VIII. Year End Reports and Office Inspections
Council Review Of Accounts And Other Brokerage Records
Under section 7-6 of the Rules, the Council regularly conducts inspections of brokerages throughout British Columbia. The purpose of these inspections is to ensure that brokerages have proper controls in place to protect trust monies. Additionally, the inspection tests for compliance with the other requirements of RESA, the Regulation, the Rules and Bylaws. The inspection includes, for example, a review of:
- the brokerage’s books and records
- written disclosures that are required to be made; and
- service agreements entered into by the brokerage.
The Council’s intention is to examine all new brokerages in the province within 12 months of the brokerage obtaining licensing under RESA. Random inspections are also undertaken. Further, some inspections are the result of a complaint, exceptions on an Accountant’s Report or deficiencies identified in a previous inspection.
In advance of an inspection, the Council will, in most circumstances, notify the brokerage setting out the books and records that may be required to be reviewed by the Council’s Audit Department.
When the Council’s auditor arrives at the brokerage’s office, he/she will want to have a brief discussion with the managing broker of the brokerage with the focus on gaining some knowledge about the brokerage, the level of activity during the year, determining what additional documents will be required to perform the examination and having the managing broker introduce any key staff members to the auditor.
During the inspection, the auditor is normally looking to ensure that:
- the brokerage maintains a proper place of business (section 2-5 of the Rules);
- the brokerage has the brokerage licence displayed prominently in the reception area and the licences of all related licensees available for inspection (section 4-1 of the Rules);
- a sign indicating the licensed name of the brokerage at the entrance to the office, and in the building directory, if applicable (section 4-2 of the Rules);
- the brokerage has a managing broker in active charge of the business (section 6 of RESA);
- the brokerage maintains proper books and records (part 8 of the Rules), including:
- monthly trust reconciliations for each trust account;
- monthly trust liability reconciliations listing every client the brokerage holds trust funds for and the amount of funds being held for each client;
- trust bank statements, cancelled cheques and deposit books;
- trust journal and ledger for each trust account;
- a list of all trades in real estate,rental properties, and strata corporations managed by the brokerage;
- trade record sheets and copies of contracts in all real estate sales files;
- rental property management files containing copies of tenancy agreements, accounting statements sent to owners, invoices and service agreements;
- strata management files containing accounting statements sent to strata corporations, invoices, monthly statements provided by financial institutions, service agreements;
- general account bank statements, cancelled cheque reconciliations and journals;
- trust accounts have been designated as such by including the words “trust account” on the trust cheques and bank statements;
- trust accounts have no overdrafts or debit balances, and funds held in trust by the brokerage have been deposited;
- disclosures that have been made in personal real estate acquisitions; and
- trust or general accounts have no unusual items flowing through them.
All licensees should keep in mind that the items being reviewed are expected to be in a current state as they are considered to be crucial to the brokerage’s business.
(a) Office and Records Inspection Information
In order to ensure that brokerages in BC are conducting their business in compliance with the applicable rules and legislation, Council staff auditors travel to brokerages throughout the province to carry out Office and Records Inspections (the “O&RI”).
Before a Council auditor visits each brokerage, they send the managing broker a letter advising them of the records and documents that will be required at the inspection. While other records may be requested at the time of the inspection, the letter identifies the key documents that are needed to confirm whether the brokerage is in compliance with the applicable rules and legislation.
The list below reproduces the list of documents that are itemized in the letter. Strata managing brokers may wish to use the list to confirm to their own satisfaction that their brokerage is meeting all required procedures and policies.
Brokerage and Commission Trust Funds
- deposit slips and cheque stubs for all trust accounts for a stated period of time;
- all trust account bank statements and cancelled cheques for a stated period of time;
- trust journal and individual client ledgers showing deposits and withdrawals for each trust account and individual client trust ledger, respectively; and,
- monthly trust account bank reconciliations and trust liability reconciliations (i.e. month-end listing of individual client trust ledgers).
- bank statements and cancelled cheques; deposit slips and cheque stubs;
- monthly bank reconciliation reconciling the bank balances to the cash journal month end balances; and,
- a cash journal or synoptic, which consists of a listing of all deposits and withdrawals for general business purposes.
- general ledger, trial balances, and internal financial statements.
Strata Property Management Services
- a listing of all properties managed by the brokerage from (date), including sufficient information to identify the property;
- strata property management files containing: strata property management services contracts, financial statements and bank statements sent to owners, strata council meeting minutes (regular, special and AGM), expenditure invoices, and any other correspondence relating to the management of strata; and,
- bank statements, cancelled cheques, deposit books and monthly bank reconciliation for all operating, contingency, special levy, builder’s lien and other strata related accounts.
Other information that may be reviewed and collected by the auditor includes:
- a summary of the brokerage’s profile and activities, including:
- branch offices
- managing broker responsibilities,
- a summary of licensee’s activities, including:
- personal acquisition and disposal of real estate
- associated licensee or employment agreements
- subordination agreements,
- any other relevant documentation
The Council requires licensees to complete educational requirements every licensing cycle as a condition of continued licensing. The auditor may require the brokerage to have available proof of licensees’ completion of the required REP courses.
Practice Tip: Stay Informed
The laws and rules affecting real estate are subject to constant and continuing change. Managing brokers have a duty to keep themselves up-to-date on such important changes. The best means of keeping up-to-date is by reading the Report from Council newsletter. Published six times a year, it includes reports on any major changes in regulations or policies. Licensees may also wish to refer to the PSM, now available online and fully searchable.