A guide to auditing trust accounts: Real estate agents, business agents, and settlement agents and business settlement agents

All real estate agents, business agents, settlement agents and business settlement agents (agents) who hold or receive money for or on behalf of others relating to a real estate, business or settlement transaction in Western Australia are required to open and maintain trust accounts. Section 70 of the Real Estate and Business Agents Act 1978 (REBA Act) and section 51 of the Settlement Agents Act 1981 (SA Act) require real estate agents who hold a current triennial certificate and persons who carry on business as a settlement agent to have their trust accounts audited according to the requirements determined by the Commissioner for Consumer Protection (Commissioner) and in accordance with accepted auditing practice.

It is the Department of Energy, Mines, Industry Regulation and Safety’s (Department) interpretation of section 87 of the REBA Act and section 68 of the SA Act that, if the trading body corporate or firm complies with the requirements of Part VI of the REBA Act or Part IV of the SA Act, then the directors/partners and/or branch manager and/or person in bona fide control of the trading entity are seen to have also complied with Part VI of the REBA Act or Part IV of the SA Act.

The Consumer Protection Division of the Department (Consumer Protection) supports the Commissioner in this statutory role.

Wherever the term ‘trust accounts’ is used in this publication, it refers to trust accounts opened, maintained and/or closed by agents. Trust accounts are defined as accounts where money is received or held by an agent (this includes any member of an agency’s staff) on behalf of another person in relation to a real estate, business or settlement transaction.

The REBA Act and SA Act give the Commissioner various powers in relation to the audit of trust accounts of agents. Consumer Protection has released this revised version to guide auditors when examining and reporting on trust accounts held by agents. This guide is intended to help auditors produce high quality reports in the required format. To make the auditing process easier, templates for the main documents to be lodged with the Commissioner are provided in Appendix B and can be downloaded from the Department’s website. Audit reports based on other formats, will not be accepted.

Auditors need to read this publication in conjunction with legislation and the Australian Auditing Standards. Legislation relative to the business of real estate agents, business agents, settlement agents and business settlement agents are:

1. Real Estate and Business Agents

• Real Estate and Business Agents Act 1978
• Real Estate and Business Agents (General) Regulations 1979 (“REBA Regulations”)
• Real Estate and Business Agents and Sales Representatives Code of Conduct 2016 (“REBA Code”)
• Residential Tenancies Act 1987 (“RT Act”)
• Corporations Act 2001
• Australian Consumer Law

2. Settlement Agents and Business Settlement Agents

• Settlement Agents Act 1981
• Settlement Agents Regulations 1982 (“SA Regulations”)
• Settlement Agents Code of Conduct 2016 (“SA Code”)
• Corporations Act 2001
• Australian Consumer Law

When auditing agents’ trust accounts, auditors should ensure they have a current copy the legislation listed above. Appendix C contains links to the full text of the relevant sections.

The Real Estate Industry e-Bulletins and the Settlement Industry e-Bulletins are used to inform each industry about policy and best practice recommendations of the Department of Energy, Mines, Industry Regulation and Safety, and may be used to convey information about the Commissioner’s auditing requirements. Archived issues of the Real Estate Industry bulletins and Settlement Industry bulletins are available online.

The Residential Tenancies Act 1987 has been amended and the RT Act requires all residential security bonds, including all security bond partial payments, to be lodged with the Bond Administrator as soon as practicable. Tenancy bond trust accounts are now obsolete and are not to be maintained by real estate agents.

Section 72(1) of the REBA Act and section 53(1) of the SA Act require the person auditing an agent’s trust account(s) to be registered as an auditor under Part 9.2 of the Corporations Act 2001 of the Commonwealth. The Australian Securities and Investments Commission (“ASIC”) provide agents with the ability to search online to determine if a particular auditor is a registered company auditor. In districts where the Commissioner is satisfied there are no registered company auditors available, the Commissioner has the power to approve the appointment of a person as a statutorily appointed auditor even if they are not registered as a company registered auditor with ASIC.

Appointment of auditor forms can be found on the Department’s website:

• Notification of opening a trust account - real estate
• Notification of opening a trust account - settlement

Section 73(3) of the REBA Act and section 54(3) of the SA Act provide for the appointment of an auditor of a real estate agency, business agency or settlement agency to be continuous, unless the Commissioner approves a subsequent in the appointment.

This means an appointed auditor will be responsible for undertaking all audit functions required under the REBA Act and SA Act until a replacement auditor is approved by the Commissioner or an auditor is released from their appointment by the Commissioner.

Section 75 of the REBA Act and section 56 of the SA Act enable the Commissioner to suspend or cancel an auditor’s appointment to audit an agent’s trust accounts. In some circumstances, the Commissioner may prosecute an auditor for non-compliance.

Change of auditor request forms can be found on the Department’s website:

• Change of auditor request - real estate 
• Change of auditor request - settlement 

Section 72(3) of the REBA Act and section 53(3) of the SA Act provide that an auditor must disclose to the Commissioner any de facto relationship or any close relationship by blood or marriage that they have with the agent or any business dealings that he has with the agent. Paragraph 1.6 below provides further information on this disclosure.

An auditor that consents to be appointed as an agent’s auditor is required to conduct all audits of the agent. This includes annual audits, quarterly audit for new settlement agents, termination audits, interim audits and other audits if and when required by the Commissioner, regardless of the agent’s capacity to meet the costs of such audits. When approached by agents to be the statutorily appointed auditor, auditors are advised to exercise due diligence as to the agent’s financial ability to meet auditing fees.

Annual audit

The statutory reporting requirements for auditors of real estate agents and business agents are set out in sections 70, 72 and 79–81 of the REBA Act. The statutory reporting requirements for auditors of settlement agents and business settlement agents are set out in sections 51, 53 and 60-62 of the SA Act.

Section 70(3) of the REBA Act and section 51(3) of the SA Act require auditors to deliver their audit reports to the Commissioner within three months after the end of the audit period.

Section 86 of the REBA Act and section 67 of the SA Act provide that if an agent did not hold or receive moneys for or on behalf of others during the annual audit period, they are able to submit a declaration of no receipt of trust funds.

Templates of the declaration of no receipt of trust funds are available on the Department’s website

• Declaration of no receipt of trust funds - real estate
• Declaration of no receipt of trust funds  - settlement

At any time during the year, the Commissioner may require auditors to provide additional information or carry out a further audit; associated costs of the audit are the responsibility of the agent.

Quarterly audit for new settlement agents

At any time during the year, the Commissioner may require auditors to provide additional information or carry out a further audit. Section 51(8)(a) of the SA Act requires a quarterly audit in respect of the trust account(s) of a settlement agent for the first three months during which he first carries on business, and the auditor shall within two months after the end of the first three months deliver to the Commissioner a report of the result of such quarterly report.

Section 51(9) of the SA Act allows the Commissioner discretion to waive the requirement to lodge a quarterly audit. For example the requirement for an initial quarterly audit may be waived if it is due in July, August, September or October because this is close to the date that the annual audit report is due. A licensee may seek to have the quarterly audit waived by application in writing to the Commissioner.

Termination audit

Section 70(8) of the REBA Act and paragraph (b) of section 51(8) of the SA Act requires a termination audit report to be arranged within three months of the agent’s triennial certificate ceasing to have effect and submitted to the Commissioner within two months after the end of that three month period. Further information on termination audits is provided in paragraph 2.10.

Section 86 of the REBA Act and section 67 of the SA Act provide that if an agent did not hold or receive moneys for or on behalf of others during the termination audit period, they are able to submit a declaration of no receipt of trust funds. This declaration of no receipt of trust funds can be obtained by contacting the Trust and Audit team within the Department of Energy, Mines, Industry Regulation and Safety.

Unless determined otherwise under section 71 of the REBA Act or section 52 of the SA Act, calendar year annual audit reports for real estate and real estate business agents must be lodged by 31 March of each year, while financial year annual audit reports for settlement agents and business settlement agents must be lodged by 30 September of each year.

The audit period for the quarterly audit and termination audit vary for each agent and is detailed in 1.3 above.

The Commissioner may, in circumstances the Commissioner considers appropriate, extend the time limit for lodging all types of audit reports, however generally this will only be under exceptional circumstances and where the auditor already has access to the agent’s trust account records (section 70(5) of the REBA Act and section 51(5) of the SA Act). If an auditor requires an extension to lodge an audit report, it must be made in writing, detailing the exceptional circumstances, and confirming that the auditor has access to the trust account records.

Section 72(3) of the REBA Act and section 53(3) of the SA Act require auditors to disclose to the Commissioner any factors that may be construed as a conflict of interests. Such factors include close relationships between auditors and the agent based on blood, marriage (including de facto arrangements) or certain business dealings. The Commissioner will consider all circumstances and make a determination as to whether the close relationship disqualifies the auditor. The following definitions are used for such relationships.

• De facto relationship means a relationship as defined in section 13A of the Interpretation Act 1984. This includes a relationship between two people of the same or opposite gender. An auditor who enters into a de facto relationship with an agent must disclose that relationship to the Commissioner.
• Close relationship by blood means where the auditor is related to the agent by birth. For example, if an auditor is a parent, sibling, half-brother or half-sister, daughter or son, cousin, aunt or uncle, nephew or niece, of the agent, then this would constitute a close relationship by blood. An auditor with a close blood relationship with an agent must disclose that relationship to the Commissioner.
• Close relationship by marriage means where the auditor and agent are married to each other, or one party is married to a person related to the other party by blood (as defined above). For example, if the auditor married the agent’s brother or sister, then this would require disclosure and approval from the Commissioner.

The Commissioner will only consider allowing an auditor who is related to an agent by blood, marriage or de facto relationship to audit that agent’s trust accounts in exceptional circumstances, such as when the agent and auditor are in a remote location and the agent cannot find a suitably qualified auditor locally who is independent from the agent. Even in such situations the circumstances will be carefully examined before a decision is made on whether to allow the auditor to audit the agent’s trust accounts. Each situation will be individually assessed.

Section 72 of the REBA Act and section 53 of the SA Act also require auditors to disclose to the Commissioner any business dealings with agents. There are a number of different types of business dealings that could constitute a conflict of interests. Some examples of conflicts of interest include:

• acting as the general accountant for the agent;
• performing any type of taxation or other financial services for the agent;
• preparing any form of financial documentation (e.g. Business Activity Statements) for the agent;
• supplying any form of general financial advisory service to the agent;
• having a financial interest in the agent’s business, including the agent’s properties in which the agent also has financial interests;
• being a business partner of the agent, regardless of whether the business interest is related to real estate or settlement;
• being an employee of the agent, whether employed as a licensed person, clerk or servant of the agent;
• being a tenant of a property owned or managed by the agent;
• being a partner, clerk or servant of a company in which the agent has a financial interest; or
• being a partner, clerk or servant of a company or individual that provides a general accounting and/or taxation service to the agent.

An auditor must disclose to the Commissioner any business dealings he/she has with or through an agent at any time during the appointment as auditor. The Commissioner may cancel or suspend the right of a person to act as an auditor or revoke their appointment as auditor to an agent. It is a criminal offence to contravene a requirement to disclose a conflict of interests.

Disclosing a conflict of interests under section 72(3) of the REBA Act and section 53(3) of the SA Act is an ongoing requirement prior to the auditor’s appointment and throughout the auditor’s appointment period, not one that only arises annually when an audit report is submitted to the Commissioner.

Further information on auditor independence can be found in the Corporations Act 2001, APES 110 Code of Ethics for Professional Accountants and various Auditing Standards.

While recognising auditors may use selective testing when auditing trust accounts, there are inherent risks with such an approach. If selective testing is used, it is expected that a range of transactions, indicative of an agent’s business, will be examined.

When auditing an agent’s trust accounts, it is essential for the auditor to be aware of:

• the nature of the agent’s business;
• the workings of trust accounts;
• the reporting requirements and statutory obligations placed on trust accounts and on the agent; and
• the legislation governing agents in respect of the matters being audited.

The purpose of the audit is to establish whether the agent has complied with their legislative responsibilities. In such audits, materiality does not apply. This means every irregularity in an agent’s trust account must be reported to the Commissioner. Auditors must report all irregularities within their audit reports regardless of whether they were errors made by an agent or by an agent’s financial institution, if the errors were rectified immediately by the agent or their financial institution or if the errors had already been reported by the agent to the Commissioner. Trust account irregularities include but are not limited to overdrawn accounts, dishonoured payments and incorrect deposits or payments made into and out of trust accounts.

When performing an audit, the agent is required to provide the auditor with all relevant information and documents held by them (section 77 of the REBA Act and section 58 of the SA Act). This also applies to relevant documentation held by the agent’s financial institution.

Should an auditor identify a breach of legislation or evidence of criminal activity during an audit, they must inform the Commissioner as soon as practicable. To assist in any investigation or proceedings that may eventuate (e.g. giving evidence in court), appropriate supporting documentary evidence of any breaches of legislation or evidence of criminal activity must be retained by the auditor. For this reason, an auditor should make notes throughout the audit and retain copies of all working papers.

The appointed auditor of an agent’s trust accounts is required to provide to the Commissioner the following documents each year:

• statutory declaration by auditor (also known as the audit report), including any management letters;
• declaration by the auditor regarding their qualification and relationship with the agent; and
• declaration by the agent, signed by the auditor, verifying the statement of trust money.

The auditor should report on whether the agent has complied with the requirements of section 68 of the REBA Act and section 49 of the SA Act. Section 68(6) of the REBA Act and section 49(6) of the SA Act require agents to keep full and accurate records of moneys paid into trust accounts, and to ensure that trust accounts are correctly balanced at the end of each month. Agents must also keep their trust accounts in such a manner that they can be conveniently and properly audited.

Section 79 of the REBA Act and section 60 of the SA Act relate to the contents of the documents to be provided to the Commissioner. The auditor must include in their statutory declaration a statement relating to the proper maintenance and recordkeeping of the trust accounts. The auditor must notify the Commissioner of any matter they believe should be brought to the Commissioner’s attention.

Section 81 of the REBA Act and section 62 of the SA Act require an auditor to fully set out any evidence of the agent behaving dishonestly or breaching the law in relation to trust accounts.

Section 80 of the REBA Act and section 61 of the SA Act require an agent to prepare a statement of trust money on the last day of the accounting period. The accounting period is from 1 January to 31 December each year for real estate and business agents, and 1 July to 30 June for settlement agents, unless otherwise determined by the Commissioner. This statement needs to contain particulars of all trust moneys, negotiable or bearer securities, and deposit receipts held on that date. The statement made by the agent is required to be verified by a statutory declaration made either by the agent, or by one of the partners in the firm, or by the person in bona fide control where the agent is a body corporate. The auditor must examine the statement prepared by the agent and sign it to verify its accuracy.

The agent is required to provide full details of the trust accounts to the auditor, including:

• details of the names, account numbers and financial institution name and branch name where trust accounts are maintained (which also applies to a client’s separate interest bearing trust accounts (“IBTA”)); and
• the correctly reconciled balances held in each trust account at the end of the audit period.

When auditing an agent’s trust accounts, the auditor needs to include the following important items in the scope of the audit, as they form an integral part of real estate, business broking or settlement transactions:

• details of the licence and triennial certificate status of the agent;
• level of fees paid to the agent;
• drawing of commission and fees after a transaction has settled;
• the authority for the agent to perform the service; and
• details of disbursements in accordance with the client’s authority.

A real estate and business agent or settlement agent licence can be granted to a natural person (individual), a firm (partnership) or a body corporate (company). The entity is referred to as the ‘licensed agent’ in the documents to be provided to the Commissioner. In order to trade as a real estate agent, business broker or settlement agent, a licensee must also hold a current triennial certificate.

The person in bona fide control of an agency, as well as the managers of any branches it may have, must also be licensed and must hold a current triennial certificate. If there is a change to the person in bona fide control or in the directorship of a company, the agent must notify the Commissioner within one month of the change.

Subject to the agreement between partners, a partnership is dissolved on death or withdrawal of a partner (Partnership Act 1895). If a partnership is dissolved, the licence ceases to have effect and the firm is no longer permitted to continue trading and will need to apply for a new licence.

Licence details of agents can be searched from the Department’s website through the Consumer Protection Licence and Registration Search.

If the auditor finds any irregularities relating to the agent’s licence or triennial certificate, the auditor must inform the Commissioner immediately, as the agent may be trading unlawfully without a licence or a current triennial certificate or the agent may be trading under a business name that is not endorsed on the triennial certificate.

The level of fees that an agent can charge is not regulated in Western Australia. The fees an agent can receive are limited to that agreed in writing between the agent and their client. While the level of fees is primarily a matter between the agent and the agent’s principal, a real estate agent must have a valid appointment to act (section 60 REBA Act) and cannot charge an unjust fee (section 61(3c) of the REBA Act). A settlement agent must have a valid appointment to act and must have provided the client with a bona fide estimate of the cost of the services (section 43 of the SA Act).

During the audit process, the auditor should examine a sample of different types of transactions from start to finish ensuring the agent has received the correct fees.

Types of transactions undertaken by real estate agents and business agents include residential property sales, business sales, commercial leasing, residential property management and strata management. If the agent does not have an appointment to act from the client or has charged fees in excess of the agreed amount, the auditor must include this in the report to the Commissioner.

Real estate agents and business agents are not entitled to receive fees for a real estate or business sales transaction until the settlement has occurred or unless the comission relates to an off-the-plan transaction which is prescribed in section 61(4a) of the REBA Act. When sampling these transactions, the auditor must check the real estate agent or business agent has not pre-drawn their commission. The appointment to act may provide that when there is failure to settle the transaction due to the fault of the agent’s client, the real estate agent and business agent may be entitled to receive their fees. Auditors should contact Consumer Protection for clarification on these matters.

Real estate agents and business agents are not entitled to receive any fees for residential, commercial or strata management transactions until these services are performed in accordance with the appointment to act. If the real estate agent or business agent has drawn their fees before settlement, or if a management or service fee is charged contrary to the appointment to act, the auditor must include this in the report to the Commissioner.

If the real estate agent or business agent is obtaining vendor-paid advertising, the appointment to act should specify how and when moneys are to be collected and the maximum amount which the principal has agree to pay (refer to section 20 of the Code of Conduct). It is important that the real estate agent or business agent deposits money received for advertising into a trust account and that such money should not be withdrawn until the expense has been incurred.

Real estate agents and business agents are required to have an appointment to act to perform a real estate, business or strata management transaction. This includes but is not limited to any property or business sale/purchase, residential, commercial or strata management property transaction.

If the real estate agent or business agent does not have a valid appointment to act from their client to perform a service, then the real estate agent or business agent is not entitled to receive any remuneration for the service performed. The auditor must include this in the report to the Commissioner if any such instances occur.

Agents are required to have an appointment to act to charge disbursements to their client and must have incurred those costs before they can be charged. The auditor should check that those costs have actually been incurred prior to the agent charging the disbursement.

For example, in property management transactions, a real estate agent’s trust account software may initiate quarterly property inspection payments from the trust account to the real estate agent’s general account by default, even though the service may not have been performed. The auditor should not assume the service was carried out, unless they see a property inspection report for the property. Another example includes where an agent incorrectly charges labour for photocopying as a disbursement.

As agents are holders of trust money, government statutory charges (such as GST) may be recovered from the agent’s client as a disbursement. An authority from the agent’s client is required to recover these charges. The auditor must include in the report to the Commissioner situations in which an agent does not have a valid appointment to act and charges a disbursement, or does have an appointment to act but charges in excess of the actual expenditure incurred.

In cases where an agent’s triennial certificate ceases to have effect, by way of surrender, cancellation or the non-renewal of the agent’s triennial certificate, or if the sole trader agent dies and three months have passed, or if a partnership is dissolved, auditors are required to provide a termination audit report to the Commissioner within five months of the agent’s triennial certificate ceasing to have effect. The termination audit requirement must be read in conjunction with Part VI of the REBA Act and Part IV of the SA Act, detailed in the Introduction section of this guide.

The termination audit period commences from the previous annual audit report date and ends on the date that the agent’s triennial certificate ceases to have effect. The agent must ensure that all previous annual audit reports or statutory declarations have been submitted and accepted by the Commissioner.

If at the date that the agent’s triennial certificate ceases to have effect the agent holds an open trust account with or without funds, the agent will need to finalise all transactions and close all of their trust accounts to prepare for a termination audit.

After closing all trust accounts, if the agent held or received money for or on behalf of others during the termination audit period, the agent must cause a termination audit to occur. If however the agent did not hold or receive money for or on behalf of others during the termination audit period, instead of a termination audit report, the agent may submit a final statutory declaration.

An auditor must disclose within their termination audit report if they discover that the agent was trading while they did not hold a current triennial certificate.

An auditor may request an extension from the Commissioner to submit their termination audit report under exceptional circumstances. Please refer to paragraph 1.5 for further details.

Agents who are considering surrendering their licence and triennial certificate can undertake the following steps:

• finalise all transactions (deposits and payments to and from their trust account(s));
• cease trading and advise the Department’s Licensing Branch within 14 days of ceasing to trade;
• close their trust accounts and advise the Department’s Registration and Monitoring Branch within 5 business days of closing their trust accounts;
• surrender their licence and triennial certificate by contacting the Department’s Licensing Branch; and
• arrange and submit a termination audit or a final statutory declaration if they did not hold or maintain trust account moneys during the termination audit period to the Commissioner within 5 months of the date that they surrendered their licence and triennial certificate.

Under section 70(2) of the REBA Act and section 51(2) of the SA Act, the Commissioner requires audit reports to include a copy of any management letter that an auditor provided to the agent.

Listed below are key legislative provisions auditors need to be aware of when auditing trust accounts. (See Appendix C for the full text of the legislation.)

The three general types of trust accounts used in the real estate and business broking industries that an auditor will come across are:

• general trust accounts;
• variable outgoings trust accounts; and
• interest bearing trust accounts for individual clients.

The two general types of trust accounts used in the settlement industry that an auditor will come across are:

• general trust accounts; and
• interest bearing trust accounts for individual clients.

Whatever the type of trust account audited, the money in those accounts is not to be used for security or for other purposes other than a purpose authorised by the authority to act, contract or by law.

A trust account is often referred to as the general trust account. The REBA and SA Acts allow agents to maintain more than one trust account. Accordingly, some real estate agents and business agents maintain separate general trust accounts for different real estate activity, such as sales and property management. Interest from such accounts is paid by the financial institution to the Real Estate and Business Agents Interest Account established under the REBA Act and administered by the Director General of the Department of Energy, Mines, Industry Regulation and Safety.

Some settlement agents and business settlement agents maintain separate general trust accounts when they have a large number of transactions with a client on a development project and consider this more manageable. Interest from such accounts is paid by the financial institution to the Settlement Agents Interest Account established under the SA Act and administered by the Director General of the Department of Energy, Mines, Industry Regulation and Safety.

Residential tenancy bonds

Tenancy Bond Trust Accounts are now obsolete following the amendments introduced by the RT Act. It is a requirement that all residential tenancy bonds be lodged and held with the Bond Administrator.

However, if a real estate agent receives a bond or a partial payment of a bond, they must deposit the bond moneys in the agency’s trust account (eg: general trust account) then transfer the bond moneys to the Bond Administrator as soon as practicable and in any event within 14 days of receiving the bond.

Commercial tenancy bonds

The REBA Act requires that real estate agents and business agents deposit commercial tenancy bonds into a trust account. They may use their general trust account or, if they receive a written request, may open a separate interest bearing trust account for the individual client. The interest bearing trust account requirements of a transaction, detailed in regulation 6E(1) of the REBA Regulations and regulation 6C of the SA Regulations, involving more than $20,000 or the settlement period of more than 60 days in paragraph 3.6 below do not apply to commercial tenancy bonds. However the agent is still required to adhere to section 68A of the REBA Act and section 49A of the SA Act prior to maintaining commercial tenancy bonds within a separate interest bearing trust account for the individual client. Further information on separate interest bearing trust accounts are provided in paragraph 3.6 below.

Auditors are required to audit trust accounts that are maintained by real estate agents and business agents to pay various expenses incurred. Variable outgoings trust accounts are widely used in the areas of strata management and commercial tenancy.

Section 68A of the REBA Act and section 49A of the SA Act allow agents to open separate interest bearing trust accounts for individuals if a request is received in writing from the person paying the money. Before agents can comply with a request for an individual interest bearing trust account, the commercial bond or purchase deposit must either involve more than $20,000 or the transaction is not to be settled within 60 days (regulation 6E(1) of the REBA Regulations and regulation 6C of the SA Regulations).

Regulation 6D(3) of the REBA Regulations requires the title of an individual interest bearing trust account to include the words ‘REBA Trust Account – IB’. The ‘IB’ component of the designation denotes that the account is interest bearing. Interest paid on the account should be credited to the person who requested the creation of the account.

Regulation 6B(3) of the SA Regulations requires the title of an individual interest bearing trust account to include the words ‘SA Trust Account – IB’. The ‘IB’ component of the designation denotes that the account is interest bearing. Interest paid on the account should be credited to the person who paid the money (i.e. commercial tenant or buyer).

The auditor must include in the audit report to the Commissioner information as to whether an agent is found to have:

• opened a separate interest bearing trust account without receiving a request in writing from the person paying the money; or
• opened a separate interest bearing trust account when the money received is/was less than $20,000 or settlement has occurred or will occur in less than 60 days.

The auditor must list and audit each separate interest bearing trust account of the agent in the audit report to the Commissioner. This includes such accounts that were maintained during part of the audit period.

Agents need to keep their trust accounts up-to-date, correctly designated and have them audited when required in accordance with section 70(1) of the REBA Act and section 51(1) of the SA Act. Every agent who holds a triennial certificate and provided that they also hold or receive money on behalf of others, is required to maintain one or more trust accounts in accordance with section 68(1) of the REBA Act and section 49(1) of the SA Act.

An agent must not allow a trust account to be overdrawn, either at the bank, in the agent’s records or in a client’s trust ledger account. The auditor is required to mention any such instances in the audit report to the Commissioner regardless of the amount that the trust account is overdrawn by, whether it was overdrawn due to an error made by the agent or the agent’s authorised financial institution (further details in 4.6)

Regulation 6D of the REBA Regulations and regulation 6B of the SA Regulations require an agent to designate their trust accounts in a prescribed manner. The auditor needs to check whether the agent has applied the correct title/s to the trust account(s). To assist auditors, examples of how different types of trust accounts should be designated are provided below.

General trust accounts

The titles of General Trust Accounts need to:

• contain the name of the holder of the triennial certificate, and any business name of that holder as recorded by Consumer Protection; and followed by
• the description ‘REBA Trust Account’ or ‘SA Trust Account’, then the letters ‘TC’ and the agent’s triennial certificate number.

Examples of titles for typical general trust accounts for real estate and business agents are shown below.

Sole trader

Mary Smith T/A XYZ Real Estate (ABN 12 345 678 912*) 
REBA Trust Account TC54321

Partnership

Mary Smith and Bill Jones T/A XYZ Real Estate (ABN 12 345 678 912*)
REBA Trust Account TC54321

Body corporate

ABC Pty Ltd (ACN 12 345 678 912) T/A XYZ Real Estate
REBA Trust Account TC54321

* If applicable

Should an agent have more than one type of trust account (i.e. sales, rental etc.), the account identifier should appear after the words ‘REBA Trust A/c’.

The examples below show typical account titles for an agent maintaining more than one trust account.

ABC Pty Ltd (ABN 12 345 678 912) T/A XYZ Real Estate
REBA Trust Account– Sales TC12345

or

ABC Pty Ltd (ABN 12 345 678 912) T/A XYZ Real Estate
REBA Trust Account– Rental TC12345

Examples of titles for typical general trust accounts for settlement agents are shown below:

Sole trader

Mary Smith T/A XYZ Settlements (ABN 12 345 678 912*)
SA Trust Account TC54321

Partnership

Mary Smith and Bill Jones T/A XYZ Settlements (ABN 12 345 678 912*)
SA Trust Account TC54321

Body corporate

ABC Pty Ltd (ACN 12 345 678 912) T/A XYZ Settlements
SA Trust Account TC54321

* If applicable.

Interest bearing trust accounts

The title of an interest bearing trust account (“IBTA”) needs to:

• contain the name of the holder of the triennial certificate and any business name of that holder as recorded by Consumer Protection; followed by
• the words ‘in trust for’ with the name of the person who requested the separate account; and followed by
• the description ‘REBA Trust Account – IB’, then the letters ‘TC’ and the agent’s triennial certificate number.

The example below shows a title for a typical separate interest bearing trust account:

ABC Pty Ltd (ACN 12 345 678 912) T/A XYZ Real Estate in trust for Joe Smith

REBA Trust Account – IB TC12345

The trust ledger is the most important component of the trust accounting system as it summarises all of an agent’s trust account transactions. The trust ledger contains a ledger account for each client showing the details and amounts of money held by the agent on their clients’ behalf.

Consumer Protection is aware some agents would prefer to maintain a surplus amount within the trust ledger to absorb any inadvertent deficiencies that may arise from dishonoured bank cheques and bank charges. This is commonly known as a ‘buffer fund’. A buffer fund sometimes includes undrawn commissions. Agents should not continue to maintain undrawn commissions in the trust account and these commissions should be deposited into general accounts upon settlement. Auditors should disclose within the audit report instances where the agent maintained undrawn commissions within the trust account.

The Commissioner holds the view that agents who utilise buffer funds in their trust accounts may not be conducting their business in accordance with the REBA Act or SA Act; particularly in relation to section 68 of the REBA Act and section 49 of the SA Act. It is the Commissioner’s interpretation of sections 67 and 68(1) of the REBA Act and sections 48 and 49(1) of the SA Act that, only funds received for or on behalf of others in relation to a real estate or settlement transaction should be held or received in an agent’s trust account.

The use of buffer funds effectively masks any deficiency, disguises overdrawn trust accounts and reduces the likelihood that poor trust account management practices and other errors will be easily identified. Buffer funds must not be kept in the trust account. The auditor must request from the financial institution records of all trust accounts identified as holding buffer funds. Should the auditor identify buffer funds being maintained by an agent, the auditor must disclose this within the audit report.

Many agents utilise suspense accounts (either a trust account held in the bank or trust account ledgers in their accounting software). These suspense accounts are set up to hold and / or receive moneys, usually by electronic funds transfers, for which the agents cannot determine the purpose of the moneys. For example, when the payer of the moneys fails to provide sufficient reference details as part of their electronic funds transfer, the agent would hold the moneys within a suspense account until the purpose is determined. The payers can include but may not be limited to sellers, buyers, landlords and tenants.

Only moneys held for or on behalf of others in relation to a real estate or settlement agent transaction should be held or received into an agent’s trust account. When an agent receives moneys for which they cannot determine the purposes of the moneys, the agent will need to make the relevant inquiries to identify the purposes.

If the agent is still unable to identify the moneys received within their trust account and all enquiries and efforts have been exhausted by the agent, the agent may need to consider notifying the Department of Treasury, in accordance with the Unclaimed Money Act 1990. Section 13(1) of the Unclaimed Money Act 1990 provides that agents may pay the unclaimed moneys within their trust account to the Department of Treasury within 2 years after the money has been held. Agents are advised to liaise with the Department of Treasury for information on their timelines and procedures relating to the payment of unclaimed moneys.

The agent can still continue to reconcile their trust accounts on a monthly basis, regardless of the unidentified deposit amounts. Agents may need to consider changes in their procedures to require payers to provide reference details which would assist in identifications and at the time of entering a management agreement, they could request from the owners the names of all persons who may be depositing money into the trust account for payments relating to the property.

The auditor must ensure that they examine all suspense accounts and disclose amounts that have remained in the trust account for a significant period. The auditor must request from the financial institution records of all trust accounts identified as suspense accounts. The auditor must also provide comments within the audit report on all transactions originating and / or emanating from suspense accounts.

An agent must not allow a client’s trust ledger to be overdrawn. The auditor is required to report any debit balance identified in a client’s trust ledger account.

In accordance with section 8(1) of the Unclaimed Money Act 1990, agents who are in possession of unclaimed money on 31 December of any year must notify the Department of Treasury of this money (in the prescribed manner), not later than 31 January in the succeeding year. In the event that the money (which is notified to the Department of Treasury as unclaimed) is subsequently paid to the rightful owner, the agent must notify the Department of Treasury by 31 July of this payment. The auditor must check that the agent is notifying the Department of Treasury by 31 January of all unclaimed money.

Further information on unclaimed moneys, including timelines and notification forms, for lodging moneys with the Department of Treasury can be found on their website. 

Many agents appear not to understand the importance of a statutory declaration in an audit report. Section 80 of the REBA Act and section 61 of the SA Act require an agent to prepare a statement of trust money on the last day of the audit period. The statement made by the licensee is required to be verified by a statutory declaration made either by the agent, or by one of the partners in the firm, or by the person in bona fide control where the agent is a body corporate. The auditor must examine the statement prepared by the agent and sign it to verify its accuracy.

Section 68(1) of the REBA Act and section 49 of the SA Act require agents to deposit funds held on behalf of others into their trust account as soon as practicable.

In order to comply with this requirement, it is the view of the Commissioner that funds must be deposited by close of business of the next working day. When conducting an audit it is important to verify banking times and to report any delays to the Commissioner.

Section 68C(3) of the REBA Act and section 49C(3) of the SA Act require the agent and the authorised financial institution to advise the Commissioner, as soon as practicable, in writing, if a trust account at the authorised financial institution is overdrawn. The Commissioner’s view is “as soon as practicable” will mean that the report will be provided within five working days. Some agents are not doing this when their trust accounts become overdrawn due to errors made by their authorised financial institutions or if the agent subsequently corrected the errors. As a probity check, the auditor is to include details of every instance of debit balances occurring in the agent’s trust accounts in their audit report. The audit report should include details of any trust account money overdrawn from the authorised financial institutions.

Auditors not identifying the licensed entity correctly

The agent (and person in bona fide control and licensed director or partner) must have a licence and current triennial certificate, and must be trading in accordance with that certificate.

Auditors not identifying and reporting trust account titles correctly

Auditors must check that trust accounts are correctly designated in accordance with regulation 6D of the REBA Regulations and regulation 6B of the SA Regulations (refer to the section ‘Designation of trust accounts’ for examples). The full trust account titles should always be included in the audit report. (See Appendix B for a guide to how this should appear in ‘Example of statement of trust account money held’.)

The auditor should ensure the agent has included their triennial certificate number in the title of the trust account. These identifying details are used by the Department in its interest reconciliation program.

Auditors should qualify the audit report if the trust account is not correctly designated as a REBA Trust Account or a SA Trust Account.

Auditors not checking trust account reconciliations

Some auditors do not check whether the agent has correctly balanced the trust accounts at the end of each month in accordance with section 68(6) of the REBA Act or section 49(6) of the SA Act. Auditors must check that trust account reconciliations are correctly completed for all trust accounts including separate interest bearing trust accounts, signed and dated by the person in bona fide control of the business. References made to ‘unreconciled bank deposits’ in trust account reconciliations may indicate a deficiency in the trust account funds at the bank and such instances must be reported to the Commissioner.

Auditors giving insufficient information in qualified audit reports

The Commissioner requires auditors to provide detailed information whenever a qualified audit report is submitted. The auditor must also retain any evidence in the working papers to support their opinion and, if required, to give evidence in court. Qualified audit reports can indicate a lack of internal controls on the part of the agent or the possibility of defalcation.

Auditors not reporting long standing ledger accounts with un-presented cheques

Check that the un-presented cheques have been followed up on a regular basis. Make sure that at the end of each month any un-presented cheque holders have been contacted and reminded to deposit their cheque. Any lost cheques should be cancelled and re-issued.

Management letter not being submitted with the audit report

The Commissioner requires the auditor to attach to the audit report a copy of any management letter issued to the agent. A copy of the management letter is important as it indicates any weaknesses or suggestions for improvements of the system in place. It also indicates the quality and detail of the audit undertaken.

Documentation submitted with audit reports not in an approved format

Section 70(2) and (3) of the REBA Act and section 51(2) and (3) of the SA Act provide the Commissioner with authority to determine the requirements for auditing of trust accounts, including the format of audit reports. Some declarations made by the auditor and agent must be in the form of a statutory declaration. An auditor is required to submit the audit reports to the Commissioner using the approved format. Approved templates are provided in Appendix A and can be downloaded from the Department’s website.

This checklist will assist auditors when auditing trust accounts that have been opened, maintained and/or closed by agents. The checklist deals with general matters and trust account matters.

Important note: This checklist includes a range of matters auditors should consider when auditing an agent’s trust accounts. Do not treat the checklist as being comprehensive or a replacement for the auditing requirements contained in the Australian Auditing Standards.

Agents appoint their trust account auditors at the time of commencing to trade. This appointment is continuous unless an agent obtains written approval from the Commissioner to change their auditor. Agents wishing to change their auditor must apply to the Commissioner by submitting the Change of Auditor Request form. The agent must give reasons for the need to change, obtain agreement from their current auditor to relinquish their statutory responsibility and obtain consent of the nominated replacement auditor.

Each application will be considered on its merits. A Change of Auditor Request form can be downloaded from the www.commerce.wa.gov.au/CP/Auditors

The format is the same as the annual audit. The auditor should refer to it as a termination audit and record the termination audit period.

Regardless of any money still in the trust account, the auditor must deliver the termination audit report to the Commissioner within five months of the agent’s triennial certificate ceasing to have effect under the REBA and SA Acts. The trust account is not required to have a nil balance for the termination audit report to be prepared. The auditor is to record any money held in the trust account as at the date of completing the report.

The auditor should ensure money is paid by the agent to the rightful recipients as soon as possible. Unclaimed money may be dealt with under the Unclaimed Money Act 1990 as at 31 December each year.

Under no circumstances should extra funds be kept in the trust account. Buffer funds cannot be used to offset bank fees or for any other reason. Agents should clear their commission or fees to their general account at least weekly. Consumer Protection strongly recommends against the practice of retaining commissions and management fees in the trust account.

Each client’s trust ledger account is maintained as a trust account and should not go into debit balance. A debit balance in a client trust ledger account cannot be offset against a credit balance in another ledger account (e.g. the agent’s fee account).

Yes. In all such cases the Commissioner must be notified. A decision will then be made as to whether the agent needs to seek a replacement auditor. What are the components of a valid reconciliation?

There are three components of valid trust account reconciliations, which are:

• bank statement balance;
• trust account balance; and
• total of client balances in the trust ledger.

The bank statement balance is the starting point and when the reconciliation is completed the balance shown as the trust account balance should be equivalent to the total funds held in the trust ledger.

Trust accounts must be correctly reconciled to the last day of each month. It is the Commissioner’s view that trust accounts are reconciled within ten working days after the end of the month. Trust account reconciliations must still be performed even during public holiday periods.

Yes. The Commissioner regards the agent in bona fide control/licensee as the appropriate person to sign. They are responsible for the reconciliation being done and for its accuracy.

Yes. The agent should keep details of cheques and receipts with their monthly reconciliations or in an audit file to ensure that an auditor can verify the sequence.

If the entity changes, then a new licence and triennial certificate needs to be obtained for the new entity. The agent is then required to finalise all existing trust accounts of the old entity and open new accounts in the name of the new entity. The agent will need to maintain proper records relating to any transfer of funds from the old trust accounts to the new trust accounts. The agent will also need to arrange a termination audit of the trust account of the old entity up to the date that the trust account is closed. Agents need to consider the transfer of existing property management agreements between the entities with the relevant written consent from their clients.

An additional audit is not required if a business changes its name but the entity remains the same. The designation of all bank accounts must be changed to reflect the new business name. The new business name must be endorsed on the triennial certificate.

The auditor should immediately notify the Commissioner of the circumstances of the missing money.

What are the most common forms of misappropriation encountered by auditors of trust accounts?

Consumer Protection has identified the following common methods used to misappropriate trust money:

• kiting (whereby an overstatement of cash in a particular bank account is created by cash transfers between bank accounts);
• ghost accounts (keeping another set of books outside the trust account);
• manipulating of the balance of trust accounts;
• issuing fake receipts; and
• pre-drawn commissions. What does ‘as soon as practicable’ mean in relation to banking of trust money?

Section 68(1) of the REBA Act and section 49(1) of the SA Act require agents to deposit money into a trust account as soon as practicable. In most cases the money is to be deposited by close of business the next working day. The auditor must verify banking times and report any delays.

Yes. Where strata management services are provided by a licensed real estate agent as part of the agency’s business, section 68(1) of the REBA Act requires the agency to pay any moneys received in relation to strata management into the agency’s trust account. Therefore, these funds will also be part of an audit.

No. Money received in a real estate transaction is required to be banked in the same form as it is received. For example, an agent cannot replace cash from a daily banking transaction with a trust cheque or personal cheque to provide a cash refund.

It is the Commissioner’s view that agents ought not pay their clients’ creditors by credit card and then reimburse themselves from the trust account unless they have consent from their client to do so. Without consent, the recouping of moneys from the trust account would be an unauthorised withdrawal and the agent would therefore breach section 68(4) of the REBA Act.

No, agents are only required to have a trust account if they receive and/or hold trust moneys on behalf of others.

Section 68(1) of the REBA Act and section 49(1) of the SA Act provide that every agent who holds a current triennial certificate shall maintain a trust account; however, section 86 of the REBA Act and section 67 of the SA Act provides that an agent who holds a current triennial certificate but who, in the course of his business, has not held or received moneys on behalf of others shall be deemed to have complied with this Part if within the period of three months after the end of that year he makes a statutory declaration to that effect and delivers it to the Commissioner.

Therefore, as long as the agent provides the requisite statutory declaration to the Commissioner within three months of the end of the audit year, the agent is deemed to have complied with Part VI of the REBA Act and Part IV of the SA Act and does not have to maintain a trust account or if a trust account is maintained, it does not need to be audited.

Yes. Trust accounts closed during the course of a year should be audited at the end of the year. Should branch offices have their own trust accounts?

No. Except when the Commissioner has directed that a separate audit of the branch accounts is required (section 74 of the REBA Act and section 68 of the SA Act).The audit of the branch accounts may be included in the annual audit submitted by the agent.

Although not required under the REBA or SA Acts, it is recommended best practice that when part of an agency’s business is sold, an audit of that part of the business should be conducted before the business records are handed over to the purchaser.

Auditors are to conduct audits in accordance with accepted auditing practice and, in addition, the Commissioner for Consumer Protection may impose additional requirements such as the nature of audit reports. The following pages show the templates/formats of audit reports that auditors should use for real estate agents, business brokers and settlement agents. These are also available from our website.

The templates consist of:

• a covering letter from the auditor to the Commissioner for Consumer Protection for an audit report;
• a declaration by the auditor (section 72 of the REBA Act matters or section 53 of the SA Act matters);
• a statutory declaration by the person in bona fide control (verifying statement of balances held);
• a statutory declaration by the auditor (section 79 of the REBA Act or section 60 of the SA Act); and
• a statement of trust account money held (Annexure A).

The prescribed audit formats need to be supported by a statutory declaration, where required, and signed by an authorised witness. Professions listed as authorised witnesses by the Oaths, Affidavits and Statutory Declarations Act 2005 are available by visiting the Department of the Attorney General’s website or by calling (08) 9264 1600.

The examples/templates of:

• B1. Example of an Auditor’s Covering Letter for an Audit Report
• B2. Example of Declaration by Auditor
• B3. Example of Statutory Declaration by Person in Bona Fide Control
• B4. Example of statutory Declaration by Auditor
• B5. Example of Statement of Trust Account Money Held “Annexure A”

are available from the following pages:

• Auditors of settlement agents forms and publications 
• Auditors of real estate agents forms and publications

The full text of the relevant statutes, Regulations and Code of Conduct mentioned in this publication is available online from the Parliamentary Counsel's Office at www.legislation.wa.gov.au. Relevant Links

• Real Estate and Business Agents Act 1978
• Real Estate and Business Agents (General) Regulations 1979
• Code of Conduct for Agents and Sales Representatives 2016
• Settlement Agents Act 1981
• Settlement Agents Regulations 1982
• Settlement Agents Code of Conduct 2016
• Australian Consumer Law
• Corporations Act 2001 (Cwlth) - section 1280
• Reserve Bank of Australia (Auditors can view the RBA bulletin from their web site)

Agent - A person who is a real estate agent, a business agent (or both) or a settlement agent

Approved - Approved by the Commissioner for Consumer Protection

Auditor - A person appointed under the REBA or SA Acts to audit the trust accounts of agents.

Authorised financial institution - A bank or other body that is prescribed or that belongs to a class of bodies that is prescribed.

Banker - The manager, or other officer, for the time being in charge of the office of a bank or other body in which any account of an agent is kept.

Business agent - A person whose business, either alone or as part of or in connection with any other business, is to act as agent for consideration in money or money’s worth, as commission, reward, or remuneration, in respect of a business transaction as defined by this section, but does not include a person whose business is to so act by reason that:

1. he/she is appointed by a court as a receiver or receiver and manager of the business of another; or
2. he/she is an official receiver or trustee within the meaning of the Bankruptcy Act 1966, of the Commonwealth or any Act in amendment or substitution of that Act.

Business day - A day that is not a Saturday, Sunday or public holiday.

Business transaction - 

1. a sale, exchange or other disposal and a purchase, exchange or other acquisition of a business and any share or interest in a business or the goodwill thereof; and
2. includes any sale, exchange, or other disposal and any purchase, exchange, and other acquisition of goods, chattels or other property relating to a business transaction of the kind specified in paragraph (a); and
3. also includes an option to enter into a business transaction; but
4. does not include the sale, exchange, or other disposal or a purchase, exchange, or other acquisition of a share in the capital of a body corporate carrying on a business or an option in respect thereof.

Defalcation by a licensee - Includes criminal or fraudulent conduct:

1. of a licensee; or
2. of any one or more of the servants or agents of the licensee; or
3. of a person who is a partner in the business of the licensee; or
4. where the licensee is a firm and a body corporate is a partner in the firm or where the licensee is a body corporate, of any one or more of the directors, officers, servants, or agents of the body corporate,

in the course of the business of the licensee and from which arises pecuniary loss or loss of property to any other person. Defalcation from a person who ceased to hold a license or triennial certificate may still be claimed, at the discretion of the chief executive officers, if the defalcation occurred within 6 months of the person ceasing to hold a license or triennial certificate. 

Licensed agent - A real estate agent who holds a real estate licence and a current triennial certificate under the Real Estate and Business Agents Act 1978 or a settlement agent who holds a settlement agent licence and a current triennial certificate under the Settlement Agents Act 1981.

Licensee - A person licensed under the Real Estate and Business Agents Act 1978 or the Settlement Agents Act 1981.

Person in bona fide control - A licensed person in a real estate business or a settlement business who is responsible for the administration of real estate transactions or settlement transactions, and the supervision of persons involved in those transactions. Sometimes described as agent in bona fide control.

Principal - The term ‘principal’ refers to the client of the agent.

Real estate agent - A person whose business, either alone or as part of or in connection with any other business, is to act as an agent for consideration in money or money’s worth, as commission, reward or remuneration, in respect of a real estate transaction as defined by the Act, but does not include a person whose business is to so act by reason that -

1. he/she is appointed by a court as a receiver or receiver and manager of the business of another person; or
2. he/she is an official receiver or trustee within the meaning of the Bankruptcy Act 1966 of the Commonwealth or any Act in amendment or substitution of that Act.

Real estate transaction - 

1. a sale, exchange, or other disposal and a purchase, exchange, or other acquisition of real estate and any exclusive right whether deriving from the ownership of a share or interest in a body corporate or partnership, or otherwise, to the use or occupation of real estate including the leasing, and letting, and the acquisition under lease or letting of tenancy or occupation of real estate; and
2. includes any sale, exchange, or other disposal and any purchase, exchange, or other acquisition of goods, chattels or other property relating to a real estate transaction of a kind specified in paragraph (a); and
3. includes the collection of rents or other payments for use or occupation; and
4. also includes an option to enter into a real estate transaction.

REBA - Abbreviation for Real Estate and Business Agents, as used in titles of trust accounts as required by the legislation.

SA - Abbreviation for Settlement Agents, as used in titles of trust accounts as required by the legislation

Settlement - The completion of a real estate transaction or a business transaction (as the case may be) by payment of the balance of purchase price in respect to such real estate transaction or business transaction.

Settlement agent - A person whose business, either alone or as part of or in connection with any other business, is to act as agent for consideration in money or money’s worth, as commission, reward, or remuneration, in respect of a business transaction as defined by this section, but does not include a person whose business is to so act by reason that:

1. he/she is appointed by a court as a receiver or receiver and manager of the business of another; or
2. he/she is an official receiver or trustee within the meaning of the Bankruptcy Act 1966, of the Commonwealth or any Act in amendment or substitution of that Act.

TC - Denotes triennial certificate as used in titles of trust accounts followed by the certificate number of the agent.

Transaction - A real estate transaction or a business transaction or both a real estate transaction and a business transaction, or a settlement transaction.

Triennial certificate - The certificate granted by the Commissioner to a licensee which permits the licensee to carry on business as a real estate agent or settlement agent. A triennial certificate is granted for three years and may be renewed for further three year periods for as long as the licensee continues to trade

Trust account - Accounts where money is received or held by an agent for or on behalf of another person in relation to a real estate or business sales transaction, property management transaction or settlement transaction.

Working day - A day that is not a Saturday, Sunday or public holiday.

Year - A period of 12 months ending on 31 December for real estate and business agents and a period of 12 months ending on 30 June for settlement agents.