Landlord Control Account Problem

Landlord Control Account Problem

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Client is a letting agent and gets rent from the tenant then pays landlord and takes out fees, VAT, repairs and deposit. 

The Clients is using xero and using the invoice facility to book rent received through the landlord control account and then allocating the payment to the invoice (not sure why and how).  Surely there must be an easier way or system with managing the landlord control account ?

Replies (25)

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By occca
11th Aug 2014 14:44

Why not

Set the landlords up with Bank Accounts (control accounts) and do everything through there? You could also then reconcile it

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By Jim100
11th Aug 2014 15:20

trail

Another issue is trying to keep a trail and reconciliation with their letting agent software as everything is booked through this system first but the main concern is getting the accounting right an property as well keeping a track by property and not on landlord name. Something I am struggling to get my head round

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By johngroganjga
11th Aug 2014 15:55

I hope the agent is holding the landlord's money in a client account pending onward payment?

If so this is a client accounting issue, rather than a "landlord control account", as you put it, issue.

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Replying to Matrix:
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By Jim100
11th Aug 2014 16:58

client holding account

johngroganjga wrote:

I hope the agent is holding the landlord's money in a client account pending onward payment?

If so this is a client accounting issue, rather than a "landlord control account", as you put it, issue.

]
 

Yes it is a client holding account but there are huge reconciliation differences.  What are the rules governing client holding account ? 

Accounting element is obviously important and the raising of invoices for landlords and tenants is causing a lot of confusion hence think there must simplier way of dealing with tenant receipts and landlord payments which also enables proper record keeping

 

 

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By johngroganjga
11th Aug 2014 17:05

Who is the landlord regulated by?  ARLA?

Which way round are the differences?  Surpluses or shortages?

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By Jim100
12th Aug 2014 12:52

Recon differences

I am not sure who the letting agent is regulated by though I understand a law was coming in that required all letting agents to be regulated.

The landlord control account is showing 160K owed to landlords when the figure should be month around 20K

While this is another issue the main question is around streamlining the accounting instead of having to raise invoices and bills on xero for tenant receipts and landlord payments respectively

 

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By johngroganjga
12th Aug 2014 13:13

Not sure what you mean by landlord control account.  Do you mean the client ledger balances?  If that shows liabilities to clients of £160,000 how much cash is in the client account at the bank?

I hope you don't mean that there is only £20,000 in the bank!

PS No-one can help you with the accounting procedures until you explain clearly how this business is handling client money.  If this is a business that has a shortage of £140,000 on its client account the niceties of accounting procedures going forward are the least of your concerns.

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By Jim100
13th Aug 2014 17:26

Process issue

There is around 20K in the client bank Account and according to the client there should be around 20K in the landlord control account,  However, it is showing 160K.

The cycle though xero is Client raises an internal invoice to tenant then tenant pays and then raises a internal bill to the landlord. Its a new client have not really investigated why the landlord control account differs from the client account. However process seems convoluted and may be there is a better system available

 

 

 

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By johngroganjga
13th Aug 2014 18:02

The day to day accounting shouldn't be difficult.  Tenants pay rent into client account.  Third party expenses are paid out.  Agent invoices his fees and makes transfers from client to office to pay them.  Balance on client accounts are paid out to clients from time to time as agreed.

Has the client explained why his client ledger balances came to be overstated by £140,000?  What was the £140,000 paid out of client account that was not posted to clients' accounts?

PS The client accounts should just be a mirror image of the client bank account. Nothing more nothing less.  Has anything other than cash received in or paid from the client bank account been posted to the client accounts? If so - there's your problem.

Of course the other possible explanation which you must be acutely aware of is that the £140,000 has been stolen.   

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By puzzel
13th Aug 2014 17:58

Not sure about Zero, but I use Sage

The process may seem long winded, but it can also depend on how many landlords there are.

Set up a bond and landlord a/c on the BS i.e 2101 landlord A bond and 2501 landlord A

Receive bond into bond bank a/c and cr 2101

Receive rent into client bank a/c and cr 2501

From the landlords rent statement, that should show the commission charges, journal the following;

Cr 4000 with commission charges and dr a/c 2501, may need extra adj if VAT registered.

Then pay landlord from client bank a/c and dr 2501.

The commission should then be transferred from the client a/c to the office a/c.

 

You beat me to it John

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paddle steamer
By DJKL
13th Aug 2014 18:14

Rent collection and tenants

 

The only way I would be happy running these is through a cashbook system re the client monies, any system that is raising invoices is a recipe for disaster. If run akin to solicitor client accounts then the system can be made robust, a bank reconciliation being a great control over completeness.

The choice is purchase a bespoke system with a client ledger and a facility to reconcile the bank, or use something like excel to create your own system. The worst solution is to use software not designed for client accounting to try to perform client accounting.

( we run using excel, rents in are recorded against each property, disbursements are recorded against each property, payments to landlords similar. For the fees we charge we raise an invoice and then payment is made from the client account to the main account to settle same)

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By johngroganjga
13th Aug 2014 18:22

I don't want to be alarmist, but the circumstances described are just how client account frauds usually present.

I hope it is just case of an accounting [***]-up, but the OP should tread very carefully.

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Replying to Tax Dragon:
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By Jim100
13th Aug 2014 18:42

Error not fraud

johngroganjga wrote:

I don't want to be alarmist, but the circumstances described are just how client account frauds usually present.

I hope it is just case of an accounting [***]-up, but the OP should tread very carefully.

What are the rules on client accounts in the letting agent industry ?

The credit balance of 160K has been steadily accumulating over the last 2 years.  What I can see is they only have 25 properties each month.

20K seems about right.  There book-keeper doesn't seem to know much about accounting and there isn't much in internal controls.   Most likely there are genuine errors than fraud I hope. 

Obviously landlords would jump up and down if they are owed money.  I do not see any evidence of that yet.

 

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By ann domonkos
13th Aug 2014 18:50

Deposits

Were are they?Have they moved the deposits to the DPS and not shown this ....

Which association is the client registered with , i think it is only the Property Ombudsman that dont require and audit of the client account but i might be wrong....

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By puzzel
13th Aug 2014 19:06

A client account

is for the receipt of rents, payment of repairs etc in relation to the landlord property and the balance of rents to be paid to the landlord. Hence why I mentioned that the commission's earned had to be transferred to the office bank account.

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By I'msorryIhaven'taclue
13th Aug 2014 22:25

NFOPP Annual Audit

NFOPP is the umbrella organisation that governs ARLA and others. I'm not sure how or why the "Property Ombudsman" mentioned by Ann fits into any of the property rentals associations, or indeed why they alone may not require an audit.

NFOPP has been tightening its rules and regs these past two years or so after some high profile cowboy agents helped themselves to client funds (in one case, I seem to remember, a couple closed shop and walked away with around £60k of client funds and tried using it to buy into a letting franchise in another part of the country). The rules are nevertheless still quite loose, and the field is still wide open to cowboys.

See:

See http://www.nfopp-regulation.co.uk/media/157946/nfopp-client-account-rule...

and in particular:

3.24 Your client should have had an audit of his client account within the last twelve months.

3.23 The audit report has to be signed by a chartered or chartered certified accountant.

I'm assumimg of course that your client is registered with one of NFOPP's member bodies.

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Replying to camallison:
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By Jim100
13th Aug 2014 23:06

Thanks

I'msorryIhaven'taclue wrote:

NFOPP is the umbrella organisation that governs ARLA and others. I'm not sure how or why the "Property Ombudsman" mentioned by Ann fits into any of the property rentals associations, or indeed why they alone may not require an audit.

NFOPP has been tightening its rules and regs these past two years or so after some high profile cowboy agents helped themselves to client funds (in one case, I seem to remember, a couple closed shop and walked away with around £60k of client funds and tried using it to buy into a letting franchise in another part of the country). The rules are nevertheless still quite loose, and the field is still wide open to cowboys.

See:

See http://www.nfopp-regulation.co.uk/media/157946/nfopp-client-account-rule...

and in particular:

3.24 Your client should have had an audit of his client account within the last twelve months.

3.23 The audit report has to be signed by a chartered or chartered certified accountant.

I'm assumimg of course that your client is registered with one of NFOPP's member bodies.

 

Many Thanks this very useful information - I remember reading in the Sunday Times around six months ago the was going to legislate compulsory membership of these organisations. Does anyone know if this has happened ?

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By I'msorryIhaven'taclue
13th Aug 2014 22:36

Bookkeeper's Recent Reconciliations

One of the requirements of the "audit" mentioned above is to check that your client's bookkeeper has been carrying out regular (usually monthly) reconciliations of the client bank account.

So ask the bookkeeper for the most recent reconciliations. I would have thought the most important check you should make is to ensure that for each property there is the correct tenant's deposit being held. I'm guessing you should take a black box approach to the Xero accounts, at least for the time being, and simply check the list of client balances to ensure the full population of properties as well as the correct amounts for each. Then of course reconcile it to the bank account balance.

£20k does seem low even for only 25 properties, given there could also be tenants' rents sitting in that bank account as well as deposits. Incidentally, some agents take 1.5 x or 2 x the monthly rent as a deposit. I can hear your alarm bells jangling from here!

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Replying to TaxedOff:
paddle steamer
By DJKL
14th Aug 2014 10:57

£20,000 for 25 properties seems high to me not low

I'msorryIhaven'taclue wrote:

One of the requirements of the "audit" mentioned above is to check that your client's bookkeeper has been carrying out regular (usually monthly) reconciliations of the client bank account.

So ask the bookkeeper for the most recent reconciliations. I would have thought the most important check you should make is to ensure that for each property there is the correct tenant's deposit being held. I'm guessing you should take a black box approach to the Xero accounts, at least for the time being, and simply check the list of client balances to ensure the full population of properties as well as the correct amounts for each. Then of course reconcile it to the bank account balance.

£20k does seem low even for only 25 properties, given there could also be tenants' rents sitting in that bank account as well as deposits. Incidentally, some agents take 1.5 x or 2 x the monthly rent as a deposit. I can hear your alarm bells jangling from here!

If we are talking about residential property, not commercial, there should of course be no deposits sitting with the agent for any length of time, non remittance of these to someone like Safe Deposit could be very expensive re compensation if they are held onto by the agent/the landlord.

£20, 000 for 25 properties does not sound low to me if just rents, it actually sounds high. We pass over cleared rents received to Landlords within 3-4 days of receipt, accordingly we would not expect to carry that much in our client account.

 

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Replying to sjmaccounting:
By johngroganjga
14th Aug 2014 11:13

Client account

DJKL wrote:

If we are talking about residential property, not commercial, there should of course be no deposits sitting with the agent for any length of time, non remittance of these to someone like Safe Deposit could be very expensive re compensation if they are held onto by the agent/the landlord.

Not sure what you mean by this.  Use of the DPS or some similar service is an optional alternative to holding the deposits safely in a separate client account.  What is the problem with the latter route that you are alluding to?

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By ann domonkos
14th Aug 2014 09:29

I am not sure how far they have gone with legislation

I to had the job once of  manually reconciling a client account and entering it onto sage ooh what fun...there are quite a few bespoke programs out there now...which will do the job., i think your client should at least look at this and get himself a client protection insurance if he isnt a part of any association.

 

http://www.tpos.co.uk/downloads/TPOE22%20Code%20of%20Practice%20for%20Re...

 

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paddle steamer
By DJKL
14th Aug 2014 11:35

Purpose of Deposit Scheme

John

The purpose of the deposit scheme is not just to protect the funds from being taken, it is also to protect the tenant from the Landlord making unfair deductions at the end of the lease. If the Landlord wishes to claim damages/ costs etc then this is done by making a submission to the deposit scheme, tenant gets right of response and hopefully once agreed scheme repays so much of deposit to tenant so much to landlord. The scheme is far more than just safe custody of the funds.

Donald

 

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By ann domonkos
14th Aug 2014 11:46

Stakeholder

I think the letting agent can also be a stakeholder rather than use the DPS, if this is the case i think letting agents are better to have another client account that is just for holding deposits....

With balances some have to collect service charges to be paid out on behalf of the landlords if this hasnt been actually paid across then you might get a build up of funds and also the level of balances will depend on which part of the country you are in think London and 20k can =10 properties were the rent just hasnt yet been paid...

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By puzzel
14th Aug 2014 12:48

Rental Bonds

Two main choices, Deposit Protection Scheme (DPS) and Tenancy Deposit Scheme (TDS).

With the DPS, agent collects the bond and pays it to the DPS, where it is held and registered, as Ann mentioned.

However, with the TDS, the bond is held by the agent in a separate bond (bank) a/c. This is then registered with the TDS and costs the agent £15 to register it.

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