Trust account management reminders - Settlement industry bulletin 92
26 August 2019
This year there have been a number prosecutions in the property industry resulting in significant fines due to the mismanagement of trust accounts. While real estate agents were the subject of the actions to date, the principles of trust account management also apply to settlement agents. Since we are in the annual audit period, we thought we would take this opportunity to highlight some key trust accounting obligations that may help you avoid any of these problems yourselves.
A trust account must be used exclusively for funds received or held on behalf of clients in relation to a settlement transaction. A trust account must not hold funds for any other purpose, including money received in the course of business other than acting as a settlement agent.
All funds paid to you in trust, related to a settlement transaction, must be deposited into and held in your trust account with an authorised financial institution.
All trust money must be deposited in the trust account by close of business the next working day after it is received.
Never pay general operating expenses or personal expenses directly from a trust account. Transfer any fee entitlement gained from a settlement transaction from the trust account to the agency’s general account before using it to pay for general operating expenses. As a best practice, you should transfer fees to the general account at least weekly, but only after you are entitled to draw them.
The removal of money from a trust account for reasons other than a lawful purpose is a criminal offence.
A trust account or ledger should never be overdrawn. To avoid a shortfall in the trust account if a deposit is dishonoured, ensure deposited funds have cleared before drawing against them.
Whenever a trust account is overdrawn you must notify the Commissioner in writing immediately, regardless of the amount or whether it’s the result of a bank error. The notification should include the date the trust account was overdrawn, the amount involved, the reason it occurred and full details of any action taken to correct it.
Balancing at month end
You must complete a trust account reconciliation at the end of each month. It is considered best practice to complete the monthly reconciliation within 10 days after the end of each month. If the agent is a corporation, the person in bona fide control is responsible for checking the reconciliation.
Regular monitoring of trust account transactions and account balances may help prevent a successful fraudulent transfer of money from a trust account.
Under no circumstances should agents maintain a surplus amount within the trust account to absorb any inadvertent deficiencies that may arise from dishonoured bank cheques or bank charges.
A buffer fund cannot be used to offset bank fees or for any other reason. Agents should regularly clear their commission or account fees to their general account. The Commissioner strongly recommends against the practice of retaining commissions and management fees in the trust account for an extended period of time.
For further information regarding trust accounts and auditing requirements, please refer to the Settlement Agents’ Trust Account Handbook.
Related disciplinary actions
Annual audit period for 2018-19 financial year has commenced.
Is yours underway?
Audit reports (or declarations of no receipt of trust funds) must be lodged with the Commissioner for Consumer Protection by 30 September 2019.
For any questions about your trust account audit, contact the audits team at email@example.com or on (08) 6552 9538.
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