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Your trust audit cost more than it should have

If your financial year ends in February, your trust audit report was due at the end of August. For a lot of letting agencies that month is worse than it needs to be, and the reason is almost never dishonesty — it is that the year had to be rebuilt before it could be audited. Here is what actually drives that cost, and the four things worth changing while the invoice is still fresh.

Reconstruction is the expensive part, not the audit

An audit of a trust account that reconciles monthly is a short engagement. The auditor tests a sample, agrees the balances, and signs. An audit of a trust account that has not been reconciled since March is a different job: before anything can be tested, somebody has to build twelve months of ledgers out of bank statements, deposit slips and an email trail.

That rebuilding is billed at professional rates, and it is where the fee goes. The audit itself did not become more expensive; the preparation you did not do became the auditor's problem, and they charged you to solve it.

There is a second cost that is easy to miss. What reconstruction reliably finds is the discrepancy nobody knew about — a deposit refunded twice, commission drawn against rent that had not cleared, an unidentified receipt sitting in the account since June. Those are cheap to fix in the month they happen and awkward to explain a year later.

What the auditor was actually asking for

The requests that cause the most scrambling are all versions of the same question: can you show me this balance, per client, on this date?

A single blended trust balance does not answer it. What answers it is a ledger per landlord and per tenant deposit, each showing every receipt, disbursement and fee, reconciling individually and in total to the bank. If you can produce that, most of the audit is an export. If you cannot, everything else in the engagement waits while it is assembled.

The other recurring request is evidence that trust money stayed trust money — that commission moved to the business account only once it was actually earned and invoiced against a specific rent receipt, rather than swept across as a round number at month end. That distinction is invisible in a bank statement and obvious in a proper ledger.

Four things to change in the next month

Reconcile monthly, and treat it as a deadline. The trust bank balance must equal the sum of what you owe every trust creditor. Higher, and you are holding money you have not identified; lower, and you have a shortfall. Doing this twelve times a year takes less total effort than doing it once under pressure, and it converts a year-end excavation into a routine.

Keep a ledger per creditor, not per account. This is the single change that most reduces next year's fee, because it is the thing the auditor asks for first.

Stop the business borrowing from trust, including briefly. Paying an office expense out of the trust account "until Thursday" is a trust deficit on the days it exists. It is also the kind of thing reconstruction surfaces with dates attached.

Fix the date the commission is drawn. Commission moves from trust to business when it is earned and invoiced against a cleared receipt. Anything else is a timing difference you will be asked to explain.

Whether the section 23 exemption is worth a look

The Property Practitioners Act created a route the old regime did not have: a business property practitioner can apply to the PPRA for exemption from keeping a trust account, including where a registered payment processing agent receives and disburses all trust money on its behalf.

For a small agency that can be entirely rational — no trust bank charges, no trust audit fee, no monthly reconciliation. The trade-off is margin paid to the processor and dependence on their systems, and the exemption does not move your responsibility to your clients; it moves the trust environment to the processor, which makes their compliance your due diligence problem. It is also not automatic: you apply, and it operates only from the date on the letter.

Our guide to the PPRA trust account rules covers section 23 and the section 54 requirements in more detail.

The honest summary

Nothing in this guide is about working harder in August. It is about the eleven months before it. An agency that reconciles monthly and keeps a ledger per creditor has an audit that is an export; an agency that does not has an audit that is an archaeology project, and pays for the digging.

If you are holding tenant deposits, the interest owed back to the tenant compounds quietly across a multi-year lease and is a common audit query. Our free deposit interest calculator shows what a deposit should have earned over the tenancy.