Audits are one of the most stressful parts of property management, but they don’t have to be. With proper preparation and a solid accounting foundation, you can avoid the most common mistakes that derail even experienced teams. Whether you’re facing a Department of Real Estate (DRE) audit, an internal review, or a third-party compliance check, being audit-ready is about more than having clean books. It’s about proving that your trust accounting, processes, and reporting systems are rock solid.

In this post, we’ll break down the most frequent audit pitfalls and how to avoid them. We’ll also explain how platforms like AppFolio and Yardi Breeze help you stay ahead of compliance issues.

Why Audits Happen

Most audits are triggered by three things: 1. A complaint from an owner or tenant 2. Irregularities found in trust account balances 3. A routine random audit by a regulatory body like the DRE

Regardless of what triggers the audit, the auditor is looking to verify that you’re handling client funds properly, following accounting rules, and maintaining clear records. That means every process you have — from reconciling bank statements to logging tenant deposits — needs to be consistent and documented.

Common Mistakes Auditors Catch

1. Commingling Funds

One of the most serious violations is mixing client funds with operating funds. Each owner’s or property’s money must be accounted for separately. Platforms like Yardi Breeze let you segregate bank accounts and use property-specific GL codes, reducing the risk of accidental commingling.

2. Out-of-Balance Trust Accounts

A trust bank account must always match the total liability owed to owners, tenants, or vendors. Auditors often find discrepancies here due to uncleared transactions, manual journal entries, or missing adjustments. AppFolio’s Trust Account Balance report and Financial Diagnostics tool help you spot and correct imbalances quickly.

3. Missing Documentation

If you can’t show proof of a transaction, it might as well not exist. Invoices, receipts, leases, and owner statements must all be stored and accessible. Yardi Breeze and AppFolio both allow you to attach documents directly to transactions and contacts.

4. Delayed Reconciliations

Monthly bank reconciliations are a must. Skipping a month or falling behind creates audit red flags. With AppFolio or Yardi, you can set automated reminders, use reconciliation dashboards, and even automate part of the process through robotic process automation (RPA) if you work with the right partner.

5. Inconsistent Security Deposit Handling

Security deposits must be tracked separately, held in designated accounts, and returned within state timelines. Many teams forget to move or track these funds correctly. Breeze and AppFolio both offer built-in tracking features to ensure compliance.

How to Stay Audit-Ready Year-Round

Being audit-ready is about doing the small things consistently. Here are steps to build the right habits:

Reconcile Every Month

Treat reconciliations as non-negotiable. Use your software’s reconciliation tools and always reconcile your trust accounts, operating accounts, and security deposit accounts separately.

Run Audit Reports Regularly

Don’t wait until an auditor is knocking. Run your trust balance reports, open payables/receivables reports, and owner ledgers at least monthly. Look for errors, inconsistencies, and anything that looks out of place.

Keep an Audit Binder

Whether digital or physical, an audit binder helps you stay ready. It should include: – Trust bank statements – Monthly reconciliations – Copies of owner and tenant ledgers – Sample lease agreements – Aged payables and receivables – Management agreements

With Yardi Breeze or AppFolio, you can create digital folders with secure access to all these materials.

Standardize Your Processes

Use standard operating procedures (SOPs) for move-ins, move-outs, invoice processing, and owner distributions. Tools like checklists, shared calendars, and audit logs inside your software make it easier to enforce.

Use Automation and Alerts

Both AppFolio and Yardi Breeze allow you to set up alerts and reminders. This includes tasks like: – Follow-up for missing documentation – Alert for overdue bank recs – Notices when trust liability is out of balance

Trusted Software, Smarter Audits

When your software is configured properly, audits become more about verification than investigation. Yardi Breeze and AppFolio both offer tools that: – Help you keep property funds separate – Automatically tag and log transactions – Maintain an audit trail – Track deposit and trust liabilities in real time

With the right workflows, your system should always be audit-ready — even if you’re not expecting it.

Final Tip

Make sure at least one person on your team owns audit readiness. It should never be assumed that “someone” is handling it. Assign roles, review your workflows, and check your balances monthly.

If you need help configuring your system, closing books, or preparing for a DRE audit, the team at Balanced Asset Solutions has helped hundreds of property managers stay clean, compliant, and confident.