Trust Account Handbook

Government of Western Australia
Department of Commerce
Settlement Agents Trust account handbook

November 2013
Disclaimer This booklet contains general information that was current at the time of publication. If you have specific inquiries about matters relating to your situation then you are strongly urged to seek independent professional advice. The producers of this publication expressly disclaim any liability arising out of a readers reliance on this publication. This publication was produced by the Consumer Protection Division of the Department of Commerce. This publication is available on request in other formats to assist people with special needs.
Table of Contents
Introduction................................................................................................................. .3 Using this publication.................................................................................................. .3 Further information..................................................................................................... .3
Part 1 trust accounting..................................................................................................4

1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 What is trust money?........................................................................................ .4 What is meant by trust accounting?.................................................................. .4 Why are there special requirements within the Act for the control of trust money?................................................................................................. .4 What happens to the interest on trust accounts?.............................................. .4 Types of trust accounts..................................................................................... .5 General trust accounts...................................................................................... .5 Interest bearing trust accounts.......................................................................... .5 Quotation of tax file number (TFN)................................................................... .5 Titling of trust accounts..................................................................................... .5 Titling of general trust accounts........................................................................ .5 Titling of interest bearing trust accounts........................................................... .6 Licensed entity.................................................................................................. .6 Receiving and depositing trust money.............................................................. .6 Opening, closing and amending trust accounts................................................ .6
1
1.10 What trust documents and records must be maintained?................................. .7 1.11 How long must trust records be retained?........................................................ .7 1.12 What use is made of the documents and records?........................................... .7 1.13 Fees and disbursements................................................................................... .8 Recovery of disbursements cost-recovery only............................................. .8 1.14 What must an agent do on becoming aware that a trust account is overdrawn?.................................................................................................... .9 1.15 Aspects of computerised trust accounting....................................................... 10
Part 2 trust documents and records...........................................................................11

2.1 2.2 2.3 2.4 2.5 2.6 Principles of trust account practice...................................................................11 Trust receipts....................................................................................................11 Trust receipt process.........................................................................................11 Trust account receipts.......................................................................................11 Interim receipts............................................................................................... .12 Trust deposit forms......................................................................................... .13 Bank deposit form........................................................................................... .13 Trust account withdrawals............................................................................... .13 Cash receipts journal and cash payments journal.......................................... .14
SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK
2.7 2.8 2.9
Trust ledgers................................................................................................... .15 Sample ledger................................................................................................. .16 Transfer duty................................................................................................... .16 Buffer account................................................................................................. .17 Trust account transfer journal entries.............................................................. .17
2.10 Recording withdrawals of fee entitlements..................................................... .18 2.11 Balancing a trust account at the end of each month....................................... .18 3.1 3.2 3.3 3.4 3.5 3.6 3.7
2
Balance per bank statement........................................................................... .20 Add outstanding deposits................................................................................ .20 Less unpresented cheques............................................................................. .20 Balance per trust cash at bank....................................................................... .20 Example: Trust account reconciliation statement........................................... .21 What are the annual duties of an agent regarding trust account audits?........ .22 What are an agents duties in appointing an auditor?..................................... .22 What are an agents responsibilities to the auditor?....................................... .23 What are the duties of an auditor?.................................................................. .23 How should an agent respond to an auditors recommendations?................. .24 What are an agents duties in changing an auditor?....................................... .24 What is a quarterly audit?............................................................................... .24 What if a settlement agency closes?.............................................................. .24 Unclaimed trust money................................................................................... .25 Early indicators of theft and fraud................................................................... .27 Computer systems.......................................................................................... .28 Bank reconciliations........................................................................................ .28 Transfer journals............................................................................................. .29 Receipt books................................................................................................. .29 Agency management...................................................................................... .29 Cash payments or cheque payments............................................................. .29 Trust account management............................................................................ .30 What must an agent do on becoming aware of fraud or theft?....................... .30
PART 3 TRUST ACCOUNT AUDITS.............................................................................22
3.8 3.9 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9
PART 4. PREVENTING THEFT AND FRAUD...............................................................27
Glossary.................................................................................................................... .31
Introduction
The Settlement Agents Act 1981 (the Act) requires the strict maintenance of a formal set of trust account records that show at any time the state of a settlement agents trust account. This publication is designed to assist agents to establish and maintain a trust account recording system that complies with the Act. It also makes a number of recommendations that, while not prescribed by the Act, are considered to be best practice in maintaining trust accounts by the Consumer Protection Division of the Department of Commerce (Consumer Protection). This publication is not a comprehensive accounting text for agents and familiarity with its content is not sufficient to satisfy the requirement that agents have a sound working knowledge of the Act and the Settlement Agents Regulations 1982 (the Regulations). Reference material and the latest Consumer Protection requirements can be found on its website. Visit www.commerce.wa.gov.au/consumerprotection/settlement
Using this publication
Part One answers general questions about trust accounting. Part Two examines the documents and records that constitute the trust accounting system, which must be maintained by the agent. Part Three discusses the agents duties and responsibilities relating to trust account audits. Part Four looks at recommended practices for reducing theft and fraud within a settlement business 3
Further information
Additional copies of this publication can be downloaded free of charge from the Consumer Protection website at www.commerce.wa.gov.au/CP/Auditors The Settlement Agent newsletters and e-Bulletins are used to inform the industry of Consumer Protection policy and best practice, and may be used to convey information about Consumers Protections auditing requirements. Archived issues of the Settlement Agents News and e-Bulletins are available in the websites publication section. Visit www.commerce.wa.gov.au/ConsumerProtection/Settlement
PART 1 TRUST ACCOUNTING 1.1 What is trust money?
Trust money is money received or held by an agent on behalf of another person in relation to a settlement transaction. Deposits on property purchases, transfer duty, rates and taxes are all examples of trust money. Section 49(1) of the Act requires every licensee holding a current triennial certificate to maintain one or more trust accounts exclusively for the purposes of the Act. Money received in the course of other business conducted by a settlement agent is not money received in the course of acting as a settlement agent. Such money is not considered as trust money under the Act and should not be held in the trust account. An agent has important fiduciary responsibilities in relation to trust account management. It is essential to remember that trust account money belongs to other people. The removal of money from a trust account for a reason other than a lawful and appropriate purpose is a criminal offence. Trust funds must be kept separate from an agents general business funds at all times. A separate set of accounting records should be kept for each trust account. Refer: section 48 of the Act (definitions)
1.2
What is meant by trust accounting?
Trust accounting is the general term used to cover the accounting records and practices required under the Act to enable agents to properly account for trust money in their possession. 4 Agents holding a current triennial certificate must maintain one or more trust accounts. All trust money must be held in a trust account in the agents name with an authorised financial institution. Prescribed financial institutions include all banks and societies. Refer: section 49(1) of the Act and regulation 6A of the Regulations
1.3
Why are there special requirements within the Act for the control of trust money?
Agents occupy a significant position of trust within the community and usually hold large sums of money on their clients behalf. The trust accounting system aims to ensure that all trust money held by agents can be accurately accounted for at all times. Trust accounts and auditing requirements increase public confidence in the services of agents.
1.4
What happens to the interest on trust accounts?
Financial institutions holding agents general trust accounts are required under the Act to pay a portion of the interest on these funds to Consumer Protection, as prescribed by the Regulations. The interest earned on trust accounts funds various Consumer Protection services including education, advice, the Fidelity Guarantee Account partially and investigations on settlement matters for industry members and consumers.
1.5
Types of trust accounts
General trust accounts The Act requires that a licensed agent holding a current triennial certificate shall maintain one or more trust accounts. All money held for a person in relation to a settlement transaction, such as a deposit and expenses, must be paid into a settlement agent trust account, which is titled in the prescribed manner. Refer: section 49(1) of the Act and regulation 6B of the Regulations. Interest bearing trust accounts Section 49A of the Act allows agents to open separate interest bearing trust accounts for individuals if a request is received in writing from the person paying the money. Before an agent can comply with a request for an individual interest bearing trust account, it must satisfy one of the following prescribed requirements:
the amount of money paid to the settlement agent exceeds $20,000; or the transaction in respect of which moneys are paid is not to be settled within 60 days. (Regulation 6C of the Regulations)
Interest earned on a separate interest bearing trust account is paid to the person requesting the account, not Consumer Protection. It must be brought to account each month. Requests from clients to open an interest bearing trust account must be made in writing and occur before settlement. Agents must comply with such requests where the aforementioned criteria are met and retain them in their files for auditing purposes.
1.6
Quotation of tax file number (TFN)
When opening an interest bearing account in trust for a client, the clients tax file number should be quoted to avoid tax being withheld at the top marginal rate.
1.7
Titling of trust accounts
The titling of trust accounts enables easy identification of settlement trust accounts for agents, auditors, financial institutions and Consumer Protection. When opening a trust account, an agent should ensure all details are recorded on bank documents. Examples of titling various categories of trust accounts are provided below. Titling of general trust accounts Agents are required to include the following information in the title of a general trust account:
Licensed entity name and business name as recorded on the triennial certificate. SA TRUST A/C (the word Account can be abbreviated or in full). TC followed by triennial certificate number of the licensed entity (up to five digits). Example ABC Pty Ltd (ABN 12 345 678 912) T/A XYZ Settlements SA TRUST A/C TC 12345
Note: A licensed entity can be a body corporate, partnership or sole trader.
Titling of interest bearing trust accounts Agents are required to include the following in the titling of an interest bearing trust account:
Licensed entity name and business name as recorded on the triennial certificate in trust for the person making the request. SA TRUST A/C IB. TC followed by the triennial certificate number of the licensed entity (up to five digits). The words in trust for followed by name of the person who requested the separate account. Example ABC Pty Ltd (ABN 12 345 678 912) T/A XYZ Settlements in Trust for John Smith SA TRUST A/C IB TC 12345
Refer: regulation 6B of the Regulations Licensed entity A real estate settlement agent and/or business settlement agent licence can be granted to a natural person (individual), a firm (partnership) or a body corporate (company). In order to trade as a real estate settlement agent and/or a business settlement agent, a licensee must hold a current triennial certificate. The person in bona fide control of an agency and branch managers must be licensed and hold a current triennial certificate. If there is a change in the person in bona fide control or in the directorship of a company, the agent must notify Consumer Protection in writing within 14 days. 6 If there is a change in the partnership of a firm, with the exception of a new partner, the licence may cease to have effect. This means the firm is no longer able to continue trading and needs to apply for a new licence from Consumer Protection as well as undertake a termination audit.
1.8
Receiving and depositing trust money
All trust money must be deposited in the trust account with an authorised financial institution as soon as practicable after it is received unless there are unusual circumstances (eg unavailability of convenient banking facilities). In this case, as soon as practicable means by close of business the next business day. Refer: section 49(1) of the Act
1.9
Opening, closing and amending trust accounts
Whenever a trust account is opened, closed, or amended, an agent must advise Consumer Protection in writing as soon as practicable. Consumer Protection has determined the notification must be sent within five working days. The notification should provide the name and number of the trust account and the name and address of the authorised financial institution where the trust account is maintained. The date on which the change was made should also be included. Consumer Protection does not need to be advised about the opening, closing, or amending of interest bearing trust accounts. When opening a trust account, it is advisable to ensure an arrangement is made with the financial institution to accept third party cheques. Refer: section 49C(1) and (2) of the Act
1.10 What trust documents and records must be maintained?

It is essential that hard copies of the following records are maintained and can be produced at the request of the agents auditor or an investigator/compliance officer of Consumer Protection. Trust documents and records that should be maintained include:
a record of money received for or on behalf of any other person; trust receipt books register; duplicates of every completed trust account deposit form; trust account journals; trust ledgers; trust cheque books register; records of trust money payments; statement of trust monies; register of securities; trust account reconciliation statements; requests for the issue of bank cheques; and any other books, accounts or records kept by an agent relating to trust money.
It is also recommended that back-up copies of computer records be retained offsite. This ensures the agent has access to the records in the event of error, falsification of records by an employee or physical damage to the system. A useful system is to maintain a set of discs offsite with a disc labelled for each working day (eg Monday, Tuesday etc). The disc labelled for that particular day is brought back to the agency and used to back up records at the end of the day. The set of discs are then rotated the following week. With this system in place, all discs, except the one labelled for that day, are kept offsite. Refer: section 58 of the Act
1.11 How long must trust records be retained?

When an agent receives money for or on behalf of any other person, they must keep a record of the money received. All trust records and documents are to be retained for a minimum period of six years from the date the money was received. All agents need to be mindful of the taxation legislation with respect to the requirement to retain accounting records. Agents who are a body corporate should also be aware of the Corporations (Western Australia) Act 1990 with respect to record keeping (currently six years). Refer: section 50 (1)(b) of the Act and regulation 6F(b) of the Regulations
1.12 What use is made of the documents and records?

Documents and records enable the tracking of trust money held by an agent at any time in order to verify that money has been dealt with in accordance with the Act. The auditor will conduct a sample-based audit of the records when performing the annual audit. As well as the annual audit, the Commissioner may order an inspection of trust account records or an interim audit of an agents trust accounts at any time. An audit is an examination by an independent person of the accounts held by an agent. Unless the Commissioner approves otherwise, a registered company auditor must conduct the audit. An agent
needs to maintain all documents and records relating to a trust account in a manner that enables them to be conveniently and properly audited by the agencys auditor. Refer: section 49(6) of the Act Other duties of agents relating to audits are discussed in part three.
1.13 Fees and disbursements

Under section 49(4) of the Act, disbursements of money from a trust account must be directly associated with the settlement of the real estate or business transaction that incurred those disbursements. An agent is required to transfer any settlement fee entitlement, gained from a settlement transaction, from the trust account to their agencys general account before using that entitlement to meet general operating expenses. The agent cannot pay general operating expenses or personal expenses direct from the trust account. Fees should be transferred to the agents general account at least weekly, as best practice. In addition, an agent is only entitled to a settlement fee if all the following requirements have been met:
the settlement agent is licensed and holds a current triennial certificate when the services are provided (section 43(1)); the settlement agent has a valid appointment to act in writing (signed by the person for whom the services are being provided) before the services are rendered (section 43(1)); and the appointment to act complies with the requirements of section 43(2).Upon request from the client, the settlement agent must provide a scale of remuneration and an estimate of the cost of the services in respect of the particular settlement.
Refer: section 43 and 44 of the Act Recovery of disbursements cost-recovery only Settlement agents may recover disbursement costs incurred in the course of a settlement from their clients. Disbursement costs include telephone calls, facsimiles, photocopying, postage and stationery. Where disbursements of this nature are being recovered, Consumer Protection considers it best practice for settlement agents to keep an individual record on the clients file to verify the actual expenses were incurred and claimed. Agents should always keep in mind that the recovery of disbursement expenses is based on cost-recovery only. As labour costs are part of the settlement fee, they are not to be included in calculating disbursement charges. For example, the agents labour in photocopying cannot be charged as a disbursement. Agents sometimes have difficulty working out recovery costs for photocopying. A suggested method to calculate photocopy costs is for the agent to calculate the cost of a single sheet of paper plus the operational cost per copy (how much the photocopier costs to copy one sheet of paper). First, the operating cost of the photocopier must be determined, which is done by adding the average cost of leasing or renting a photocopier per month (if the agent owns the photocopier, the average can be determined by spreading the cost over the life of the photocopier, usually three to five years), plus the monthly average maintenance charge. To work out the operational cost per copy, the operating cost of the photocopier is then divided by the total number of copies per month, (the usual operational cost per page is between two to three cents).
The following calculation can be used to work out the net cost per period: Net cost per period = Cost of paper per month + operational cost (average cost of photocopier per month) + average cost of maintenance charge per month Number of copies per month
Settlement agents who have been keeping individual disbursement sheets for a sufficient period of time may use that information to work out a flat charge to all clients for disbursements. However, the charge must still be justified on the basis of a minimum cost of recovery. To do this, calculate the lowest number of each type of disbursement for a basic settlement for both seller and buyer For example, the lowest number of phone calls in a basic settlement would be used as a basis for developing a flat charge for all settlements where disbursements are involved. Agents cannot use the average because this would result in some clients being overcharged, which is prohibited by the Act. Agents using a flat charge method should keep individual disbursement sheets for a period of time at regular intervals to ensure charges remain accurate and can therefore be justified. Where an agent charges disbursements greater than the actual cost incurred, the excess amount could be considered as remuneration. If total remuneration exceeds the scheduled fee, the agent could be in breach of the Act.
1.14 What must an agent do on becoming aware that a trust account is overdrawn?
Section 49C(3) of the Act requires the financial institution and the agent to inform the Commissioner whenever a settlement agents trust account is overdrawn. Regardless of the amount overdrawn or whether the overdrawn amount is a result of a bank error, Consumer Protection must be notified immediately. The notification must include the name and number of the trust account and the amount by which the trust account is overdrawn. The notification must be sent to the Commissioner. This is to be done within five working days, as required by Consumer Protection. Agents should also be aware of the requirements of Rules 23 and 24 of the Settlement Agents Code of Conduct 1982 (the Code of Conduct). Rule 23 of the Code of Conduct requires agents to immediately balance their trust account if it becomes deficient, and to inform everyone who could be affected by the deficiency. Rule 24 of the Code of Conduct states that a licensee must not place their clients money into a trust account they know to be deficient. For guidance on what to do in the event of fraud or theft from the trust account, please see part four. Further comments in respect of trust account practices are made under Section 2.1 Principles of Trust Account Practice. Refer: section 49C(3) of the Act
1.15 Aspects of computerised trust accounting

The requirements of the Act and the Regulations apply to all computerised trust accounting systems. Before signing a contract to purchase or lease a computer system, an agent should check the software included is capable of producing trust records that comply with the requirements of the Act. Agents are advised to discuss the selection of a system with their auditor if they are contemplating the purchase of a computer system. The agents auditor can then advise on the types of records that must be maintained and generated. As a safeguard, when buying a computer system, some agents have negotiated a condition in their contract that requires the software to comply with the Act and any costs in modifying the system are at the suppliers expense. Consumer Protection does not approve of or endorse any computer system or software package. Any claims made by suppliers that approval has been granted could be a misrepresentation and should be reported to Consumer Protection. While the day-to-day upkeep of trust account records is delegated to office staff in many agencies, the licensee is responsible for all trust account records. For this reason, it is essential the agencys licensee is fully conversant with the computer system installed. Full use should be made of the checks and controls that are integrated into the system. Systems should automatically generate a daily report so that trust account records can be monitored on a daily basis for discrepancies and errors. The agencys licensee should personally check the daily report that is generated and immediately address any irregularities that may be identified.
10
PART 2 TRUST DOCUMENTS AND RECORDS

The role of trust documents and records, as well as the prescribed requirements, are explained in this section. Where needed, a model that meets the requirements of the Act is shown. It should be understood, however, that models serve only as examples. While legislation prescribes the information that must be recorded, it does not prescribe the way that information must be presented.
2.1
Principles of trust account practice
While it is impractical to summarise good trust account bookkeeping practice in a few sentences, the following broad principles apply:
documents are completed immediately; records are written up by the end of the next business day; trust money is banked by close of business of the next business day (unless the Act allows otherwise) and in the same form it was received (eg cash received must be banked as cash); records of all transactions are kept and transactions with no documentary evidence are recorded in the transfer journal; reconciliation statements, prepared at least monthly, are completed accurately and on time; fee entitlements are not deducted from the trust money until after settlement; each client must have a separate trust ledger account and each individual trust ledger account should never go into debit; agents with computerised accounting systems maintain records in a manner that can be conveniently and properly audited (auditors can advise which documents must be provided in hard copy); and back-up computer records are kept offsite. 11
2.2
Trust receipts
Trust receipt process When trust accounts are kept manually and payment is made in person, a receipt must be provided to the person at the time of payment. A duplicate, marked as such, must also be retained. If a computer system is being used, a printed receipt needs to be issued and a record of the transaction maintained. If a payment is made by cheque through the mail, the receipt should be provided as soon as possible. A receipt does not have to be issued if the money is received by electronic transfer, however, a record of the money received must be kept (ie a copy of the deposit slip or bank statement). Trust account receipts It is a requirement that all trust receipts show the following information:
the name of the holder of the triennial certificate, and the business name of the holder, that is recorded in the register; a number or letter, or a combination of both, in consecutive order to allow the receipt to be uniquely identified; the date the money was received; the name of the person paying the money;
the amount of money received; a brief description of the purpose of the payment; and if the receipt is hand-written, the name of the person receiving the money evidenced by the signature of that person.
Refer: regulation 6E of the Regulations When money has been received by electronic transfer, an agent must ensure a record is kept to allow the receipt of the money to be uniquely identified, by including:
a number or letter, or combination of both, in consecutive order that allows the record to be uniquely identified; the date the money was received; the name of the person paying the money; the amount of the money received; and a description of the purpose of the payment.
Refer: regulation 6E(b)(c)(d)(e) and (f) and regulation 6F(3) of the Regulations The example below demonstrates a general purpose trust receipt format that meets the requirements under the Regulations: ABC PTY LTD ABN 12 345 678 912 T/A XYZ Settlements Licensed Real Estate Settlement Agent 16 Horizon Street, Perth 6000 12 Trust Account Receipt No: 00001
Date.......... /............ /.............. Received from......................................................................................................................... Address................................................................................................................................... The sum of.............................................................................................................................. For........................................................................................................................................... For and on behalf of ABC Pty Ltd ABN 12 345 678 912 Signed..................................................................................................................................... Cheque $...................... Cash $........................ (name of signatory) Total $.............................................................. All receipts should be posted to the cash receipts journal by the next working day.
2.3 Interim receipts

The use of interim receipts is not encouraged. However, there are certain circumstances when an interim receipt may need to be issued (eg when the agents printer is out of order). In these situations, a duplicate of the interim receipt should be retained in the records and the interim receipt should be immediately followed by a formal trust receipt and cross-referenced to the interim receipt. When using a manual system to issue interim receipts, cross-referencing information should be included in the trust ledger. If a computer system is used, the formal trust receipt should be
cross-referenced against the interim receipt in the computer system. When agents have issued interim receipts, they should review them on a weekly basis to ensure the formal trust receipt has been issued.
2.4
Trust deposit forms
Agents should make and retain a copy of every completed trust account deposit form. Trust account deposit forms should show:
the date of payment to the authorised financial institution; the name and number of the agents trust account; and if the money is paid by cheque, the name of the drawer and the name and branch of the financial institution against which the cheque was drawn.
Most standard bank deposit books issued by trading banks include this information. To assist in checking that all money paid into the trust bank account matches a trust account receipt, it is useful for agencies with more than one branch to note the serial numbers of the receipts of the money banked on the copy of the bank deposit form. This practice assists in bookkeeping and will aid the auditor when checking details of receipts against money banked. For example: Bank deposit form East branch office receipts: 1642 1649 West branch office receipts: 1974 1976 Total deposit $6,471.00 $267.48 $6,738.48 13
The trust account deposit book should be clearly identified to distinguish it from the agents general account deposit book.
2.5
Trust account withdrawals
At no time should a trust ledger account have a debit balance. As a matter of best practice, all withdrawals from a trust account should be made by electronic transfer or a trust cheque. Where a trust cheque is used, an agent must retain the cheque butts and ensure such cheque butts contain all relevant information. To reduce the possibility of theft or fraud, it is recommended that trust account cheques are marked Not Negotiable and are not made payable in cash. The agent may ask the bank to mark each cheque Not Negotiable - Account Payee Only or purchase a rubber stamp to mark the cheques. Stamping all trust account cheques when they are received from the bank will ensure no cheques are inadvertently issued without this protection. Alternatively, the agent can cross out or bearer and write order on the cheques to ensure that the amount is only paid to the correct person. It is also important for the agent to ask the bank to stamp the trust account cheque book with the name of the account or, alternatively, to write or stamp the name of the account on each cheque. This will reduce the chance of an inadvertent withdrawal of trust funds from the trust account. In most circumstances, the person in bona fide control should be a compulsory signatory to the trust account to ensure that adequate control is exercised over employees of the agency. This measure will reduce the possibility of inadvertent errors and theft. In some large agencies, it may not be possible for the person in bona fide control to be a compulsory signatory and in this case,
regular checks should be carried out on the work of the person responsible.Before drawing a trust account cheque, the relevant client trust ledger account should be reviewed to ensure the account contains sufficient cleared funds to cover the payment that is to be made. If the money has been paid by cheque, allow sufficient time for the cheque to clear before drawing on it. Check with the bank for the appropriate clearance time. When monies being held on behalf of a buyer and seller are disputed, the settlement agent must obtain the prior written consent of all relevant parties before releasing the disputed funds. A cheque butt or other record should show similar information to that shown on receipts, including:
the date of the cheque; the name of the person to whom the payment is to be made; the serial number of the cheque; the amount of the payment; and a brief description identifying the nature of the transaction and the purpose for which the payment is made.
The below example shows the minimum information that should be shown on a cheque butt or on a computer printout: Date: Payment to: Reason for payment: Amount: 14 Cheque Serial Number: DD/MM/20XX Registrar of Titles Registration fees for File # 154/03 $16 767110
Cheque books should be stored in a secure place to restrict access to authorised people only.
2.6
Cash receipts journal and cash payments journal
All receipts and payments of trust money are to be summarised in the trust account cash journals. The journals are updated each time money is paid into or out of the trust account. The journals also provide a sequential and chronological record of trust account receipts and payments. If using a computerised system, the procedures and terminology may be different but the same essential information must be recorded. The journals are used to update the trust account ledger and for the preparation of the monthly trust account reconciliation statement. The trust account cash journals must contain sufficient particulars of all receipts, payments and transfers to enable adequate details of the transactions to be posted into the trust account ledger. The receipts section is prepared from the duplicates of trust account receipts. Each receipt number must be entered in strict numerical sequence. If a receipt is cancelled, the number must still be entered and the word cancelled written beside it. The original copy of any cancelled receipt should be retained for inspection by the agents auditor. Recommended information to be recorded in the cash receipts journal includes:
date; receipt number; from whom money was received; trust ledger reference;
amount received; and the total amount banked each day.
The cash payments section of the journal must also be entered in strict numerical sequence from information recorded on the trust account cheque butts (or duplicates). Recommended information to be recorded in the cash payments journal includes:
date; cheque number; name of person to whom payment was made; reason for payment; trust ledger reference; amount of payment; and a subtotal of payments made to any one person on a particular date.
Refer: section 49(6) of the Act
2.7
Trust ledgers
The trust ledger is the centrepiece of the trust accounting system as it summarises all of an agents trust account transactions. The trust ledger must show the details and amounts of the money held by the agent on their clients behalf at all times. A client trust ledger account must be opened for each settlement. The bank trust account and the individual client trust ledger accounts must never go into debit. Client trust ledger accounts must satisfy the following criteria irrespective of whether they are produced manually or electronically: 15
individual client trust ledger accounts must show a continuous running balance in order to disclose each clients entitlements at any time (it is not sufficient that entitlements can be calculated or obtained by reference to subsidiary records); all transactions must be shown in their correct chronological sequence and the date of each transaction must be shown (if not done, the amounts recorded in the balance column will be meaningless and the client trust ledger accounts will fail to show the true position as required); the client trust ledger accounts must be updated by close of the next business day; where records are maintained electronically, the accounts must be readily convertible into printed form (the ability to produce a visual image on a screen is not sufficient); and all client trust ledger accounts must contain sufficient detail so the nature of the transactions can be clearly understood. the account number; the name and address of an agents client; the address of the property involved; the names of other parties to the transaction; the date of each transaction; the names of people from whom money was received or to whom money was paid;
Each client trust ledger account must contain at least the following information:
the reason for the movement of money; the amount of the money paid or received; either the cheque number, receipt number or transfer journal folio number that matches the movement of money; and the balance of the account.
A sample ledger layout is shown below: Sample ledger Client name Address: Description of transaction:
............................................................................................................................................................................................................................................................... ............................................................................................................................................................................................................................................................... ............................................................................................................................................................................................................................................................... ............................................................................................................................................................................................................................................................... ............................................................................................................................................................................................................................................................... ............................................................................................................................................................................................................................................................... ...............................................................................................................................................................................................................................................................
Account No:
Date 16
Particulars
Jnl Ref
Debit
Credit
Balance
Transfer duty Money for transfer duty (formerly stamp duty) should be held in a separate ledger within the agents trust account. Transfer duty money is collected from the buyer, deposited into the trust account and cleared from the trust account before stamping any documents. This is also a condition of Online Stamping, a facility offered by the State Revenue section of the Department of Finance. Online Stamping enables agents to move transfer of duty money via an electronic lodgement of monthly returns. This system replaces the previous disc-based facility, known as Collections by Return. Agents who stamp documents using Online Stamping before receiving transfer of duty money from the buyer or before ensuring that received trust funds have been cleared, are making a false declaration. By doing so, agents risk disciplinary action by the Department of Finance and may even lose their licence. Agents intending to use Online Stamping are encouraged to familiarise themselves with the terms and conditions on the Office of State Revenue section of the Department of Finance website at www.finance.wa.gov.au
2.8
Buffer account
Agents sometimes maintain a surplus amount within the trust account to absorb any inadvertent deficiencies that may arise from dishonoured bank cheques or bank charges. In no circumstances should extra funds be kept in the trust account. A buffer fund cannot be used to offset bank fees or for any other reason. Agents should clear their commission or fees account to their general account at least weekly. Consumer Protection strongly recommends against the practice of retaining commissions and management fees in the trust account for an extended period of time. The removal of these excess funds from the trust account is for the benefit of all parties. If an agent maintains a buffer in a trust account, they will not be aware when the trust account is overdrawn. This means they are less likely to identify poor trust account management practices or fraud by employees. The person in bona fide control is responsible for checking each ledger account each month to determine if specific ledgers are overdrawn and to correct any errors.
2.9
Trust account transfer journal entries
An agent may wish to transfer funds between client trust ledger accounts within the trust ledger. In this situation, it is not necessary to withdraw the funds from the bank trust account and redeposit them. Rather, the transfer can be achieved through appropriate client trust ledger account entries and recorded in the trust account transfer journal. The role of the trust account transfer journal is to provide a clear audit trail between taking money from one client ledger and crediting it to another client ledger. The use of a transfer journal is not compulsory unless transfers are made. When transferring funds between client ledgers it is important to remember that, in some cases, an authority in writing will be required from the client concerned (ie the sale of one property and purchase of another). The trust account transfer journal must include the following information:
17
the date of transfer; the name of the trust ledger account from which the money is transferred; the name of the trust ledger account to which the money is transferred; a notation or code indicating the purpose for which the money is transferred; and the amount of money transferred.
Where more than one trust account is held by an agent, a separate transfer journal must be maintained for each trust account. Transfer journal entries equate to both a payment and a receipt of trust money and therefore must be fully recorded. Explanatory notes for each journal entry should be included. Receipt and payment transactions should be supported by signed trust documents (receipt forms and cheque butts). The agent should also sign transfer journal entries as evidence of the agents authorisation of the entry. To reduce the incidence of error or theft, the person in bona fide control should sign off all entries in the trust account transfer journal.
A suggested layout for the journal is as follows: Trust account transfer journal (general journal) DR Date Particulars Ledger reference Transfer from $ 4/8/13 4/8/13 James Smythe A/C 4403 John Smythe A/C 4407 Money incorrectly deposited to account 4003 on 31/07/13 J1 W3 c 10,000 10,000 Person in bona fide controls signature M Brown CR Transfer to $ c
2.10 Recording withdrawals of fee entitlements

Fees can be transferred from the clients ledger account after settlement to a fees ledger account within the trust account. The fees account should be cleared at least weekly to the general account of the agent. 18 When a fee entitlement is due to the agent, a trust cheque can be drawn to transfer the funds from the clients ledger account to the agent, or transferred to the agents general bank account by electronic transfer. When fees are due to the agent from more than one client, it is not necessary to draw individual trust account cheques for each fee entitlement. A single trust account cheque may be prepared instead or the funds may be transferred electronically, provided the transfer journal or cash payments journal entries are made listing each fee withdrawal and the client trust ledger account to which it relates.
2.11 Balancing a trust account at the end of each month

To ensure the requirements of section 49(6)(d) of the Act are met, an agent should complete a trust account reconciliation statement at the close of business each month. This statement reconciles the cash records of the business with the records of the bank. It reconciles the balances of the trust account cash book, the bank trust account statement and the total of the clients trust account ledgers. The purpose of the exercise is to match all three totals after taking into account any reconciling items.The monthly trust account reconciliation should be:
as at the close of business of the last day of the month; completed within 10 working days after the end of each month; verified, signed and dated by the agent, or if the agent is a corporation, the person in bona fide control, even if there are no funds in the account; and retained for auditing purposes.
Regular monitoring of trust account transactions and account balances may help prevent the successful fraudulent transfer of money from a trust account, as the bank may be in time to hold or reverse the transaction. Agents should ensure they only access their banking details in a secure environment and all devices have appropriate and up-to-date security software. In preparing a bank reconciliation, which is a major part of a trust account reconciliation, the agent should be aware that while the bank also records cash receipts and cash payments, the bank records it from a different perspective to that of an agent. For example, cash receipts that are debits in the agents cash at bank account entries in the journal are shown as credits on the bank statement. Similarly, cash payments appearing as credits in the cash at bank account entries in the agents journal are shown as debits on the bank statement. Often, there will be discrepancies between the trust records and the bank statement. Once the agent becomes familiar with these discrepancies, the process of trust account reconciliation becomes easier.The procedure for preparing a bank account reconciliation is as follows:
Add the cash column (total) of the cash receipt journal for the particular month (eg March). Add the cash column (total) of the cash payments journal for the particular month (eg March). Read the bank statement for the particular month (eg March) and check that the money deposited each day went into the bank account. These amounts will be entered as credits on the bank statement. Check all the cheques drawn appear in the bank statement and they are all for the same amount. These amounts will be shown as debit entries. Check also that all cheques appearing in the bank statement were in fact authorised and issued. Using a pencil, tick off each entry on the bank statement against the corresponding entry in the cash journals. Items appearing in the bank statement but not in the cash journal could be a direct deposit. The agent should deal with a direct deposit by issuing a receipt and completing the details of the receipt, ensuring the date the deposit was actually credited to the account is shown on the receipt. The agent should enter this information into the cash receipts journal and credit the appropriate client trust ledger account. Deposits not ticked in the cash receipts journal represent outstanding deposits and will be used later in the bank reconciliation statement. Cheques appearing in the cash payment journal that have not been ticked are referred to as unpresented cheques and will be used in the preparation of a bank reconciliation statement. 19
The balance of the bank statement and trust cash at bank ledger (or balance as per trust cash journal) should be the same after making adjustments for outstanding deposits and unpresented cheques. If they do not, an error has been made and will need to be identified. Agents should check:
additions; all entries from receipts to the cash receipts journal; all entries from cheque butts into the cash payments journal; all unpresented cheques have been added together correctly; all outstanding deposits, including electronic transfers, have been accounted for; and the bank statement for any bank charges that may have been debited to the trust bank account.
The agent should ask the bank not to debit the trust account with bank charges because this will create a deficiency. However, banks may inadvertently debit the trust bank account with certain charges. The agent should deal with these charges immediately and transfer an amount from the general account to the trust account to cover the deficiency if the bank is not immediately able to rectify the error. Frequent access to the balance held in the trust account, through means such as internet banking, allows the agent to identify withdrawals quickly and take action in a timely manner. Balance per bank statement This is the final balance on the bank statement and it is from this basis the reconciliation will be made. Bank statements must be received at least monthly. In practice, bank statements are received more often, even daily in many cases. Note how the bank balance is described with the term Cr (credit or in funds). Add outstanding deposits These are deposits that have been taken up in the trust cash receipts journal (or credit side of the cash book) but have not yet been taken up by the bank. They are easily identified because they are deposits that remain unticked after the trust cash receipts journal/cash book and bank statement have been compared. Where there is more than one outstanding deposit, a list must be made showing alongside each deposit the date as disclosed by the trust cash receipts journal/cash book. Outstanding deposits are added to the balance per bank statement because when these deposits are eventually taken up by the bank, they will increase the funds held in the agents trust account. 20 Less unpresented cheques Unpresented cheques are ascertained in the same manner as outstanding deposits and when listed, are identified by cheque number as well as amount. Such cheques are deducted because, when presented to the bank, they will reduce the trust funds in the agents trust account. Unpresented cheques should be followed up after three months. Balance per trust cash at bank If the outstanding deposits are added to the balance per bank statement and the unpresented cheques are deducted, the resultant figure will be a balance, which should always be a credit at the bank.
Example: Trust account reconciliation statement ABC Pty Ltd T/A XYZ Settlements Trust Account Reconciliation Statement as at 31 August 2013 $ 1 CASH BOOK Balance brought forward from 31 July 2013 Add: total receipts for August Deduct: total payments for August Balance as at 31 August 2013 2 BANK STATEMENT Balance as per bank statement 31 August 2013 Add: deposits not credited on FIS Deduct: unpresented cheques 357 358 Total trust money at 31 August 2013 3 CLIENTS TRUST LEDGER BALANCES Total of attached listing of ledger balances as at 31 August 2013 Signed: M BROWN XX/XX/20XX Section 49(6)(d) of the Act, provides that a settlement agent must correctly balance the accounts at the end of each month and certify in records this has been done. Trust reconciliation statements, including related bank statements, must be retained as they form part of the trust account records. 21 71,500.00 78,000.00 Nil 2,500.00 4,000.00 6,500.00 71,500.00 78,000.00 67, 500.00 52,000.00 119,500.00 48,000.00 71,500.00 $
PART 3 3.1
TRUST ACCOUNT AUDITS
What are the annual duties of an agent regarding trust account audits?
Persons who carry on business as a settlement agent must cause the trust accounts to be audited by the approved auditor and the audit report lodged with Consumer Protection (section 51(1) and (3) of the Act). If the agent has not held any trust funds during the year, then the agent is not required to have an audit and must instead lodge a statutory declaration to this effect (section 67 of the Act). All audit reports or statutory declarations (as appropriate) are required to be lodged within three months of the end of each audit period. For most settlement agents, the audit period ends on 30 June of each year, which means that the audit report or statutory declaration must be lodged by 30 September. It is the auditors responsibility to deliver the audit report to Consumer Protection. Penalty: $3,000 fine Refer: section 51(3) and section 65(1)(b) of the Act
3.2
What are an agents duties in appointing an auditor?
Before an agent can receive or hold any trust money the agent must appoint an auditor. To audit an agents trust account, a person must be a registered company auditor, under Part 9.2 of the Corporations Act 2001(Cth). In regional areas where no qualified company auditors are available, Consumer Protection may approve another person with appropriate qualifications as an auditor. 22 To comply with section 53(3) of the Act, an auditor must disclose to the Commissioner any relationship by blood or marriage, or any business dealing, with the settlement agent. Agents should ensure their auditor is aware of this requirement, and are encouraged to notify the Commissioner as well, if any relationship exists. Consumer Protection will consider each instance of disclosure on a case-by-case basis. Where an auditor is related to an agent by blood or close relationship, there is a clear conflict of interest that could compromise the auditors independence. Where an auditor has business dealings with an agent, the Commissioner will consider the facts in each case. Generally, the Commissioner will disqualify an auditor where that auditor also acts as the agents general accountant. Section 56 of the Act allows Consumer Protection to disqualify an auditor from acting for an agent if it believes there is just cause. A disqualified auditor can apply in writing to the Commissioner for Consumer Protection to request the decision be reconsidered. For disqualification to be reversed, the auditor needs to show that any business dealings with the agent have ceased or establish that there are no longer reasons for concern regarding independence. The disqualified auditor may also apply in writing to the State Administrative Tribunal (SAT) to have the decision reviewed under section 23 of the Act. In certain circumstances, for example in rural areas, a suitably qualified auditor may not be available. In such cases, Consumer Protection may notify the agent of its intention to disqualify the auditor and the agent is then given the opportunity to outline the reasons why the auditor should be retained. Refer: section 53(3) of the Act
3.3
What are an agents responsibilities to the auditor?
As part of the audit process, the agent is required to prepare a statement of trust account money held for the auditor. This statement should show details of all money held for or on behalf of any other person, as well as deposit receipts and negotiable or bearer securities in the name of the agent, which represent money drawn from the agents trust account. The statement made by the agent must be verified by a statutory declaration. As part of the audit process, the auditor will request a copy of the completed checklist and report provided by Consumer Protection for any proactive compliance visit/s conducted during the audit period. This may assist the auditor in reviewing any compliance issues noted at the time of the proactive visit. In the statement to the auditor, the agent is required to provide full details of the trust accounts held, including:
details of the names, account numbers and financial institution name and branch name where the trust accounts are maintained (this reporting requirement also applies to clients separate interest bearing trust accounts); and the reconciled balance held in each trust account as at the audit date (including those closed during the audit period).
After examining the prepared statement, the auditor will certify the document and return a copy along with a copy of the audit report to the agent. A copy of the agents declaration and statement of trust account money held is required to be attached to the audit report and submitted to Consumer Protection. All trust account records must be made available to the auditor at every audit, or when the auditor reasonably requests. Refer: section 58 and section 61 of the Act 23
3.4
What are the duties of an auditor?
An auditor must audit trust accounts in accordance with accepted auditing practice, including selective testing when the auditor considers it appropriate. The auditor must also be satisfied the trust records are kept in accordance with the requirements of the Act. The audit of an agents trust accounts is a compliance audit, where materiality does not apply and the auditor is to report every discrepancy to Consumer Protection. The auditor must determine if any proactive visits or investigations by Consumer Protection staff have taken place, obtain a copy of correspondence from Consumer Protection and address any issues raised in a management letter accompanying the audit report. On completion of an audit, the auditor is required to deliver the original audit report to Consumer Protection. Generally, the audit report must be delivered to Consumer Protection by 30 September each year ie within three months of the end of the audit period, which is from 1 July to 30 June. It is the duty of the auditor to report any relevant issues to Consumer Protection. The auditor is also required to provide copies of any management letters issued to the agent and attach these to the audit report. Consumer Protections publication, A guide to auditing settlement agents trust accounts, can assist auditors and agents in understanding the requirements for an audit of an agents trust account. Refer: section 51(2 ) of the Act
3.5
How should an agent respond to an auditors recommendations?
An agent must promptly implement any recommendations made by the auditor where the recommendations arise from a breach of the Act. The Commissioner looks upon any breaches of the trust account provisions seriously. If an agent considers the recommendations to be unfair or unreasonable, the agent may make a request in writing to the Commissioner to reconsider the recommendations in light of the objections.
3.6
What are an agents duties in changing an auditor?
Under section 54(3) of the Act, an agent must continue to employ the statutory appointed auditor unless the Commissioner approves a change in the appointment. Agents seeking to change their statutory appointed auditor must lodge an application with Consumer Protection no later than one month after the end of the year of being audited. Applications for a change of auditor will not be accepted after this time due to the proximity with the due date for provision of the annual audit. For example, where the audit period expires on 30 June 2013, an application must be received by 31 July 2013. All agents seeking to change their statutory appointed auditor must complete a Change of Auditor request form (www.commerce.wa.gov.au/CP/Auditors) and return this to Consumer Protection. The Commissioner does not consider delays caused by a change in the appointment of an auditor as an acceptable reason for granting an extension of time for the submission of the audit report. Further details on these points can be found on the Consumer Protections website, www.commerce.wa.gov.au/CP/Auditors 24
3.7
What is a quarterly audit?
Section 51(8)(a) of the Act provides for an interim quarterly audit to be conducted on the settlement agents trust account for the first three months they conducted business. The auditor is required to deliver the audit report to the Commissioner within two months after the end of the first three months of trading. In some circumstances, the Commissioner may approve combining the interim audit with the annual audit. Section 51(9) of the Act provides for the Commissioner to waive the requirement of an interim audit where appropriate.
3.8
What if a settlement agency closes?
The closing of a settlement agency can be a complex matter. Some guidelines are provided on page 25 but it is recommended the agent seek legal and accounting advice to address all of the issues involved. If the business is licensed as a partnership or body corporate, written notification of the date of closure and surrender of the licence and triennial certificate of the business must be given to the Commissioner. If the business is being conducted by a sole trader, written notification of the cessation of use of the business name must be given to the Commissioner and the Australian Securities and Investments Commission (www.asic.gov.au), who now has the responsibility for the registration of business names. The agents triennial certificate should also be returned to the Commissioner.
As well as advising Consumer Protection, the appointed trust account auditor must be advised of the closure of the business. All current clients of the business should also be notified. In addition:
Where there is a change of the entity which owns the business, and transfer or closure of a business, a termination audit must be carried out within three months of the change occurring (ie when the triennial certificate ceases to have effect) and the auditor must deliver a termination audit report to the Commissioner within two months after the end of the three-month period. If funds held in the trust account cannot be disbursed within three months following the closure of the agency, they may be disbursed to another agent or solicitors trust account provided there is written agreement from the parties who own the funds, which authorises the agent to deal with the money as instructed. If funds are still held in the trust account after a termination audit report has been delivered to Consumer Protection, the auditor is required to deliver a final clearance letter to the Commissioner when the trust account has reached a nil balance. If unclaimed money remains in the trust account, they may be disbursed in accordance with the provisions of the Unclaimed Monies Act 1990 (see 3:9 Unclaimed trust money). All accounting records must be kept for not less than six years from the date on which the money was received.
Refer: section 51(8)(b) of the Act
3.9
Unclaimed trust money

25
An agent must notify the Western Australian State Treasurer (the Treasurer) of any unclaimed money held in a trust account for six years or more as at 31 December each year. Under section 8 of the Unclaimed Money Act 1990, this notification should be provided to the Treasurer no later than 31 January in the succeeding year. The Unclaimed Money Act 1990 provides for voluntary payments to be made where the money has been held for a period of not less than two years. Where an agent ceases to operate and the trust account is being finalised, the Department of Treasury (Treasury) will accept unclaimed money that has been deposited for less than two years. Treasury requests agents note the following points when making a payment:
one transfer to be made in the middle of June; all money in that transfer must have been held, unclaimed, for at least two years (exceptional cases may apply, such as when an agent ceases to operate); and Treasury must be provided with a covering letter, a cheque for the amount being transferred and the following payment information:
ame of the owner of the money (Treasury may not accept money where ownership is in n dispute or unclear, eg the agent should not list both a seller and a buyer as the owner); owners last known address (street name, suburb/city); amount payable; date cheque issued; and description of the payment.
Please note, where information is not available, an agent is to state unknown on the covering letter. Agents should be aware that it is a requirement of section 49 of the Act to keep full and accurate records of all money received and paid. For further details, please refer to the unclaimed monies section of the Department of Treasury website at www.treasury.wa.gov.au/UnclaimedMoney
26
PART 4. PREVENTING THEFT AND FRAUD 4.1 Early indicators of theft and fraud
As in any other business, theft and fraud can occur from within a settlement agency. In the majority of cases, these acts are committed by an employee of an agency and often the person in bona fide control is not aware of the activities of the perpetrator. Commercial criminals are likely to identify and target organisations perceived as soft targets. A proactive approach to prevention is essential and there are certain tools and techniques available to make an agency a hard target (eg advise staff on induction that it is agency policy to refer all criminal issues to the police). It is in the interests of the agency and, in particular, the person in bona fide control to ensure that proper control and supervision of all staff takes place. The person in bona fide control has strong legal responsibilities in relation to the protection of trust account money. The agent could even be held responsible for reimbursing money misappropriated by employees.The person in bona fide control can help limit the possibility of theft and fraud of trust funds, and other money, by putting in place some internal controls and early indicators. If one or more of the following seems familiar, the agency could have a problem:
missing original supporting documents for transactions; unaccounted for/missing receipts; altered documents; outstanding or incomplete account reconciliations; complaints from clients about delays in receiving money; long-term unpresented cheques; balances held in client trust accounts for a long period of time; deteriorating financial position of the agency; or auditors access to people or information in the agency is restricted. 27
Agents cannot rely solely on statutory appointed auditors to identify theft and fraud in their agency. A misappropriation may occur well before an annual audit is performed. The auditor also relies on the accounting work within the agency, which may have been falsified by the perpetrator. It is recommended that agents discuss internal control mechanisms with their auditor. Some common measures that can be carried out by the person in bona fide control include:
making periodic checks on the work of employees; involving themselves in bank reconciliations; maintaining control over cheque books and receipt books; understanding and operating the computer system; and following-up on outstanding cheques and client balances.
Encouraging a whistle-blowing culture within the agency can also be an effective and relatively cheap way to encourage honest employees report suspicions of theft or fraud to their superiors.
4.2
Computer systems
Acts of theft and fraud can also occur in agencies using computer systems. This can happen when an agent is not familiar with the system in use or does not monitor staff that have access to the system. The person in bona fide control needs to pay special attention to the following areas:
creation of new ledger accounts; complete and accurate processing of receipts and cheques; use and authorisation of transfer journals; procedures for dispatch of cheques; the validity and payment of expenses; and ensuring there are sufficient funds to cover cheques before they are drawn. The system is down. This obviously causes interruptions to office procedures and a delay in the processing of trust account transactions. It also provides an opportunity for an employee to advise a client the system is down (allegedly) and issue a manual (interim) receipt. The money received by the employee is subsequently not brought to account in the computer. The order that transactions are printed within the ledger. It is possible for a debit balance to appear in the ledger that is not a true debit balance. This may occur when a payment and receipt relating to a particular trust ledger account occurs on the same day and the computer prints the payment before the receipt. There are several computer systems available that will not allow a payment to be processed if the client ledger reflects an overdrawn situation or there are insufficient client funds to cover the cheque.
The following are some problems that can emerge from computer systems used by agencies:
28
The person in bona fide control should be conversant with all computer systems used to maintain records and accounting systems for trust funds. They should not rely on one or two staff members. The person in bona fide control is also responsible for maintaining backup copies of computer records and ensuring their secure storage offsite, as these records are invaluable, particularly if there is a theft or fire at the agencys premises.
4.3
Bank reconciliations
The trust account is required to be correctly balanced, with the accounting records held within the agency balancing with the reconciled balance held by the bank at the close of business each month. Some agents choose to complete this exercise more frequently. Incorrect balances from the bank statement have been used to falsify monthly reconciliations and effect a reconciliation between the cash book, bank account and client trust ledger balances. The person in bona fide control needs to:
examine daily receipts against the daily banking to detect any short banking (in which cash received today is used to cover up money misappropriated the day before); periodically check the banking and the procedure for correctly balancing the trust account; check for false invoices by ensuring the font and other aspects of the invoices are consistent. Original bank statements should be sighted; and follow-up any warnings provided by the computer system immediately.
Regular monitoring of trust account transactions and account balances may help prevent the successful fraudulent transfer of money from a trust account, as the bank may be in time to hold or
reverse the transaction. Agents should ensure they only access their banking details in a secure environment and all devices have appropriate and up-to-date security software.
4.4
Transfer journals
All journals between trust ledger accounts should be verified.
4.5
Receipt books
Maintain strict control of all receipt books, particularly those that are not in use. This will make it difficult for a person to issue a receipt improperly and subsequently misappropriate a clients money. Check deposits against receipts each month and establish receipt cancellation procedures.
4.6
Agency management
The employee who manages the accounts should not be responsible for banking the money. In large agencies, duties should be rotated between employees so that their activities are monitored by others in the agency. The person in bona fide control must ensure that duties are rotated between employees on a periodical basis to avoid one person having sole responsibility of the computer system. Where this is unavoidable, the work of the employee who has sole responsibility for the computer system should be reviewed on a regular basis. Where possible, the person receiving trust funds and issuing receipts should not be the same person who is charged with the preparation and banking of trust funds. The person in bona fide control should prohibit the use of IOUs by staff and establish procedures for recovering outstanding money. The licensee should also pay close attention to the division of duties between staff handling client queries and those involved in the cash transactions. As part of the policies of the agency, the person in bona fide control should instruct new employees that misappropriated funds will be reported to the police immediately and internal control systems, including obtaining copies of cheques that have been presented to the bank, are in place.
29
4.7
Cash payments or cheque payments
All payments from the trust account should be by cheque or authorised electronic transfer. All drawn cheques should have a supporting invoice or documentation. The person in bona fide control needs to ensure cheques are crossed Account Payee only Not Negotiable or that bearer only is replaced with order. The person in bona fide control should be a compulsory signatory to the trust account, or a system to review cheques issued on the trust account should be put in place. The person in bona fide control should restrict access to the trust account chequebook. If the agent has any concerns about the management of the trust account, ask for a printout of the cheques and ensure cheque numbers are consecutive (sometimes theft occurs when an employee issues or takes cheques from the bottom of the cheque book). If the agency operates more than one trust account, and therefore has more than one cheque book, each cheque book should be readily identifiable to its corresponding account. The person in bona fide control should obtain copies of presented cheques from the bank to ensure no cheques have been forged.
4.8
Trust account management
Trust accounts should not be treated as the agencys general bank account. Section 49(1) requires that one or more trust accounts are maintained exclusively for the purposes of the Act. Trust funds should be paid out to the rightful owner as soon as possible after the completion of a transaction. Disbursements of money from a trust account maintained for the purposes of the Act must be associated directly with the settlement of a real estate or business transaction that incurred those disbursements. Agents should draw fee entitlements from the trust account after settlement and pay them into the agencys general account (from which payments for agency operating costs and payments to partners/directors can be made). If large amounts of money are held in a trust account, the risk and scale of the potential theft is increased.
4.9
What must an agent do on becoming aware of fraud or theft?
If an agent becomes aware that money has been stolen from the trust account, the agent must:
notify the Commissioner, advising the date on which the theft occurred, the amount involved, the reason for it and any action taken to correct it; contact the auditor to conduct a special trust audit to attempt to quantify the amount of the misappropriation and possibly identify the culprit; notify the police of the misappropriation of trust money and that a special audit is being conducted; replace the misappropriated amount immediately; and alert the agencys professional indemnity insurer.
30
GLOSSARY
Act (The) The Settlement Agents Act 1981 (the Act) Agent A person who is a real estate settlement agent or a business settlement agent within the meaning of the Act. Approved Approved by Consumer Protection. Auditor A person appointed under section 54 of the Act to audit the trust accounts of a settlement agent. Authorised financial institution A bank, a society, or any other body that is prescribed or that belongs to a class of bodies that is prescribed by the Act. Bank account An account kept with a bank, society or other similar body. Banker The manager, or other officer, for the time being in charge of the office of a bank, society or other body in which any account of an agent is kept. Code of Conduct The agents code of conduct prescribed and published under section 82 of the Act, ie the Settlement Agents Code of Conduct 1982 (the Code of Conduct). Commissioner The Commissioner of Consumer Protection. The Commissioner requests information and makes whatever investigations and inquiries as seems proper to the Commissioner and is assisted in her role by staff at Consumer Protection. Consumer Protection The Consumer Protection division of the Department of Commerce. Business day A day other than Saturday, Sunday, or a public holiday. Business Settlement Agent Any other person who arranges or effects a settlement of a business transaction for reward, or who, whether for reward or otherwise, carries on business arranging or effecting settlements of business transactions.
31
Defalcation by a licensee Includes criminal or fraudulent conduct: a) of a licensee; b) of any one or more of the servants or agents of the licensee; c) of a person who is a partner in the business of the licensee; d) where the licensee is a firm and a body corporate is a partner in the firm or where the licensee is a body corporate, or any one or more of the directors, officers, servants, or agents of the body corporate; or e) in the course of the business of the licensee and from which pecuniary loss or loss of property to any other person. Licensee A natural person, firm or body corporate licensed under the Act. Person in bona fide control A licensed person in a settlement agency who is responsible for the administration of settlement transactions and the supervision of persons involved in those transactions. Sometimes described as agent in bona fide control or PCON. Real estate settlement agent Any person who arranges or effects the settlement of a real estate transaction for reward, or who, whether for reward or otherwise, carries on business arranging or effecting settlements of real estate transactions. 32 Record A record of money under section 50(1)(b) of the Act. Register The register referred to in regulation 7(b) of the Regulations. Regulations The Settlement Agents Regulations 1982. Settlement The completion of a real estate transaction or a business transaction (as the case may be) by payment of the balance of the purchase price in respect of such real estate or business transaction. TC See triennial certificate. Abbreviation used in the titles of trust accounts followed by the certificate number of the agent. Transaction A real estate settlement transaction or a business settlement transaction. Triennial certificate A certificate granted under the Act to a licensee to carry on the business as a settlement agent. The triennial certificate is renewed every three years. Trust account An account relating to moneys received or held by a settlement agent for or on behalf of any other person in respect of settlements to be arranged or effected, or arranged or effected, by the settlement agent. Working day A day that is not a Saturday, Sunday or a public holiday.
Department of Commerce
Consumer Protection The Forrest Centre, 219 St Georges Terrace Perth, Western Australia 6000 (weekdays 8.30 am - 5.00 pm) Consumer Protection Advice Line: 1300 30 40 54 (for the cost of a local call statewide) Post: Locked Bag 14, Cloisters Square WA 6850 Administration: (08) 9282 0777 Facsimile: (08) 9282 0850 Email: consumer@commerce.wa.gov.au Website: www.commerce.wa.gov.au/consumerprotection National Relay Service 13 36 77 Quality of service feedback line: 1800 30 40 59 Translating and Interpreting Service: 13 14 50 (ask for a connection to 1300304054)
REGIONAL OFFICES Goldfields/Esperance

Suite 4/37 Brookman Street Kalgoorlie WA 6430 Administration: 9026 3250
Mid-West
Shop 3, 50-52 Durlacher Street Geraldton WA 6530 Administration: 9920 9800
Great Southern
Unit 2/129 Aberdeen Street Albany WA 6330 Administration: 9842 8366
South-West
8th Floor, 61 Victoria Street Bunbury WA 6230 Administration: 9722 2888
DP099615/2/ November 13/ Online
Kimberley
Woodys Arcade, Office 7/15 Dampier Terrace Broome WA 6725 Administration: 9191 8400
North-West
Shop 40, Karratha Village Shopping Centre Sharpe Avenue, Karratha WA 6714 Administration: 9185 0900

Trust Account Handbook

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Trust Account Handbook

Uploaded by

Copyright:

Available Formats

Government of Western Australia

Settlement Agents Trust account handbook

Part 1 trust accounting..................................................................................................4

Part 2 trust documents and records...........................................................................11

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

2.7 2.8 2.9

PART 3 TRUST ACCOUNT AUDITS.............................................................................22

PART 4. PREVENTING THEFT AND FRAUD...............................................................27

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

Using this publication

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

PART 1 TRUST ACCOUNTING 1.1 What is trust money?

What is meant by trust accounting?

What happens to the interest on trust accounts?

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

Types of trust accounts

Quotation of tax file number (TFN)

Titling of trust accounts

Note: A licensed entity can be a body corporate, partnership or sole trader.

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

Receiving and depositing trust money

Opening, closing and amending trust accounts

1.10 What trust documents and records must be maintained?

1.11 How long must trust records be retained?

1.12 What use is made of the documents and records?

1.13 Fees and disbursements

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

1.15 Aspects of computerised trust accounting

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

PART 2 TRUST DOCUMENTS AND RECORDS

Principles of trust account practice

2.3 Interim receipts

Trust deposit forms

Trust account withdrawals

Cash receipts journal and cash payments journal

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

amount received; and the total amount banked each day.

Refer: section 49(6) of the Act

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

Trust account transfer journal entries

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

2.10 Recording withdrawals of fee entitlements

2.11 Balancing a trust account at the end of each month

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

TRUST ACCOUNT AUDITS

What are an agents duties in appointing an auditor?

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

What are an agents responsibilities to the auditor?

What are the duties of an auditor?

How should an agent respond to an auditors recommendations?

What are an agents duties in changing an auditor?

What is a quarterly audit?

What if a settlement agency closes?

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

Refer: section 51(8)(b) of the Act

Unclaimed trust money

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

All journals between trust ledger accounts should be verified.

Cash payments or cheque payments