Trust account audit qualifications

Where employees undertake bank reconciliations, it is a primary role for the licensee to ensure that they are fully aware of the workings and actions undertaken by their employees.

One way to ensure compliance with section 68(6)(d) of the Act would be to develop and implement internal procedures that require monthly verification and signoff by the licensee or bona fide controller on all reconciliations immediately following the end of each month; and ensure those are adequately retained in the office.  It is an accepted industry practice that verification and signoff of reconciliations should occur within ten days of month’s end.  

Agents must ensure that all moneys held in their trust account have been correctly identified and posted to the correct ledger account.  Holding unidentified moneys for significant periods of times may amount to an offence of section 68(6)(a) and (c) of the Act. 

One way to ensure compliance would be to regularly investigate these unknown deposits or unpresented cheques and take corrective actions to accurately deal with those matters.

Agents must notify the Western Australian State Treasurer (the Treasurer) of any unclaimed money that is 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 (UC Act), this money is to be notified to the Treasurer no later than 31 January in the succeeding year.

The UC Act provides for voluntary payments 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 will accept unclaimed money that has been deposited for less than two years.

While the day-to-day upkeep of trust account records may be delegated to office staff in many agencies, the person in bona fide control of the agency is responsible for all trust account records. For this reason, it is essential that the person in bona fide control of the agency is fully conversant with the computer system installed. Full use should be made of the checks and controls that are integrated into the system.

When any shortfall or deficiency is identified in the agent’s trust account, the agent should, as a standard practice, immediately remedy the shortfall by transferring funds from the trading account or, where this is not possible, from personal funds or by using money placed at the agent’s disposal by a third party.

Such shortfalls could be due to accounting errors, which may have been made either by the agent or the agent’s bank, or may potentially be due to funds having been misappropriated by unknown parties.

Once the shortfall has been rectified, the agent can consider remedying whatever has led to the shortfall and then reimburse the trading account, personal funds or third party as appropriate. For further advice in remedying any shortfall in the trust account, it is suggested that the agent should, in the first instance, seek advice from their statutory appointed auditor, followed by the Department of Commerce Consumer Protection Division (Consumer Protection).

All receipts and payments of trust money are summarised in the trust account cash journals. The journals are updated each time money is debited or withdrawn from the trust account. The journals provide a sequential and chronological record of trust account receipts and payments.

If a computerised system is being used, 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.

Agents are required to enter moneys received into their computer system (tenant/client ledgers) before the end of the next working day (see section 68(6)(b) of the Act). Best practice would be to establish detailed (written) work process procedures/guides for staff to ensure moneys received are entered into the system, in addition to the bona fide controller conducting periodic checks to reinforce those procedures. 

Regulation 6D of the Real Estate and Business Agents (General) Regulations 1979 requires an agent to designate their trust accounts in a prescribed manner. The title 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’, then the letters ‘TC’ and the agent’s triennial certificate number (up to five digits).

Where clients request that funds held on their behalf be held in separate interest bearing trust accounts, the title of the accounts, in addition to the above, need to:

• include the letters IB; and
• the words ‘in trust for’ followed by the name of the person the funds are held for.

Agents are required to have an appointment to act to perform a real estate, business or strata management transaction. This covers any property or business sale/purchase, residential, commercial or strata management property transaction. If an agent does not have a valid appointment to act from their principal to perform a service, then the agent is not entitled to receive any remuneration for the service performed.

One way to ensure compliance would be to regularly inspect a random selection of property management and sales files and take corrective actions to ensure those authorities are current.

An agent must not demand or receive a commission or reward that is greater than the amount agreed to in writing with the client. The bona fide controller is required to adequately supervise the actions of all employees which includes overseeing and verifying that they have input accurate information into the computer system so that accurate fees are charged to owners. 

One way of verifying the accuracy of the fees inserted into the computer system would be to systematically review a number of property management files and compare that to the data contained in the computer. 

Section 68(1) of the Act requires that as soon as is practicable, all moneys received by the agent in relation to a real estate transaction must be paid into their trust account.  This would include rental application deposits. 

Regular verification checks by the bona fide controller would assist in ensuring procedures are being followed by their staff. 

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. They have legal responsibilities in relation to the protection of trust account money. Agents could even be held responsible for reimbursing money misappropriated by employees.

The person in bona fide control can do much to limit the possibility of theft and fraud of trust funds and other money by setting up internal controls to ensure that moneys received are appropriately banked by the next working day.  All moneys held overnight should be securely locked in a safe and banked the next working day.

The bona fide controller should also be alert for theft and fraud by regularly inspecting the work of their staff, particularly where that work affects the trust account.  They should also be looking for early indicators of theft or fraud by obtaining copies of cheques that have been presented to the bank. Vigilance by the bona fide controller is the key to ensuring the risk of theft or fraud is minimised. 

Since 1 November 2011, the Code has provided a requirement for agents to make all reasonable efforts to verify the identity of each person who claims to be, or act for, a person who is to dispose a property. 

When selling a property, agents must confirm that dealings are with the true owner(s) of the property through obtaining a current Certificate of Title at Landgate. Agents must confirm that each of the person(s) representing themselves as the owner(s) or their properly appointed representatives, are who they say they are.

It is suggested that  the identity of each of the owners or the person or persons with the legal right to sell a property be confirmed via a 100 point Client Identity Verification (CIV).

The 100 point CIV should be undertaken face-to-face as the standard practice. In carrying out such checks, agents should sight original documents to verify identity wherever possible. If the person, or persons, are not directly accessible to the agent to enable face-to-face CIV, ensure that the documents used by the person or persons to meet the 100 point CIV check are sighted and verified as a true copy of the original, by a suitable independent and verifiable witness.

If agents deviate from this method, then the onus will be on them to prove they have taken and documented reasonable steps to confirm the person’s identity. If a document is signed on behalf of a company, the identity of the signatories such as the company director or secretary should be established by obtaining a current company search at the Australian Securities and Investments Commission (ASIC) and conducting a 100 point ID check in respect of the officers who sign on behalf of the company.

Agents should retain copies of all documents obtained in the process of verifying identities and in verifying the authority of a person to act in the sale of the property.

For detailed information on verification of identity checks, agents should refer to the Commissioner’s Guidance Note - Client identification verification and real estate fraud prevention located at www.commerce.wa.gov.au/publications/code-conduct-agents-and-sales-repres....