03 Apr 2017

On A Rainy Day: Trustee Errors to Avoid During Audits, Field Exams & TIRs

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Don’t let audits, field exams, and TIRs rain on your parade! We’ve compiled a list of top trustee errors to avoid during these critical reviews so you can shine on no matter what. Plus, in CaseLink you know you’re covered with features designed to catch these errors and keep you compliant.

For a complete list of top trustee errors from the UST, click here.

Check out the list below!

Common Trustee Errors to Avoid

Case Administration

  • Incomplete Case Closure on NDR Cases with Funds Collected. (Handbook 4-35, 4-36)
    • If a bank account was opened, you must provide Forms 1, 2 and all original bank statements and cancelled checks to the UST.
      (Note: If BMS Vault is available in your region, then the UST is now able to access such information directly and you no longer need to submit statements and cancelled checks.)
    • NDR should only be filed after a zero bank balance is attained.
    • Contact the United States Trustee for the local procedure regarding required documentation to provide. Examples are:
      • TFR with bank statements; or
      • NDR Form with Form 1, 2 and bank statements.
  • Excessive 341(a) Meetings. (Handbook 3-8) You may not be permitted to take more than a reasonable period of time to make inquiries at the meeting; but you can use other procedural methods to obtain information, such as:
    • Discovery or
    • Examination provided under Fed.R. Bankr. P. 2004, to obtain more detailed information.
  • DSO Letters Not Sent in Timely Manner. (Handbook 4-34) The Handbook requires that the first DSO letter is sent within three (3) business days after the 341(a) meeting. This time-sensitive task is easy to miss, but stay on track with the Alerts feature in CaseLink²!
  • Not Providing All Required Documents with TIR. (Handbook 4-29, 4-30)
    • Make sure that all banking transactions are reflected on the reports when submitting for review.
    • If you have an operating case, also file six (6) months operating Orders and Motions of Relief.
  • Not Filing a Successor Trustee Report. (Handbook 2-6)
    • The Successor Trustee needs to file and transmit to the UST an accounting of the prior Trustee’s administration of the estate as per R. Bankr. P.2012(b).
    • The accounting must be a separate and distinct record of the activities which were solely within the control of the prior Trustee.

Asset Administration

  • Form 1 Errors. (Handbook 5-1, Supplementary Materials) Run a Draft Form 1 to review for these common errors:
    • Duplicated Assets
    • Trustee value of “Unknown” vs $0.00” is not updated after one year
    • Assets listed on SOFA are missing
    • Unclear Asset Descriptions
    • Petition date filed and/or converted missing
  • Notices – Information is Incomplete. (Handbook 4-14, 5-18) Notices of auctions should always include date, time and location of sale. In addition:
    • All Sale notices should clearly identify the individual assets to be sold with as many details as possible provided with the value of the asset.
    • Settlements need to be clear regarding the Trustee’s asset valuation and a reason why the settlement is a good deal for the estate.
    • Means of protection needs to be specified in case the other party backs out of the settlement.
    • When trading a fixed asset for a setoff, explain and specify the means of protection.

Banking

  • Incomplete Bank Reconciliations. (Handbook 5-2, 5-18) Avoid incomplete bank reconciliation records by making sure you perform reconciliations on a monthly basis. In addition, maintain the following documents to ensure quick access during an audit:
    • A physical copy of a Summary Report with the date and the Trustee’s and preparers’ initials must be filed away.
    • Monthly Individual Case Detail Reports of any Form 2 balance discrepancies between bank balance and ledger with notations regarding resolution should be placed in a case financial file.
  • Untimely Deposits. (Handbook 5-3, 5-4, 5-18) Avoid untimely deposits by making sure that all your received checks are deposited within the Handbook guidelines (not exceeding 10 days after receipt).
  • Proof of Deposit Not Maintained in Documents File. (Handbook 5-18) Make sure to store all of your accounting records securely, including Proof of Deposits. In CaseLink, all bank statements and transactions are saved automatically in the documents repository for each case in the “Banking” folder.
  • Incorrect UTC Codes. (Primary UTC Reference Guide) UTC usage can be tricky, but reference the Primary UTC Reference Guide to avoid common errors! In addition:
    • Do not lump professional fees and expenses together.
    • For distributions from partial ownership, use codes 1123/1223.
    • For non-estate funds, use codes 1180/1280 (depending on your local district rule).
    • Receiving refunds of amounts paid or returning deposits require reversal transactions.
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