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1 Arizona Audit Review This document is intended to assist PROMAS users in Arizona in preparing audit documentation required by the ADRE. State documentation is available at It is our understanding that the ADRE will request the audit information for a six month period which means running/providing the required reports for each month of the audit period. Keeping files (PDF or hard copy) of the reprots that are run each month for the reconciliation is recommended. The other reports can be run as required, rather than every month in anticipation of an audit which won't happen but every few years. ADRE requires that a 3-way reconciliation be done each month for each bank account. They must be signed and filed. They also require that the Management Group balance be drawn down to $3,000 or less once a month. An acceptable way to document this is to do a second 3-way reconciliation after doing distribution checks and paying out all the company fees. These documents should be saved in PDF format so in event of an audit they will be readily available to give or send to the auditor. For companies paying tax on rent who maintain separate management groups for each tax authority, it is required that those management group ledgers be cleared out regularly. Copies (PDF or hard copy) of checks must be maintained. Internet availablility to the check is non-compliant. A 3-way reconciliation considers the bank reconciliation report, the bank activity and the bank balance breakdown for the same day. They should all reflect the same balance. In addition to the basic 3-way you should also run the Ledger Balance Equation reports as outlined in Section IV. The 3-way reconciliation described here satisfies some or all of #8,9,14 of the EBAR requirements. Following the 3-way reconciliation documentation the additional EBAR reequirements that can be satisfied by PROMAS reports are detailed. The last page is a list of the requested items for EBAR (Electronic Broker Audit Review). 7/2015 Arizona Audit Review- 1 #729

2 Trust Account Reconciliation - 3-Way The next page contains a form you can use to record the 3-Way Reconciliation. This form can be used in conjunction with the Audit Worksheets, found in the How To document #703 Audit. That document has more information about auditing your accounts. Instructions for completing the 3-Way Reconciliation 1. Select the target date usually the last day of the previous month 2. Do the bank reconciliation (GL, Reconcile Bank Account) for all bank accounts through the target date. Print the reconciliation reports and post the reconciliation. 3. Copy the Available Balance numbers from the report to the form, part I. 4. Run the Bank Activity Report (Reports, Bank Reports) as of the target date. 5. Copy the Ending Balance amount from the report to the form, part II. 6. Run the Bank Balance Breakdown report (Reports, Bank Reports) as of the target date. 7. Copy the Bank Activity Balance total from the report to the form part III. 8. If there are differences in the three totals, see How To document #703 Audit for suggestions on how to explain or correct those differences. 9. Attach copies of the reports to the form. 7/2015 Arizona Audit Review- 2 #729

3 PROMAS Trust Account 3-Way Reconciliation Bank Account: Date: I: Bank Reconciliation Report Bank Statement - Cleared Balance A. TOTAL $ Plus: uncleared deposits and other uncleared additions $ Less: uncleared checks and other uncleared subtractions $ Available Balance as of B. TOTAL $ II: Bank Activity Report Ending Balance as of TOTAL $ III: Bank Balance Breakdown Report Bank Activity Balance as of TOTAL $ Bank Cleared Balance as of TOTAL Cleared Balance on I = Bank Cleared Balance on III Ending Balance on II = Bank Activity Balance on III Amount of difference, if any: $ Explanation of difference and corrective action: 7/2015 Arizona Audit Review- 3 #729

4 IV. Ledger Balance Equation Real estate commissions frequently want to see that the Checkbook balance (Available bank balance shown in I on previous page) matches the sum of owner and tenant balances. Use the equation below. This is what the Audit Worksheet shows, but in a slightly different format. Equation: bank stmt balance plus/minus uncleared = owner balances + open credits + management balance + other owner liabilities (+ security deposits if in the same bank and not Held By Owner) Section A bank - from I above Bank Statement - Cleared Balance $ Plus: uncleared deposits and other uncleared additions $ Less: uncleared checks and other uncleared subtractions $ Checkbook balance (Available bank balance) TOTAL $ Section B ledgers - Checking Bank Ledger balances (ledger balance report - include Mgmt Group) Plus tenant open credits (tenant balance report for all tenants) Less undeposited receipts (Bank Balance Breakdown) Plus receipts dated after deposit slip (Bank Balance Breakdown) Plus other liabilities (Balance Sheet consolidated for all ledgers) Plus Security Deposits - tenant balance report for all tenants (Only if only one bank and SD not Held By Owner) Difference between Section A Total and Section B Total. TOTAL $ Considerations: Ledger balances in other banks $ Money that needs to be moved between banks $ 7/2015 Arizona Audit Review- 4 #729

5 Bank Reconciliation June 30, 2012 Bank Account Checking [Acct# ] Opening Balance $10, Less Cleared Checks $2, Items Plus Cleared Deposits $5, Items Cleared Balance $12, Items Cleared Balance $12, Items Less Statement Balance on 6/30/2012 $12, Difference $0.00 In Balance Available Balance on 6/30/2012 Cleared Balance $12, Items Less Uncleared Checks $5, Items Plus Uncleared Deposits $1, Item Available Balance $8, Cleared Checks /18/2012 Peyton T. Gray $ /2/2012 Mortgage Payment $ /19/2012 HOA Fee $ /1/2012 Mortgage Payment $ /20/2012 Peachtree National $ /20/2012 Oceanside Bank $ Cleared Checks $2, Cleared Deposits 6/3/2012 Deposit $2, /19/2012 Deposit $2, Cleared Deposits $5, Uncleared Checks /17/2012 David & Judy Fiscella $ /17/2012 James J. Porach $ /19/2012 Mortgage Payment $ /20/2012 David & Judy Fiscella $ /20/2012 Patriot Bank $ /20/2012 Peyton T. Gray $ /20/2012 Charles W. Harris $ /20/2012 James J. Porach $ /21/2012 Hero Electric $ /21/2012 Donald S. Schenk $ Uncleared Checks $5, Uncleared Deposits 6/30/2012 Deposit $1, /2015 Arizona Audit Review- 5 #729 Prepared by PROMAS on August 24, 2012 at 8:59 AM Page 1

6 Bank Activity June 30, 2012 Bank Account Checking Date Description Deposit Withdrawal Balance 6/1/2012 Beginning Balance $7, /1/2012 Check #1734 to Patriot National for 2118 Oak Street - Account S AC21 $ $7, /3/2012 Deposit $2, $10, /19/2012 Check #1733 to Minuteman Trust for 436 Fairway Drive - Account# W /19/2012 Check #1732 to Concord Green HOA for 436 Fairway Drive - Account 436 Fairway $ $ /19/2012 Deposit $2, $11, /20/2012 Check #1738 to Patriot Bank from Harrison S. Golden - Account #W221-C2312 6/20/2012 Check #1736 to Oceanside Bank from Frederick L. Clayton - Account W FLCLAYTON $ $ /20/2012 Check #1740 to Charles W. Harris $ /20/2012 Check #1739 to Peyton T. Gray $ /20/2012 Check #1737 to David & Judy Fiscella $ /20/2012 Check #1741 to James J. Porach $ /20/2012 Check #1735 to Peachtree National from Carl Wayne Cheek - Account Cheek,CW 6/21/2012 Check #1743 to Donald S. Schenk $ $ $8, /21/2012 Check #1742 to Hero Electric - New furnace $ $7, /30/2012 Deposit $1, $8, /30/2012 Ending Balance $8, Bank Balance Breakdown June 30, 2012 Bank Account Checking $6, $5, Post Date Description Amount Balance Overview Ledgers with Positive Balances $8, Ledger Balance $8, Bank Activity Balance $8, Uncleared Checks $5, Uncleared Deposits ($1,000.00) Bank Cleared Balance $12, Overview $12, Ledgers with Positive Balances CHEEK: Carl Wayne Cheek $ CLAYTON: Frederick L. Clayton $ FISCELLA: David & Judy Fiscella $ GOLDEN: Harrison S. Golden $ GRAY: Peyton T. Gray $ HARRIS: Charles W. Harris $ LEBENSON: Ira C. Lebenson $2.86 NU: NUZIG Inc. $3, PM LEDGER: Property Management $1, Prepared PORACH: by PROMAS James J. on Porach August 24, 2012 at 9:02 AM $ SCHENK: Donald S. Schenk $ Ledgers with Positive Balances $8, Page 1 7/2015 Arizona Audit Review- 6 #729

7 Items required by EBAR (Electronic Broker Audit Review) that pertain to The Professional Landlord Most of the EBAR required reports do not match a standard PROMAS report. Suggested modifications to more closely meet the requirements are detailed in this section. Item 4. Copy of the property management and/or leasing log. For property management agreements - start with the owner management agreement expiration report. Modify. On Page Layout tab change name to "New Owner Management Agreements". On the Filter tab Unmark Ends and mark Begins. Mark the report date range to Include Range. Run the report for the required period. For leasing log - start with tenant lease abstract report. Modify. On Page Layout tab change the name to "Lease Starts" On the Report Fields tab click Modify Driver Options and make Date Selection=Date Range. On the Filter Fields tab Mark Lease Start. Mark the radio button "the report date range", then mark the radio button "Include range" Run the report for the required period. 7/2015 Arizona Audit Review- 7 #729

8 Item 5. List of current owners and tenants under contract, including full names and rental property addresses. Start with the Tenant report: Tenant Owner Contact List. Modify. On the Page Layout tab change the name to Unit-Tenant-Owner List. On the Report Fields tab, o under Tenant Contact mark Tenant Name checkbox o under Unit Contact, mark the Address (Location) checkbox o under Ledger mark Ledger Name and Ledger ID checkboxes o under Owner Contact mark Owner Name checkbox 7/2015 Arizona Audit Review- 8 #729

9 On the Column Fields tab o unmark those fields that are marked. o mark the Ledger Name checkbox. Put Ledger in the Column label override field. o mark the Owner Name checkbox. Put Owner in the Column label override field. o mark the Address (Location) checkbox. Put Unit in the Column label override field. o mark the Tenant Name checkbox. Put Tenant in the Column label override field. On the Group Fields tab o Unmark the Directory Tab Letter checkbox On the Sort Fields tab o Unmark the tenant ID o mark Ledger ID (or, on the Group Fields tab, mark Ledger ID) 7/2015 Arizona Audit Review- 9 #729

10 Item 8. Copies of the monthly trust account reconciliations demonstrating the adjusted trust account bank balance has been reconciled to the client ledgers. The reconciliation, including details, should be provided for each month within the audit period. These reports constitute the basic 3-way reconciliation. Print the bank reconciliation reports each month when you reconcile. Run the Bank Balance Breakdown report for that same date. Run the Bank Activity report - include check # (options) Item 9. A consolidated report for each individual month within the audit period showing the ending balances for each owner. This is the ledger balances portion of the Ledger Balance Equation portion of the 3-way reconciliation. Ledger reports, Ledger balances for the ending date of the bank reconciliation. Optional - modify the report. On the Report Field tab under Ledger, mark Ledger ID. On the Column Fields tab mark Ledger ID. Unmark all but Balance in Ledger Balance. 7/2015 Arizona Audit Review- 10 #729

11 Item 10. A copy of each monthly owner s statement for the last month of the audit period. Mailings, Owner Statements. Set date range to the month. Optional - create an Audit Review Statement Owner balance details, memos and payees Choose Audit statement for all. Item 11. A report showing the total security deposits held in Broker s Trust Account for each month in the audit period. Tenant Reports, Security Deposits. Modify. On Report Fields tab, under Ledger mark Ledger ID and Ledger Name. On Group Fields tab group by Ledger ID. On column fields, mark ledger name and move to the top of the list. Item 12. Receipts and Disbursement Journal (checkbook register) covering period of the audit. Run Bank Reports, Bank Activity. Run Bank Reports, Check register and Receipts register. Item 13. Copies of any additional ledgers of accounts containing monies held on behalf of clients/tenants during the audit period, i.e., prepaid rent, tax liability, pet deposits, certificates of deposit, etc. Tenant Reports, Tenant Balances filter on open credits not equal to $0. Item 14. A Balance Sheet for each month of the audit period. This is part of the Ledger Balance Equation portion of the 3-way reconciliation. Ledger Reports, Balance Sheet, click Options and consolidate. Include management group. 7/2015 Arizona Audit Review- 11 #729

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