timeframe without gaps or overlaps.

Critical Report Settings:

• Date Range: Match exact audit period dates
• Account Selection: Include all trust accounts
• Detail Level: Choose full transaction detail
• Sorting: Organize by date or property

The report frequency should align with state requirements. Monthly reports work for most audits, but some states require daily or weekly reporting periods.

Property managers must ensure all bank accounts are selected when generating reports. Missing accounts can cause audit failures and compliance issues with state licensing boards.

Preparing for Audit Reviews and Inspections

Property managers must organize their Buildium data systematically and respond promptly to auditor requests. Quick access to financial records and proactive communication help ensure compliance and minimize disruptions during inspections.

How to Respond to Auditor Requests in Buildium?

Property managers should establish a clear protocol for handling auditor requests when they receive audit notices. The first step involves gathering all requested documents from Buildium's reporting system.

Key documents typically requested include:

• Bank statements and reconciliation reports
• Individual tenant ledgers
• Receipts and disbursements journals
• Check registers and transaction histories

Property managers can generate these reports directly from Buildium's financial dashboard. The system allows users to filter data by date ranges, property types, and account categories.

When auditors request specific timeframes, property managers should export reports in PDF format for consistency. They should also prepare backup documentation stored outside Buildium, such as bank statements and canceled checks.

Response time matters significantly during trust account audits. Property managers should designate a team member who knows Buildium's system well to handle auditor communications.

What Steps Ensure a Smooth Inspection?

Preparation begins weeks before the actual inspection date. Property managers should run monthly reconciliation reports in Buildium to identify any discrepancies early.

Pre-inspection checklist:

• Verify all tenant payments are properly recorded
• Confirm security deposit accounts balance correctly
• Check that maintenance expenses are categorized properly
• Review rent roll reports for accuracy

During the inspection, property managers should have someone available who can navigate Buildium efficiently. This person should understand how to access different modules and generate reports quickly.

Auditors often request live demonstrations of the software's capabilities. Property managers should practice pulling specific reports and explaining their record-keeping processes using Buildium's features.

The inspection space should include computer access to Buildium and a printer for generating additional documents. Having a backup internet connection helps prevent delays if technical issues arise.

How to Address Corrective Actions After an Audit?

Most audits result in recommendations for improvement rather than major violations. Property managers typically have 45 days to implement corrective actions following trust account audits.

Common corrective actions include:

• Improving documentation procedures
• Adjusting chart of accounts structure
• Implementing additional approval workflows
• Enhancing monthly reconciliation processes

Property managers should document all changes made in Buildium and create new standard operating procedures. They should also schedule follow-up reviews to ensure the corrections remain effective.

Some auditors require written confirmation that corrective actions have been completed. Property managers should prepare before-and-after reports showing how they addressed each recommendation using Buildium's updated processes.

Training staff on new procedures helps maintain compliance long-term. Property managers should create written guides that reference specific Buildium features and workflows to support consistent implementation.

Maintaining Trust-Account Integrity

Strong internal controls and proper staff training form the foundation of trust-account compliance. Property managers must implement systematic monitoring processes to detect potential fraud while ensuring all team members follow established procedures.

How to Train Staff on Compliance Procedures?

Property managers should create a formal training program that covers all trust-account regulations and company policies. New employees must complete this training before handling any client funds.

Training components include:

• State and local trust-account laws
• Proper documentation procedures
• Client fund handling protocols
• Record-keeping requirements

Monthly refresher sessions help staff stay current with compliance updates. Property managers should document all training activities and maintain records of employee completion.

Role-specific training ensures each team member knows their exact responsibilities. Accounting staff need different skills than leasing agents who collect deposits.

Testing staff knowledge through regular quizzes identifies gaps in compliance understanding. Failed tests require immediate retraining before the employee can handle trust funds again.

What Internal Controls Are Essential?

Dual authorization requirements prevent unauthorized transactions. Two designated employees must approve all trust-account disbursements above a specific dollar amount.

Key internal controls include:

• Segregation of duties between recording and authorizing transactions
• Daily bank reconciliations by someone other than the bookkeeper
• Monthly trust-account balance reviews by management
• Quarterly audits of all client ledgers

Property managers should restrict access to trust accounts to only essential personnel. Each authorized user needs unique login credentials that track their specific actions.

Bank statements must be reviewed by someone who doesn't prepare the reconciliations. This creates an additional layer of oversight that catches errors and irregularities.

Automated alerts notify managers when account balances fall below required minimums. These trust account compliance measures prevent accidental shortfalls.

How to Monitor for Fraudulent Activities?

Property managers must implement systematic monitoring to detect suspicious activities in trust accounts. Regular pattern analysis helps identify transactions that deviate from normal business operations.

Red flags to monitor:

• Unusual transaction amounts or timing
• Frequent manual overrides of system controls
• Discrepancies between bank statements and internal records
• Missing or altered documentation

Daily transaction reviews by management catch problems before they escalate. Any transaction above normal thresholds requires immediate investigation and documentation.

Computer software can flag unusual activities automatically. These systems compare current transactions against historical patterns to identify anomalies.

Property managers should conduct surprise account reviews without advance notice to staff. Random audits of trust account records reveal control weaknesses that scheduled reviews might miss.

Bank confirmation procedures verify that recorded balances match actual account totals. Monthly confirmations directly from the bank prevent internal manipulation of records.

Frequently Asked Questions

Property managers face specific challenges when preparing for trust account audits, from maintaining accurate records to ensuring proper fund separation and meeting state regulatory requirements.

What are the crucial steps for preparing for a trust account audit when using Buildium software?

Property managers should start by running Buildium's Trust reconciliation report to verify all transactions are recorded accurately. This report collection helps pass audits conducted by state licensing boards.

The next step involves organizing financial records and supporting documentation. Maintaining accurate and up-to-date records ensures ledgers and transaction details are accessible during the audit process.

Property managers must also enable trust account warnings in Buildium. These warnings alert users before creating problematic scenarios that could cause audit issues.

How should property management funds be structured to ensure compliance during an audit?

Trust accounts must keep tenant rent payments and security deposits separate from business operating funds. This separation is legally required and prevents commingling of client money with company funds.

Property managers should establish dedicated trust accounts at FDIC-insured banks. Each account must be clearly labeled as a trust or escrow account with proper titling that identifies the property management company as the trustee.

Monthly reconciliation of each trust account is essential. Bank statements must match the internal ledger records for every property and tenant within the trust accounting system.

Which types of trust accounting systems meet the regulatory requirements of the Department of Real Estate?

Property management software must provide detailed transaction tracking and reporting capabilities. Buildium's trust accounting features allow state regulators to verify that each owner's balance is clearly defined and transactions are recorded accurately.

The system must generate trust ledger reports that show individual property owner balances. These reports must track all money received and disbursed on behalf of each client.

Audit trail functionality is required to show when transactions were entered and by whom. This creates accountability and transparency for all trust account activity.

What documentation is essential for property managers to have on hand for trust account audits in Texas?

Bank statements for all trust accounts must be available for the entire audit period. These statements should be reconciled monthly with supporting documentation for any discrepancies.

Property managers need tenant lease agreements, rent rolls, and security deposit records. Each document must clearly show the amounts collected and the purpose of each payment.

Disbursement records including owner statements, maintenance receipts, and expense documentation are required. Every payment from the trust account must have proper authorization and supporting paperwork.

What are the best practices for recording transactions in trust accounts within Buildium?

Enter transactions on the same day they occur to maintain accurate real-time balances. Delayed entry can create confusion and potential compliance issues during audits.

Use specific transaction descriptions that clearly identify the property, tenant, and purpose of each entry. Generic descriptions make it difficult to trace money flow during audits.

Run balance sheet reports regularly to identify any negative balances or discrepancies. Address these issues immediately to prevent audit complications.

Who is qualified to perform an audit on a property management trust fund?

Licensed Certified Public Accountants (CPAs) with experience in trust accounting can perform these audits. The CPA must be independent and have no business relationship with the property management company.

State real estate licensing boards may conduct their own audits as part of routine compliance checks. These audits are typically performed by licensed investigators or auditors employed by the state.

Some states require specific audit certifications or additional training for auditors examining trust accounts. Property managers should verify their auditor meets all state requirements before beginning the audit process.