Do You Handle Trust Funds? Ensure You’re Audit Ready.

Published: October 6, 2026

The Department of Real Estate’s (DRE) Audits Division seeks to protect consumers through the process of conducting compliance audits of real estate business activities involving real estate brokers and corporations.

In general, there are two main types of audits that the DRE schedules.

Investigative Audits, which are often consumer complaint-driven or follow Broker Office Surveys, and Proactive Routine Audits whereby a licensee is selected from the DRE’s licensing database for examination. Regardless of the type of audit, any activity that requires a real estate license may be subject to an audit. Common activities audited include property management, mortgage loan activities, and broker escrow activities.

The primary focus of the Audits Division is to ensure trust funds are handled properly and in accordance with the Real Estate Law, Subdivided Lands Law, and related provisions from the Commissioner’s Regulations. Whether you are called to be scheduled for an investigative or proactive routine audit, the preparation you should take in advance to ensure you are ready for the audit will be the same.

An important first step is understanding the requirements that apply to the bank account or accounts used to handle trust funds. Trust funds include money or items of value received on behalf of others while conducting licensed real estate activity, creating a fiduciary responsibility. The funds held in trust belong to the client or other beneficiary. Examples include rents and security deposits received on leased property, or loan payments made on a mortgage.

Banking Requirements

1. Business & Professions (“B&P”) §10145 and Commissioner’s Regulation 2832
   Any account used for trust funds must be properly designated as a trust account in the broker's name, corporation’s name, or licensed fictitious business name. Properly designated accounts help ensure accurate handling and protection of those funds including appropriate FDIC pass-through coverage.
    
2. B&P §10145, Regulation 2834: Trust Account Withdrawals
   Withdrawals from any account used for the handling of trust funds must be restricted to specific individuals which include a licensed real estate salesperson licensed to the broker or corporation; a Broker-Associate operating pursuant to a written agreement with the broker or corporation; and unlicensed individuals who are employees of the broker or corporation provided they are covered by a fidelity bond or insurance. Additional requirements surrounding the fidelity bond or insurance have been a topic of prior bulletin articles, most recently in Summer 2025.

Equally important is familiarity with your recordkeeping system. Whether you are using physical records or accounting software, or you hire a bookkeeper to manage that system, the broker or designated officer is ultimately responsible for maintaining complete, compliant records. Attempts to understand how your recordkeeping system meets regulatory requirements should not begin on the day a DRE auditor calls. The Real Estate Law and Commissioner’s Regulations are very specific to the type of records and documents that a broker must maintain, and DRE has published numerous bulletin articles and resources to assist with this responsibility. Having robust knowledge of these requirements and, if using accounting software, how your software may meet them, will put you strides ahead and will assist in making an audit go smoothly.

Required Trust Fund Records

Each trust account must have the following three records:

1. B&P §10145, Regulation 2831: Record of Trust funds Received and Paid Out
   Often referred to as a “Control Record,” this record is used to document every transaction that occurs regardless of who the beneficiary of funds may be. The Control Record must include, in chronological sequence and columnar form, dates and amounts of receipts, from whom the trust funds were received, deposit dates, check/reference numbers for disbursements, and a daily running balance.
    
2. B&P §10145, Regulation 2831.1: Separate Record for Each Beneficiary or Transaction
   Often referred to in a shortened term as a “Separate Record,” these records are a continuous record of all transactions occurring per beneficiary or transaction with the purpose of identifying the balance of trust funds that is being held for a specific beneficiary. They are also integral in ensuring proper FDIC coverage of bank accounts where the funds are held. The number of records required depends on how many beneficiaries are tied to the account. Separate Records must also be chronological, include deposit and disbursement details, and maintain a running balance.
    
3. B&P §10145, Regulation 2831.2: Trust Account Reconciliation
   A trust account reconciliation is vital for ensuring that the Control Record and Separate Records are maintained without error or discrepancy. This reconciliation compares the total of all Separate Records to the Control Record balance on the same date. Any discrepancy indicates a potential error in one or more records and must be corrected. A record of each reconciliation must be maintained and identify the account name and number, date of reconciliation, identifying information for the principals, beneficiaries, or transactions, and applicable balances.

To ensure that your trust account is in balance, you should then compare the reconciled balances of the Control Record and Separate Records to the adjusted bank balance of the account. To arrive at an adjusted bank balance, you will need to perform a bank account reconciliation which is an indispensable tool to ensuring proper trust fund handling and that a sufficient trust fund balance is retained in any bank account used for handling trust funds.

In recent audits, auditors have seen instances where brokers are utilizing “Suspense” or “Clearing” account ledgers to manage unknown discrepancies between the Control Record, Separate Records, and adjusted bank balance. Such ledgers should be avoided as long-term fixes to balancing the trust account, and use of them will likely result in trust fund discrepancy violations and/or trust fund recordkeeping violations. For additional guidance, refer to the Trust Account Reconciliation presentation available on the DRE website.

DRE offers additional resources, including Trust Funds Booklet (RE13) and Broker Self-Evaluation (RE540). For additional resources, refer to the Real Estate Business Resources page under the Licensee section of DRE’s website.