Trust account audit qualifications for settlement agents

It is a primary role for the licensee to ensure that they are fully aware of the workings and actions undertaken by their employees; particularly as the work of these employees can affect the trust account. 

One way to ensure compliance with section 49(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.  

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 49(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, this money is to be notified to the Treasurer no later than 31 January in the succeeding year.

The Unclaimed Money Act 1990 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 Energy, Mines, Industry Regulation and Safety – Consumer Protection Division (Consumer Protection).

If a trust account becomes overdrawn for any reason (including where a bank error has occurred) the agent is required to notify the Commissioner in writing as soon as practicable.

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 (client ledgers) before the end of the next working day (see section 49(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 6B of the Settlement Agents Regulations 1982 (the Regulations) requires an agent to designate their trust accounts in a prescribed manner. The titles of 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 ‘SA Trust Account’, then the letters ‘TC’ and the agent’s triennial certificate number (up to five digits).

Where clients request funds held on their behalf are held in a separate interest bearing accounts, the title of the account needs to:

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

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.  

It is imperative that appropriate security measures are taken to minimise risk of loss by fraud by cyber-attack.  Agents should ensure they have up-to-date security software (e.g. anti-virus, anti-spyware/malware) installed on computers and any smart devices using the agency’s network. 

There should be adequate narration on receipts to be able to easily identify the payment.  As per regulation 6E of the Regulations, a receipt needs to contain the following information:  the name of the holder of the triennial certificate and any business name of that holder, a unique identifier (a letter or number in consecutive order), the date on which the money was received, the name of the person paying the money, the amount and a brief description of the purpose of the payment.