Like every one of our competitors, we operate a separate trust account for rents received, independent of our other company accounts. We use this to hold our client’s funds until these are dispersed and this account is audited yearly.
Many property management companies advertise that they have independently audited trust accounts, implying that any funds are protected. They imply that their trust account is operating in the same was as a solicitors trust account when in fact they do not.
A solicitor’s trust account is governed by the NZ Law Society and covered by a fidelity fund. This means that for example, if there was impropriety from a solicitor at all, where funds were illegally taken from the account and could not be recovered, the client’s funds would be covered by this fidelity fund.
Property Management trust accounts are completely different. There are no rules or regulations governing these or protection from a fidelity fund. This includes trust accounts run either by independent companies or by REINZ affiliated real estate companies.
So to clarify, you are offered no greater protection from a property management company trust account run by a real estate company (REINZ) than you would be from using an independent property manager.
A trust account for any property management company is simply an additional bank account attributed to the business. At Selwyn Property Management we have this separate bank account, which is only used for the incoming payment and dispersement of rents.
This is reconciled fortnightly and all funds are dispersed to the owners, after deducting any management fees applicable for the period.
When companies advertise that their accounts are independently audited, what they are saying is that an accounting firm checks a number of transactions between the bank account and the account records.
These are of a financial nature only and are not an audit of systems and processes.
It is misleading when companies market themselves based on the fact they have independently audited trust accounts. This really doesn’t mean much at all.
An audit will not pick up acts of mismanagement by the company and the only recourse in this case, would be through the disputes tribunal at the district court.
Marketing in this way, on the premise that their client funds are safe because they are held in a trust account is simply false.
Client funds are only as secure as the property manager company operating the account.
It does simply comes down to trust...