Preparing for a California DRE audit

DRE examinations are routine for operations that handle trust funds and entirely possible for everyone else — a complaint, a licence change, or ordinary selection can start one. The examination itself is simple: the DRE asks for records, and either the records exist in producible shape or they do not. Everything about how an audit goes is decided in the months before the letter arrives.

What you must be able to produce

California requires a licensed broker to retain transaction and trust records for three years and produce them on demand. B&P 10148

• Transaction files — complete contracts, every counteroffer and addendum, delivered disclosures with acknowledgments, agency confirmation.
• Trust records — bank statements, the control record, separate beneficiary ledgers, and monthly three-way reconciliations. Reg 2831–2831.2
• Licensee records — current licence status and the written agreement with each salesperson. Reg 2726
• Evidence of supervision — not that a policy existed, but that someone reviewed the files, checked the reconciliations, and dealt with what they found. B&P 10159.2; Reg 2725

The findings examiners actually write

• Trust deposits made outside the three-business-day window. Reg 2832
• Reconciliations missing, late, or never reviewed by the broker.
• Unexplained variances — in either direction — between the bank, the control record, and the beneficiary ledgers.
• Commingling: operating money in the trust account, or trust money out of it. Reg 2835
• Missing signed agreements with salespersons.
• Advertising without required licence identification. B&P 10140.6
• Incomplete transaction files — the missing counteroffer, the unacknowledged disclosure.

Notice what the list has in common: none of it is exotic. Every item is ordinary work that slipped, compounded by time, discovered all at once.

Filing exercise or fire drill

Two operations receive the same audit letter. In the first, records were kept as the work happened: files were reviewed before close, reconciliations were signed monthly, findings were written down and resolved. Preparation means assembling what already exists. In the second, preparation means reconstruction — rebuilding a year of reconciliations from bank statements, hunting for disclosures that may not exist, and discovering problems for the first time with an examiner already scheduled. Same letter, very different months.

If the letter has already arrived

• Respond promptly and completely. Delay reads as concealment.
• Do not create records after the fact. A reconstructed reconciliation honestly labeled as reconstructed is a finding; a backdated one is far worse than a finding.
• Find the problems before the examiner does. A deficiency you identified and corrected reads very differently from the same deficiency discovered for you.
• Involve your responsible broker immediately — the examination is of their supervision. If they are hard to reach now, that tells you what their supervision was.