1 Government of Western Australia Department of Commerce Consumer Protection Settlement Agents Trust account handbook November 2013
3 Table of Contents Introduction....3 Using this publication....3 Further information....3 Part 1 trust accounting What is trust money? What is meant by trust accounting? Why are there special requirements within the Act for the control of trust money? What happens to the interest on trust accounts? Types of trust accounts....5 General trust accounts....5 Interest bearing trust accounts Quotation of tax file number (TFN) Titling of trust accounts....5 Titling of general trust accounts....5 Titling of interest bearing trust accounts....6 Licensed entity Receiving and depositing trust money Opening, closing and amending trust accounts What trust documents and records must be maintained? How long must trust records be retained? What use is made of the documents and records? Fees and disbursements....8 Recovery of disbursements cost-recovery only What must an agent do on becoming aware that a trust account is overdrawn? Aspects of computerised trust accounting Part 2 trust documents and records Principles of trust account practice Trust receipts...11 Trust receipt process...11 Trust account receipts Interim receipts Trust deposit forms Bank deposit form Trust account withdrawals Cash receipts journal and cash payments journal
4 2 2.7 Trust ledgers Sample ledger Transfer duty Buffer account Trust account transfer journal entries Recording withdrawals of fee entitlements Balancing a trust account at the end of each month Balance per bank statement Add outstanding deposits Less unpresented cheques Balance per trust cash at bank Example: Trust account reconciliation statement PART 3 TRUST ACCOUNT AUDITS What are the annual duties of an agent regarding trust account audits? What are an agent s duties in appointing an auditor? What are an agent s responsibilities to the auditor? What are the duties of an auditor? How should an agent respond to an auditor s recommendations? What are an agent s duties in changing an auditor? What is a quarterly audit? What if a settlement agency closes? Unclaimed trust money PART 4. PREVENTING THEFT AND FRAUD Early indicators of theft and fraud Computer systems Bank reconciliations Transfer journals Receipt books Agency management Cash payments or cheque payments Trust account management What must an agent do on becoming aware of fraud or theft? Glossary....31
5 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 agent s 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 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 agent s duties and responsibilities relating to trust account audits. Part Four looks at recommended practices for reducing theft and fraud within a settlement business Further information 3 Additional copies of this publication can be downloaded free of charge from the Consumer Protection website at 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 Consumer s Protections auditing requirements. Archived issues of the Settlement Agents News and e-bulletins are available in the website s publication section. Visit
6 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 agent s 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? 4 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. 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 agent s 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.
7 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) 5 When opening an interest bearing account in trust for a client, the client s 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 ) T/A XYZ Settlements SA TRUST A/C TC Note: A licensed entity can be a body corporate, partnership or sole trader.
8 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 ) T/A XYZ Settlements in Trust for John Smith SA TRUST A/C IB TC Refer: regulation 6B of the Regulations Licensed entity 6 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. 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
9 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 agent s 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 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 agent s 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
10 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 agency s auditor. Refer: section 49(6) of the Act Other duties of agents relating to audits are discussed in part three 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 agency s 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 agent s 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 8 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 client s 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 agent s 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).
11 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 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 agent s 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 9
12 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 agent s 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 supplier s 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 agency s 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 agency s licensee should personally check the daily report that is generated and immediately address any irregularities that may be identified. 10
13 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 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;
14 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 T/A XYZ Settlements 12 Licensed Real Estate Settlement Agent Trust Account Receipt 16 Horizon Street, Perth 6000 No: Date.../... /... Received from... Address... The sum of... For... For and on behalf of ABC Pty Ltd ABN 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 agent s 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
15 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 agent s 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: $6, West branch office receipts: $ Total deposit $6, The trust account deposit book should be clearly identified to distinguish it from the agent s general account deposit book 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,
16 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: 14 Date: DD/MM/20XX Payment to: Registrar of Titles Reason for payment: Registration fees for File # 154/03 Amount: $16 Cheque Serial Number: 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 agent s auditor. Recommended information to be recorded in the cash receipts journal includes: date; receipt number; from whom money was received; trust ledger reference;
17 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 agent s 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 client s 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. Each client trust ledger account must contain at least the following information: the account number; the name and address of an agent s 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;
18 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: Account No: Description of transaction: Date Particulars Jnl Ref Debit Credit Balance 16 Transfer duty Money for transfer duty (formerly stamp duty) should be held in a separate ledger within the agent s 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
19 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 agent s 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.
20 A suggested layout for the journal is as follows: Trust account transfer journal (general journal) Date Particulars Ledger reference DR Transfer from $ c CR Transfer to $ c 4/8/13 James Smythe A/C /8/13 John Smythe A/C 4407 Money incorrectly deposited to account 4003 on 31/07/13 J1 10,000 W3 10,000 Person in bona fide control s signature M Brown 2.10 Recording withdrawals of fee entitlements 18 Fees can be transferred from the client s 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. When a fee entitlement is due to the agent, a trust cheque can be drawn to transfer the funds from the client s ledger account to the agent, or transferred to the agent s 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 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.