The Bureau of Real Estate can dispatch an auditor to conduct an on-site audit of a broker’s operations. These audits typically focus on proper use of the broker’s trust account, but usually also include a full compliance check of the real estate broker’s operations. BRE audits are usually triggered by a complaint. A typical audit will involve the auditor working on-site for a few days, however, if the brokerage is large, an audit may stretch to several weeks. A broker will usually get a phone call to set up an audit, then a letter notice as required under Business and Professions Code section 10148. The notice will have a laundry list of documents to be examined and, importantly, the time frame of records to be examined.
The auditor, also known as an examiner, will often present a subpoena to the broker on the first day of the audit. The documents demanded in the subpoena can be extensive. An attorney representative or hired forensic auditor expert can sometimes negotiate with the examiner to limit the scope of the subpoena, particularly if compliance will involve undue consumption of time and yield documents far beyond what is necessary for the audit. The examiner will also pose questions to the broker during the audit. The examination, in this way, can be as much an interrogation as an examination of records.
For trust accounts, the broker will want to see that the trust account has been properly opened, and that there is no comingling of earned and unearned monies, and most importantly, that there has been no conversion (theft) of client funds. The examiner will review the trust account records and then test those records by demanding records of individual transactions, for example, invoices, receipts or canceled checks.
The examiner also can review real estate transaction files for compliance issues, and may walk the premises as well, looking at signs, business cards and promotional materials. The examiner will want to confirm that every real estate salesperson is properly licensed, licensed under the broker’s license, and working under a proper contract. Files will be examined to make sure that clients have been given appropriate disclosures.
At the conclusion of the audit, the auditor will typically share the audit findings with the broker. The broker at that point can respond with information that rebuts the findings and also with remediation (corrective action). The auditor can refer the matter to the legal department at BRE for the filing of an accusation to discipline the broker’s license.
An attorney, working in conjunction with a forensic auditor experienced in BRE matters, can provide many useful services. First, after notice of the audit but before the audit begins, corrective action can be taken to fix improperly opened trust accounts, organize records, account for shortages or overages and remediate these outcomes, and insure the broker is complaint with BRE rules and regulations to the fullest extent possible. During the examination, an attorney or forensic accountant can speak on behalf of the broker and help the broker navigate technical or thorny issues that arise. And finally, when the audit is over expert assistance can help respond to or remedy violations to take an discipline case down to a mere warning, if possible.
Our law firm represents real estate brokers who transact real estate and manage properties before BRE auditors in BRE audits. We also work with experienced forensic auditors. Audits are expensive. The BRE will charge the licensee for the auditor’s time which can be significant, and resulting required fixes demanded by BRE and discipline by BRE can be very costly. Seeking expert help is a very wise investment of time and money.