Trust Account Management and Compliance in Alberta
The Real Estate Act Rules and Condominium Property Regulation outline the requirements for managing trust accounts.
WHAT YOU'LL LEARN
What the Legislation Requires
Key Steps for Trust Account Reconciliation
Common Issues in Trust Account Management
Maintaining Transparency with Boards and Owners
Handling Discrepancies in Trust Account
Establishing Trust Accounts
A brokerage that holds money in trust for a condominium corporation must maintain a trust account in the name of the condominium corporation.
Maintaining and Reconciling Trust Accounts
A brokerage must reconcile its trust accounts no later than one month following the end of the month being reconciled.
Transparency and Reporting Requirements
The brokerage must provide the client with a written statement of account that details all trust account transactions on a regular basis.
Key Steps for Trust Account Reconciliation
Monthly Reconciliation
Verify that all deposits, disbursements, and balances in the trust account match the financial records.
A brokerage must ensure that all trust accounts are reconciled monthly and that records are maintained for a minimum of three years.
Identifying Discrepancies
Compare the trust account records with bank statements to identify missing or incorrect transactions.
Resolving Discrepancies
Investigate the cause of discrepancies immediately (e.g., misallocated funds, data entry errors).
Document the resolution process and report findings to the board.
Common Issues in Trust Account Management
Issue 1: Late Reconciliation
Example: Reconciliations are delayed beyond the one-month deadline.
Risk: Non-compliance with Real Estate Act Rules and potential penalties.
Solution:
Create a monthly reconciliation schedule and assign clear responsibilities to staff.
Implement software tools to automate reconciliation processes.
Issue 2: Misallocated Funds
Example: Payments intended for one condominium corporation are mistakenly deposited into another corporation’s trust account.
Risk: Breach of fiduciary duties and loss of trust.
Solution:
Double-check deposit details before processing.
Immediately correct misallocations and notify affected parties.
Issue 3: Lack of Transparency
Example: Financial reports are incomplete or unclear, leaving the board and owners uninformed.
Risk: Erosion of trust and potential legal disputes.
Solution:
Provide regular, detailed financial statements to the board, including all trust account transactions.
Maintaining Transparency with Boards and Owners
Requirements for Financial Transparency
Transparency ensures that boards and owners have confidence in the management of their funds.
Regular Reporting:
The corporation must provide owners with an annual financial statement summarizing income, expenses, and reserve fund balances.
Access to Financial Records:
Financial records must be made available to owners upon request, except for records relating to legal proceedings or confidential matters.
Best Practices for Transparency
Provide Regular Updates:
Deliver monthly or quarterly financial statements to the board, including:
Opening and closing trust account balances.
A breakdown of income and expenses.
Reserve fund transactions.
Communicate Clearly:
Use plain language and visual aids (e.g., charts) to explain financial information.
Document Everything:
Maintain clear records of all financial transactions, correspondence, and meeting minutes.
Interactive Activity
Scenario:
A condominium board is concerned about discrepancies in the trust account and demands a detailed explanation. The manager realizes that two recent payments were misallocated to the wrong corporation’s account.
Task:
Identify the steps the manager should take to resolve the issue and restore transparency with the board.
Handling Discrepancies in Trust Accounts
Steps to Address Discrepancies
When discrepancies are identified, managers must act promptly to resolve them and maintain compliance with the Real Estate Act Rules.
Investigate the Cause:
Review transaction records to identify errors or omissions.
Cross-check with supporting documents (e.g., invoices, receipts, bank statements).
Correct the Error:
Process adjustments to correct the misallocated funds.
Ensure that the affected parties are informed.
Report to the Board:
Provide a detailed explanation of the discrepancy and how it was resolved.
Implement Preventive Measures:
Update internal controls to minimize future errors (e.g., dual sign-off for transactions).
Legislative Compliance
Record-Keeping Requirements:
The brokerage must retain all financial records for a minimum of three years to demonstrate compliance with the Act and Rules.
Audits and Inspections:
Trust accounts may be subject to audits or inspections by the Real Estate Council of Alberta (RECA).
Case Study
Scenario:
During a routine reconciliation, a manager discovers that $10,000 intended for a reserve fund contribution was mistakenly deposited into the operating account. The board is unaware of the issue.
Task:
Analyze the situation and outline the steps the manager must take to resolve the discrepancy and comply with the Real Estate Act Rules.
