STATE OF TENNESSEE
DEPARTMENT OF COMMERCE AND
INSURANCE
TENNESSEE REAL ESTATE COMMISSION
500 JAMES ROBERTSON PARKWAY
NASHVILLE TN 37243-1151
T.R.E.C.
Audit Overview
Presented By,
Ahmad Lewis
AGENDA

BROKERS RESPONSIBILITIES

COMMON ISSUES

PROPERTY MANAGEMENT

RECORD KEEPING

TREC AUDIT

QUESTIONS
BROKERS RESPONSIBILITIES
 Brokers
owe a fiduciary duty to exercise
reasonable care, skill, and diligence to their
principal.
 An
important aspect of the broker’s fiduciary
responsibility to the client is the maintenance
of adequate records to account for trust funds
received and disbursed.
BROKERS RESPONSIBILITIES

Pursuant to T.C.A. § 62-13-321 a broker must maintain
records showing the following for at least 3 years
(1) The depositor of the funds;
(2) The date of deposit;
(3) The date of withdrawal;
(4) The payee of the funds; and
(5) Other pertinent information that the commission may
require.
BROKERS RESPONSIBILITIES
 Brokers
are required to supervise the activities
of affiliates and employees pursuant to TN
Rule 1260-02-.01.
 TN Rule 1260-02-.09 – Deposits and
Earnest Money

an affiliate broker shall pay over to the broker
with whom he is under contract all deposits and
earnest money immediately upon receipt.
COMMON ISSUES
 Days
of delay in depositing/disbursing EM
 Depositing/Disbursing EM funds far in
advance of contract binding date/contract
closing date
 Co-mingling funds
 Misuse of funds (Paying bills, payroll, etc.)
PROPERTY MANAGEMENT
 Rental
deposits must be held in a separate
escrow
 Maintain an individual <or subsidiary> ledger
for each tenant
 Maintain bank reconciliation for Rental
deposits escrow
RECORD KEEPING
 Keeping
complete and accurate trust account
records is easy when there are procedures in
place.
 The
accuracy of the records is verified by
reconciling them at least once a month.

Reconcile the bank account record with the
bank statement
RECORD KEEPING
 The
purpose in reconciling the trust account is
to obtain a level of assurance that the balance
on the bank account record is correct.
 Keeping
complete and accurate trust account
records is easier when specific procedures
are regularly followed.
RECORD KEEPING

The following is a list of a few suggested
procedures:
1.
Record transactions daily in the trust/escrow bank
account.
2.
On a consistent basis use the same specific source
documents as a basis for recording trust receipts and
disbursements.
3.
Calculate the account balances on all applicable
records at the time entries are made.
RECORD KEEPING
4.
Reconcile the records monthly to ascertain that
transactions are properly recorded on both the bank
account record and the applicable subsidiary account
records (i.e. any account that flows in to the general
ledger).
5.
If more than one trust/escrow bank account is
maintained, keep a different set of records for each
account.
RECORD KEEPING
Activity
Documents
Receiving trust funds
• Real Estate
purchase/sales contract
• Collection receipts
Depositing Trust monies
• Bank Deposit slips
Disbursing trust monies
• Checks issued
• Supporting papers for the
checks, such as invoices,
escrow statements,
billings, receipts, etc.
TREC AUDIT

The Commission has established an ongoing
program of examining brokers trust/escrow
records.

Pursuant to T.C.A. § 62-13-312(d), “The director of
the division of regulatory boards or the director’s
duly authorized representatives may, at all
reasonable hours, examine and copy such books,
accounts, documents, or records as are relevant
to a determination of whether a licensee has
properly maintained and disbursed funds from
escrow or trustee accounts…”
TREC AUDIT
 As
necessary audited licensees will be made
aware of deficiencies in trust fund handling
and record keeping.
 During
the mail in audit process the
information on the following slides will be
requested and some or all documents may be
applicable to your firm.
TREC AUDIT
 Audits
are randomly selected from our
database of firms on a monthly basis
 If
you receive a mail in audit letter than you
will have 30 days to respond and provide the
following kinds of information
TREC AUDIT

Bank Statements

Copies of Bank Reconciliations

List of individual ledger balances or individual tenant
security deposits

List of earnest money amounts held, disbursed and
interpleaded

HUD-1 statements for selected closings

Copies of Purchase/Sales agreements
TREC AUDIT

Release of earnest money form

Lease agreements for selected leases

Copies of the journal or check registers, including
a record of daily balances

List of outstanding checks and deposits by month

List of all licensees affiliated with your firm currently
CONTACT INFORMATION
Ahmad Lewis – TREC Auditor
Ahmad.Lewis@tn.gov
Phone:(615) 741 – 7548
QUESTIONS