News Bulletin - December 16, 2019
Message from the Chair—Audit Program Update
Message from the Chair—Audit Program Update
As Chair of the Nova Scotia Real Estate Commission’s Board of Directors, I want to share with you the completion of the work of the Audit Task Force. The revised audit program has been approved by the Board and is ready for implementation for January 1, 2020.
The task force developed the audit program, which documents, in detail, record keeping requirements for trust accounts and residential and commercial brokerage transaction files. For trust accounts, the four record keeping requirements are clearly spelled out and examples provided for each requirement. Likewise, for transaction files, the program plainly sets out how and when the required/applicable documents are to be completed and maintained. These requirements were taught to all licensees in the 2018-2019 mandatory course, A Guide to Real Estate Audits in Nova Scotia.
The record keeping requirements for trust and transaction files have not changed. However, there have been two significant changes to the Audit Program.
First, during the review process, the level of discrepancy (Critical, Serious or Error) was felt to be too harsh for some of the requirements and a number of adjustments were made accordingly. This addressed some of the concerns that brokers expressed about the original audit program provisions.
Second, the results of the audits carried out during the first part of 2019 showed us that the rating system did not work as intended. Upon review, it was felt that a rating system based on numbers only was too rigid. As a result, the percentages formula for calculating audit ratings was removed. The formula, which appeared fair in theory, created an inflexible method of evaluation that did not accommodate for the variations of actual day-to-day brokerage practices. The updated evaluation method, set out in “Chapter 8: Audit Ratings and Frequency” of the program, allows for discretion in the assigning of ratings for both trust and transaction files. This way brokers will not be unfairly penalized for one-off compliance issues.
The audit rating levels have been updated, with “At Risk”, “Needs Improvement”, “Satisfactory” and “Excellent” replacing the previous ratings of “2” through “5”, and eliminating “1—Disciplinary Action”. This rating, along with a detailed list of discrepancies, will be presented in a report with a chart/graph to the broker. The report will identify the discrepancies and show the frequency and distribution pattern of the discrepancies.
There are two new additions to the audit program. First, the audit rating will not be assigned upon conclusion of the audit field work; however, the auditor will request to meet with the broker after the field work is complete to discuss a few of the preliminary discrepancies that were identified. For audits conducted in the Commission office, the meeting may be held via conference call. Second, after the audit rating is assigned and relayed, the broker will be given an opportunity to request a review of the rating by the Registrar. The request must be in writing and have supporting reasons as to why they are disputing the audit rating. The Registrar’s decision will be final.
“Chapter 9: Corrective Action and Penalties” of the program has also been updated to eliminate automatic administrative penalties, which were viewed as too inflexible, and introduces a broker review process for brokers who disagree with their audit rating. Brokers who feel their audit rating is unfair can request a review of the rating by the Registrar. The Licensee (Non-Broker) Compliance section remains in effect, allowing brokers who have licensees that have consistently disregarded the corrective actions specified by the broker to have those transaction files exempted from the audit. The actions of the non-compliant licensee will be addressed by the Registrar, typically through the initiation of an investigation.
The majority of brokers, who received “Good” and “Very Good” ratings prior to 2019, should expect to achieve similar results under the new ratings system. The brokers who received “Needs Improvement” ratings prior to 2019 and who do not show improvement will be provided with comprehensive data on where they are going wrong so they can implement policies to improve in the future. As stated previously, unless there are extenuating circumstances, no broker is penalized for one poor audit rating. It takes repeated poor audit ratings, with brokers receiving specific instruction on how to improve after each audit, to result in disciplinary action.
I want to thank the Audit Task Force for their devoted efforts in the development of the new audit program, the staff for their support, and all the brokers and licensees who provided thoughtful and critical feedback along the way.
Gary Morse, Chair
Nova Scotia Real Estate Commission