In this episode of the “True Crimes” podcast, Troy Palmquist discusses real cases with compliance expert Summer Golarik and points out red flags agents should look out for to ensure a successful brokerage.
If you’re not a brokerage manager, you may think that trust accounting is above your pay grade and a back-office job that you fortunately don’t have to worry about. But a recent podcast episode revealed that poor supervision, sloppy handling of money, and operating on autopilot can also be problematic.
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Working for a poorly managed and non-compliant brokerage firm can damage your professional reputation. Here’s how to spot risks early, document your own compliance hygiene, and know when to act.
case study
This week’s case featured a California property management company that hijacked $20,000 worth of rental screening fees on credit reports that were not made public. Auditors also found deficiencies in the trust account totaling $50,000.
Don’t miss the full story to know all the details about this case. In the meantime, how can you protect yourself if your broker cuts corners?
How to protect yourself when a broker cuts corners
1. Don’t treat “trust accounting” like someone else’s business.
You don’t have to be an accountant, but you do need to know what “sound” means from a brokerage perspective. Remember, your own customers will almost certainly be affected by accounting fraud, so be careful if you think you’ve been careless on the numbers side.
2. An audit can be damaging even if everything has been “okay” so far.
As Sommer said, regular audits can uncover “kitchens of violation.” This case in particular began with a question regarding examination fees. Once the auditors got into the books, everything else started to become clear. There is no such thing as “partial compliance.”
3. If your broker is drowsy driving, you are at risk.
Red flags include:
Mediator of record is never available Out-of-state or “highly delegated” supervision Excessive delegation to unlicensed staff
These are all signs that a problem may be brewing. If you feel like your leadership is lacking and your operational questions are being ignored, it’s not just a freewheeling company culture. That’s a risk.
4. Ask small questions that reveal large cracks in the entire system.
If you’re in property management, have investor clients, are involved in recruiting landlords or tenants, or oversee rental activity, here are some questions you should ask:
Who actually controls the movement and logging of the money? What is the process when the check arrives? If the software “does it all,” who will spot check or coordinate it?
For questions you should (and probably haven’t) asked yet, check out 35 Questions Your Next Broker Wish You Won’t Ask You.
5. Protect your reputation with your brokerage firm
If you’re nervous or suspect that something isn’t right, it’s okay if you’re not in charge. If the managing broker’s license is affected, he or she may be subject to investigation and professional harm. Leaving is not dishonest. It’s self-preservation. Don’t let anyone tell you different.
6. Don’t ignore “jokes” and behaviors that normalize larger issues
Even how your broker and colleagues talk about money matters. If funds are being casually discussed or described as being “shuffled,” it could be a sign that there are deeper issues behind the scenes. More importantly, the lack of formal policies and procedures is a clear sign that the handling of trust funds is not being addressed as a core compliance obligation.
7. Compliance is customer-facing, not bureaucracy
You have a fiduciary duty to your customers, and part of your due diligence includes ensuring that you and your license hang area are clean when it comes to handling customer money. Protect your clients and licenses by ensuring thorough compliance best practices and documenting any fraud you encounter.
A well-run securities company will not be afraid to ask you questions. They should be happy to explain their policies and processes so you can provide assurance to your clients. If you can’t get clear answers to questions about money handling or supervision, it may be time to look for a greener (or more compliant) ranch elsewhere.
Note: The opinions and recommendations expressed in this article are based on Summer Goralik’s experience as a real estate compliance consultant and former inspector with the California Department of Real Estate. They are provided for informational purposes only and should not be construed as legal advice. Readers should consult their securities firm and/or qualified legal advisor in their jurisdiction for guidance regarding their particular situation.
Troy Palmquist is the founder and president of HomeCode Advisors. Connect with him on LinkedIn.
Summer Goralik is a real estate compliance consultant and former CA DRE investigator in Huntington Beach, California. Connect with her on LinkedIn.
