6. Compliance audit of a real estate agent s trust account

Transcription

1 6. Compliance audit of a real estate agent s trust account 6. Compliance audit of a real estate agent s trust account 6:2 Audit of a real estate agent s trust account: Overview 6:2 Purpose 6:2 Legislation 6:2 Audit approach 6:2 Audit objective 6:2 Acceptance and continuance 6:3 Planning 6:3 Performing 6:3 Reporting 6:4 Appendices 6:5 Appendix 6A Legislative requirements for the audit of real estate agent trust accounts 6:6 Appendix 6B Example letter and reply for trust money circularisation 6:12 Appendix 6C Example of an agent s written representation to the auditor 6:13 Appendix 6D Example audit programs 6:14

2 Small entities audit manual Compliance audit of a real estate agent s trust account Audit of a real estate agent s trust account: Overview This chapter details the specific auditing requirements applicable to the compliance audit of a real estate agent s trust account and should be read in conjunction with Chapter 5 Overview of a compliance audit. Purpose The purpose of a compliance audit of a real estate agent s trust account is to report on whether: accounting and other records relating to trust monies have been properly kept; there is no loss or deficiency of trust monies or failure to pay or account for trust monies; and there has been no failure to comply with a provision of the relevant Act or Regulations. Legislation The rules governing the operation and audit of real estate agents trust accounts are in the relevant Acts and Regulations in each state/territory, therefore it is necessary for the auditor to have a good understanding of the requirements of the relevant state/territory s Act. Appendix 6A shows the current Acts and Regulations for each state/territory and an overview of the audit requirements. General requirements relating to audit Real Estate Agents must ensure that trust accounts are audited within the prescribed time frame each year. The cost of the audit is to be borne by the agent, and is to be paid from the agent s general account and not from the trust account. The auditor is to be allowed access to accounting records of the trust account, and also to the records and files of the agent s practice. This access is essential in ensuring that all transactions involving trust account money have been recorded correctly. The timing of the audit is determined by the provisions of the Act in each state and territory. The lodging of the audit report also differs between states and territories but is generally required two, three or four months after the year end. Some legislation requires more than one audit visit each trust year, through unscheduled visits. The audit of the trust account is to be performed in accordance with Australian standards on Assurance Engagements, in particular ASAE 3000 and ASAE 3100 as discussed in Chapter 5 since the auditor is required to form an opinion on the agent s compliance or non-compliance with the relevant Act and Regulations. Although other ASAs do not apply to assurance engagements, they may, nevertheless, provide guidance to practitioners. Audit approach The audit should be performed in conjunction with the methodology described in Chapter 5, however specific information related to the compliance audit for a real estate agent is included below. Audit objective The objective of the audit of a real estate agent s trust account is to determine compliance with the relevant Acts and Regulations on real estate agent trust accounts in each particular state/territory. To achieve this objective, the auditor needs to be satisfied that trust money belonging to clients of an agent is properly accounted for, and is only paid or applied as directed by the clients. To be satisfied of this, the auditor must obtain sufficient audit evidence through the performance of appropriate tests of control and substantive procedures. 6:2

3 6. Compliance audit of a real estate agent s trust account Acceptance and continuance In addition to considering the general acceptance and continuance requirements discussed in Chapter 5, prior to accepting the compliance audit engagement the auditor should confirm that they are eligible to act based on the requirements of the relevant Act (or Regulations) (see Appendix 6A). Planning The auditor should plan the audit of a real estate agent s trust account to consider risks and knowledge of the business. The focus of the audit of a real estate agent s trust account is to test compliance with the rules governing trust money; therefore, the auditor should understand the legislative requirements for handling trust money. The nature, timing and extent of audit procedures will vary, depending on the following factors: the services provided by the real estate agent and money received on trust as a result of these services; the nature of the real estate agent s business, i.e. whether the real estate agent is a sole practitioner or an agent of a large practice; the volume of transactions affecting the trust account; the average size of transactions affecting the trust account; and the existence of segregation of duties. The above factors should be taken into account in the auditor s assessment of risk. Assurance engagement risk In the audit of an agent s trust account, it is important that the audit procedures are planned so they cover the entire period and such procedures are designed to test compliance with all the requirements of the Act and Regulations to minimise the risk of non-detection of breaches including fraud. Internal control structure The auditor should document and assess internal controls and procedures to establish whether reliance can be placed on them. The systems documentation and assessment should include computer procedures whenever applicable. The agent has the ultimate responsibility for compliance with the trust account at all times during the year. Therefore a prudent agent will have procedures in place to ensure that those requirements are being fulfilled. If no such procedures exist, the auditor should question the ability of the agent to state that all requirements have been complied with throughout the year, and issue a recommendation to the agent suggesting that such procedures be implemented. The strengths of internal controls over the trust account will vary, depending on the size and nature of an agent s practice. Where an agent is also a sole practitioner, there will be limited scope for adequate segregation of duties, whereas a larger practice may only rely on such segregation in order to maintain effective controls over the trust account. Ideally, the agent should have the following internal controls in place: segregation of authorisation of transactions, recording of transactions and custody over the client s money; independent monthly reconciliation of trust account records to trust bank accounts; supervision by partner of the practices of the operations of the trust accounts; and adequate supporting documentation for all transactions relating to trust money (see Documentation below). Performing The results of the planning phase of the audit will have allowed the auditor to plan the appropriate procedures. These procedures are completed in this phase and the evidence evaluated. Supporting documentation The following are examples of the supporting documentation that should be available for inspection by the auditor: cheque requisition forms for all withdrawals of trust money, detailing the client name, amount required, purpose of the payment, payee name, and requiring authorisation prior to processing; 6:3

4 Small entities audit manual 2013 cash receipts for all trust money received by the agent, detailing date received, amount, name of client, and purpose of the receipt; register of items other than trust money received, such as documents of title, detailing date received, particulars of documents and client name; trust transfer journals; and bank statements, bank deposit slips, cheque butts and any other relevant documentation. Audit testing Where an agent has relatively few clients for whom trust money is received and there are a limited number of transactions, it may be more efficient to perform testing on a 100 per cent basis. However, where there are a large number of clients, and numerous transactions, the auditor should select and test samples to obtain sufficient appropriate audit evidence in an efficient and effective manner. The main risk area for the auditor is ensuring completeness, i.e. that all transactions that should have passed through the trust account have occurred and have been correctly recorded. This risk is taken into account when deciding sample selection, and also the source of sample selection, i.e. the population. The population in this case is the files of all of the clients of the agent s practice, as any of these clients may have had trust money transactions during the year. If the population was the trust account records, then there would be a zero probability of selecting and testing transactions dealing with trust money that has been erroneously or deliberately recorded elsewhere. This will require access to the office records of the agent to ensure all client records are available. It may be appropriate to design audit procedures that look at the methods of recording new clients and matters within the agent s practice. All transactions relating to client s monies, whether they are trust money or not, should be recorded and the source documentation filed. Therefore, these client files are the source of the sample selection. (The method of filing may vary between agents; however, the ideal method is for source documents to be filed in separate client monies files, those files relating to both trust money and other client monies). When there are receipts or other records of monies on file, and these are not designated as trust money, the auditor should plan procedures to consider the appropriateness of the classification. Reporting Auditors may be required to report in a format specified by the legislation, however the auditor is required to confirm that the report is in compliance with ASAE The audit report is different for each state and territory, so it is necessary to have a good understanding of the requirements of your state or territory legislation, an overview of the requirements is provided in Appendix 6A. In addition, the auditor needs to determine the need to report separately to those charged with governance on any matters found. 6:4

5 6. Compliance audit of a real estate agent s trust account Appendices The following appendices are included in this chapter: Appendix 6A Summary of the legislative requirements relating to audit for each State/Territory. Appendix 6B Example letter and reply for trust money circularisation. Appendix 6C Example agent s written representation letter to the auditor. Appendix 6D Example audit programs. 6:5

6 Small entities audit manual 2013 Appendix 6A Legislative requirements for the audit of real estate agent trust accounts The information below is an overview of the relevant act/regulations, it is not a substitute for reading the Act/ regulations. It is important to check for any amendments to these Acts and Regulations issued after the release of this document. ACT Relevant legislation and guidance Audit opinion Due date for audit report Agents Act Agents Regulations < station_agents>. The auditor reports on whether, in their opinion: a) the agent has kept the accounting and other records relating to trust money in accordance with part 7 of the Act; and b) the records were available for the auditor s examination within a reasonable time after the auditor asked for them; and c) the agent complied with the auditor s requirements within a reasonable time; and d) there is any discrepancy relating to a trust account; and e) any records to which the audit relates are kept in a way that does not allow them to be properly audited or are missing; and f) records that are necessary for the proper audit of other records are missing; and g) there is anything else in relation to the records about which the commissioner for fair trading or the agent should be informed. As soon as practicable after finishing the audit, the auditor must prepare a report of the result of the audit and give the report to the commissioner for fair trading and a copy to the licensed agent. Within 3 months after the end of the audit period. NSW Relevant legislation and guidance Who can be an auditor Audit opinion Due date for audit report Property, Stock and Business Agents Act Property, Stock and Business Agent Regulations < < responsibilities/trust_accounts/trust_account_audit_requirements.html>. Must be: registered company auditor or qualified under s.115(1)(b) of the Property, Stock and Business Agents Act In my opinion, subject to the qualifications as reported on Schedule 3, for the period covered by the report, having regard to the legislation applicable at the time that the money was held in the Trust Accounts, based on appropriate examinations and sampling techniques: a) the books of account required to be kept under Sections 103 and 104 of the Property, Stock and Business Agents Act 2002 have been kept in accordance with the Act and its associated Regulation; b) during the period the reconciled balance(s) of the trust account(s) were sufficient to meet all trust creditors of the licensee entity as disclosed by the books of accounts and records. Within 3 months after the end of the audit period. 6:6

7 6. Compliance audit of a real estate agent s trust account Northern Territory Relevant legislation Who can be an auditor Audit opinion Due date for audit report Agents Licensing Act. Agents Licensing Regulations. < A licensed agent shall not engage as the agent s auditor, or permit the audit of the agent s accounting records relating to trust moneys to be made by, a person who: a) is not a registered company auditor; or b) is an employee of, or is a partner of, or is a relation of, the licensed agent; or c) is an employee of any other licensed agent; or d) is engaged in keeping and entering those records or has those records in the agent s custody or control; or e) is himself or herself a licensed agent; or f) is a director, officer or employee of a company that is a licensed agent; or g) is a person by whom a firm is constituted that is a licensed agent; or h) is an employee of, or is a partner of, or is a relation of, a business manager of a company or firm that is a licensed agent. Whether, in the auditor s opinion: a) the licensed agent had kept the accounting records relating to all trust moneys received and paid by the agent in accordance with this Act; and b) whether those records were ready, within a reasonable time, for the auditor s examination after the auditor had required their production; and c) whether the agent had complied with the auditor s other requirements and so complied within a reasonable time; and d) anything in relation to those records of which the agent or the Board should, in the opinion of the auditor, be informed. Within 3 months of the end of the audit period (30 June each year). Queensland Relevant legislation Property Agents and Motor Dealers Act 2000 Property Agents and Motor Dealers Regulations < Who can be an auditor An auditor is automatically approved if they are: registered as an auditor under the Corporations Act; a member of CPA Australia or the Institute of Chartered Accountants in Australia; a member of the National Institute of Accountants who has completed an auditing component of study in accountancy over at least three years. If the auditor is unqualified, they must lodge an application for approval to audit a licensee s trust account. 6:7

8 Small entities audit manual 2013 Audit opinion Due date for audit report The auditor must include the following in the report: a) the audit period for which the report is made; b) the name and number of each trust account audited; c) the name of the financial institution, the office or branch of the institution where each trust account was kept and the identifying number of the office or branch; d) the licensee s name and: i. if the licensee is a corporation the name of each of its licensed directors during the audit period; and ii. if the licensee carried on business under a registered business name the business name andthe names of any persons with whom the licensee carried on the business; e) each place where the licensee carried on business as a licensee; f) a statement about whether each trust account has been satisfactorily kept under this Act; g) a statement specifying the day and result of each unannounced examination for the audit period under section 403(1); h) a statement about whether the auditor has audited the licensee s general account; i) a statement about whether any trust account has been overdrawn; j) a statement about whether a trust creditor s ledger account has been overdrawn; k) a statement about whether, for each month during the audit period: i. each trust account cash book was reconciled with the bank balance and trust ledger; and ii. an analysis was made showing the name of each person for whom an amount was held and the amount held for each person; l) the serial numbers of the trust receipts used during the audit period and the unused trust receipts produced to the auditor; m) particulars of the amounts held in trust for more than 3 months by the licensee at the last day of the audit period; n) a statement that each trust account cash book has been reconciled with the bank balance of the trust account at the last day of the audit period; o) a copy of the reconciliation of the trust account cash book and the bank balance of the trust account at the last day of the audit period; p) a statement about anything else about any trust account audited that the auditor considers should be reported to the chief executive. The audit period is the 12-month period in each year ending on the last day of the audit month, the audit period depends on when the licence expires. Month of licence expiry Audit period (dd/mm) Audit report due by end of January 01/10 30/09 January February 01/11 31/10 February March 01/12 30/11 March April 01/01 31/12 April May 01/02 31/01 May June 01/03 28/02 June July 01/04 31/03 July August 01/05 30/04 August September 01/06 31/05 September October 01/07 30/06 October November 01/08 31/07 November December 01/09 31/08 December 6:8

9 6. Compliance audit of a real estate agent s trust account South Australia Relevant legislation Land Agents Act Who can be an auditor Audit opinion Due date for audit report Land Agents Regulations < aspx>. A registered company auditor; OR A person who: a) holds a degree in commerce, accounting, business studies or a related field from an Australian university or from another university approved by the Commissioner; and b) is a member of i. The Institute of Chartered Accountants in Australia; or ii. CPA Australia; and c) meets the requirements of a body referred to in paragraph (b) to practise as a public accountant; and d) has been continuously engaged for at least 3 years in practice as a public accountant in this State (whether or not as an employee of a public accountant). The auditor forms an opinion on: a) whether the accounts and records appear to have been kept regularly and properly written up at all times; b) whether the accounts and records have been ready for examination at the periods appointed by the auditor; c) whether the agent has complied with the auditor s requirements; d) whether, at any time during the period of the audit, the agent s trust account was overdrawn and, if so, the full explanation for that given by the agent; e) whether the agent has, or has had, any debit balances in his or her trust account and the explanation or reason for such a debit given by the agent; f) whether the auditor has received and examined the notice given to the auditor under regulation 23 and the result of that examination; g) whether the agent has complied with section 13 of the Act; h) if the agent uses a computer program to keep the agent s accounts and records whether the program allows for the accounts and records to be conveniently and properly audited. Within 2 months after the end of the audit period. 6:9

10 Small entities audit manual 2013 Tasmania Relevant legislation Property Agents and Land Transaction Act Audit opinion Due date for audit report Victoria Property Agents and Land Transaction Regulations < The audit report is to be in a form approved by the Board and is to state, in the opinion of the auditor, whether: a) the trust account records being audited were properly drawn up and kept in accordance with the Act; and b) there is any defect or irregularity in the trust account records; and c) the amount in each trust account after being reconciled under regulation 21 and the amount of trust money invested under regulation 29 were sufficient to meet all the trust account liabilities at the end of the period being audited; and d) the auditor obtained all the information, documents, explanations and assistance that he or she required to complete the audit; and e) the requirements of the Act in respect of trust money and the keeping of trust accounts have been complied with. Within 3 months of audit period (30 June). Relevant legislation Estate Agents Act Estate Agents (General, Accounts and Audit) Regulations < Who can be an auditor Audit opinion Due date for audit report A person is not qualified to act as an auditor under section 64, 64A or 64B in respect of an estate agent a) unless he or she is an approved auditor; b) if he or she is, or at any time within 2 years before the last day of the period in respect of which the audit is to be made, has been, an employee or partner of the agent, or of any partner of the agent, whose accounts of trust money are to be audited. A person shall not audit the accounts of an estate agent: a) if he is an employee or partner of that estate agent; b) if he is an employee of any other estate agent actually in practice; c) if he is himself an estate agent carrying on business as such; d) if he is in any way engaged in keeping or entering up the trust account records of an estate agent or has those records in his custody or control; or e) in the case of an estate agent being a corporation, if he is a member, director, officer or employee of the corporation. In my/our opinion, the above Licensed Estate Agent has, in all material respects, maintained the above named Trust Account(s) in compliance with sections 63 and 64 of the Act and the Regulations for the period(s) specified above. Format should be as specified by Consumer Affairs Victoria. < running-your-business/trust-accounts/auditing-trust-accounts>. Within 3 months after 30 June. 6:10

11 6. Compliance audit of a real estate agent s trust account Western Australia Relevant legislation Real Estate and Business Agents Act Who can be an auditor Audit opinion Due date for audit report Real Estate Agents (General) Regulations < Estate_Industry/Real_Estate_Industry.html> < For_Auditors/For_Auditors_PDFs/Guide_to_auditing_20.pdf>. Registered Company Auditor; or Other person approved by the Board. The auditor to report in accordance with sections 70(2) and 79 of the Real Estate and Business Agents Act 1978 that in their opinion: a) the trust accounts have been regularly kept and properly written up; b) the trust accounts were ready for examination at the periods appointed by me; c) the agent has complied with all my requirements as auditor; d) the trust accounts are and have been in order during the year of the audit; and e) there is no matter in relation to the trust accounts that should, in my opinion, be communicated to the Board. Within 3 months of the end of each year. 6:11

12 Small entities audit manual 2013 Appendix 6B Example letter and reply for trust money circularisation [Date] [Auditors name and address] Dear Sir/Madam [Name of agent s practice] statement Enclosed is your statement of trust money held by our above-named client as at [year end date]. We are performing our regular audit of the trust records and wish to verify this account from an independent source. Would you please sign and indicate on the form below whether or not this statement is correct. If the statement is not correct, please note the differences on the form below. A reply paid envelope is enclosed for your use. Your prompt attention to this request would be appreciated. Yours faithfully [Name of Auditor] * * * To [Name of auditor] Dear Sir/Madam [Name of agent s practice] The balance of [$amount] on the above agent s statement of trust account money held on my/our behalf is: (strike out whichever is not applicable) a) correct; or b) incorrect (complete section below). The correct balance of the monies held by [name of member s practice] on my/our behalf is $. Yours faithfully [Name of client] 6:12

13 6. Compliance audit of a real estate agent s trust account Appendix 6C Example of an agent s written representation to the auditor [Name of auditor] [Address of auditor] Dear Sir/Madam In connection with your audit of the trust account records of [name of agent s practice] for the year ending [year end date] we confirm, to the best of our knowledge and belief, the following representations made to you during your examination. I/We have complied with the requirements of [name of the relevant state Act and Regulation]. I/We have made available to you all accounting records pertaining to the trust account, and other records and files pertaining to the practice and its clients. [Signed] [Name] [Title] [Date] 6:13

14 Small entities audit manual 2013 Appendix 6D Example audit programs The following audit programs are aimed at providing guidance to auditors on the steps involved in the audit of an agent s trust account. It should be adapted to the circumstances of each engagement, and taking into account factors such as: requirements of specific state/territory real estate regulations and law; the adequacy of internal controls within the agent s practice as a whole, and whether these are adequate to ensure that all trust money transactions are properly recorded within the trust account system; the adequacy of internal controls over trust account transactions, and the extent to which these should be tested; the extent to which reliance is to be placed on the internal control system and, as a result, the extent of substantive testing to be performed; and the complexity of the accounting system and associated records. This in turn is affected by the volume and complexity of trust account transactions. For example, where there are few transactions, the records for a particular client may consist only of an engagement letter and a photocopy of the cheque. When there are a large number and range of transactions, individual client trust ledger accounts may be used. Note that the audit program assumes the use of ledgers and journals. Where these are not applicable, appropriate alternative procedures should be performed on the existing records. It is important that auditors become familiar with the Act and Regulations pertaining to their state or territory and ensure that they have adapted the audit program so that they have tested the agent s compliance with the appropriate state or territory legislation. Planning 1. Prepare an audit planning memorandum, summarising the scope and approach of the audit and our understanding of the business. Administration 1. Check that records are properly maintained and filed in an orderly manner. Appointment to act 1. Confirm that the agent has a valid appointment to act in writing signed by the person for whom the services are being provided. 2. Confirm that the appointment clearly identifies the property, for example address of property, title details. 6:14

15 6. Compliance audit of a real estate agent s trust account Internal control 1. Document and assess the internal controls over the following: i. trust receipts ii. trust payments and iii. receipt and safeguarding of client documents. In all circumstances there is a need to pay some attention to the client s internal controls, in particular: Who maintains the records? Is there adequate segregation of duties?( i.e. consideration should be given to who opens mail, banks money and signs cheques) Is there any service independent of those processing/authorising the transactions? Who authorises the opening of bank accounts? What controls are in place over cheques (i,e. Who can issue cheques and are they stored securely)? Does the person in bona fide control sign all cheques or are there other internal controls in place? How secure are the agent s files from fire, theft etc? Are regular back-ups made and where are the back-ups kept? Based on the results of the above controls testing, determine whether internal controls can be relied on. 2. Bank reconciliations i. Review bank reconciliations ensuring the following: bank reconciliations were performed each month within the required number of days after month end large and unusual reconciling items have been followed up there are no recurring reconciling items there is evidence of independent review. Fees and remuneration 1. Confirm that the fees charged by the real estate agent are in accordance with the fees agreed between the principal and the agent. 2. Confirm that only actual costs only are recouped for postage and petty expenses. 3. Confirm that documentation is maintained on the client s files for any fees charged. 6:15

16 Small entities audit manual 2013 Cash receipts testing Select a sample of cash receipts (both trust account and other monies) from the client files and perform the following: i. where the receipt has not been designated as trust account money, review the nature of the monies to determine whether this allocation is reasonable. ii. where the receipt has been designated as trust account monies, perform the following procedures: ensure that the money has been banked promptly before the end of the next business day into the appropriate trust account by tracing to bank deposit slips and bank statements ensure that the trust receipt includes the name and address of the estate agent. iii. ensure that the trust receipt includes: the date on which the trust money is received the name of the person on whose behalf the money was received a description of the transaction the amount and form the money was received in the name of the person paying the money ensure the receipt is signed by the issuer. iv. confirm that the money is banked in the same form as received (for example, that cash is not substituted by a cheque). v. check daily bankings to the bank statement. vi. identify and report deposits from agent s own funds/staff (for example cheques issued from the agent s general account). Cash payments testing Select a sample of payments made from trust accounts and perform the following: i. ensure that before a payment is made from trust, the agent has: obtained the written authority to do so entered in trust records details of the transaction and particulars of any amount due from that person to the agent. ii. ensure that the payment is not for an amount which exceeds the balance of the individual client s trust money at the date of payment; and iii. ensure that payments are for bona fide purposes only (i.e. consistent with the nature of the trust account). 6:16

17 6. Compliance audit of a real estate agent s trust account Cash payments testing iv. verify the payment to the cheque butt or other record which contains the following: the date of the payment the name of the person to whom the payment is made the account in the trust ledger to which the payment is debited a description of the transaction the purpose for which the payment is made if the payment is by cheque, its serial number the amount of the payment (Rule 29). v. ensure the estate agent keeps a register of the trust cheque forms. The register should record the serial numbers and details of the issue and use of trust cheque forms given to, or held by the agent. (Note: if the trust cheque forms are part of a sequence, it is sufficient to record the first and last number of the trust cheque forms. vi. Verify cheque details to the bank statement. vii. Confirm the sequence of cheque numbers issued. Sight any cancelled cheques. Receipt and handling of client documents Where trust money has been received in the form of documents of title, select a sample and perform the following: i. ensure that the receipt is recorded in an appropriate register in accordance with the relevant requirements ii. ensure that the document is securely kept to prevent unauthorised use. Trust account operation 1. For each trust in operation, ensure that the following conditions have been met: i. the name of the bank account includes the words trust account ii. confirm with the bank that it has been notified of the nature of the account and the terms and conditions in respect of the operation of the account iii. confirm that there is no right of set off in relation to the trust accounts. 2. Obtain independent confirmation by way of a bank audit certificate of trust account and investment balances as at the end of the audit period (Refer GS 016 Bank Confirmations). 3. Request the bank to confirm that there are no trust or investment accounts operated by the agent other than those shown on the bank audit certificate. 4. Review trust accounts as at the end of the audit period for debit balances. Where a debit balance exists, refer to auditor s requirements for reporting below. 6:17

18 Small entities audit manual 2013 Trust account operation 5. Check that the financial institution has not credited interest to the bank trust account. 6. Check that no bank or government charges have been debited to the bank trust account. Substantive tests of maintenance of an agent s trust account 1. Select a sample of client files and perform the following: i. obtain details of the movement in the client s trust account as per the agent s records, i.e. opening balances, receipts, payments and closing balance ii. trace each item to supporting documentation, e.g. duplicate receipt or cheque requisition, ensuring that each supporting document has a corresponding entry in the records so as to obtain comfort as to the completeness of the records iii. where there are supporting documents for which no accounting entry has been made, determine whether these have been recorded as being part of general trust money and, if so, whether such allocation is reasonable, given the nature of the receipt or payment iv. with regard to the nature and purpose of the receipt, trace the monies through to the point of withdrawal and ensure the following: that the nature of the payment is consistent with that of the receipt (For example, where the money is received from the client as a prepayment of fees, ensure that this has been applied to the agent s debtors account (i.e. general account) or, where money is received by way of tax refund, this is returned to the client.) that the money has not been held for a lengthy period without the client being given the option to hold the money in an interest bearing account. v. ensure the end balance of the client account is consistent with the sum of the opening balance plus the net amount of the transactions that have occurred during the year. Ledger accounts 1. Ensure the agent has a separate ledger account opened for each client. 2. Ensure that the total of the individual client accounts agrees with the balance of the trust control account. 3 Agree balances to general ledger and bank reconciliation. 4. Ensure that the real estate agent keeps a ledger consisting of separate accounts for: each person on behalf of whom the agent holds trust money and each transaction for which the estate agent holds trust money as a stakeholder or in trust. 6:18

19 6. Compliance audit of a real estate agent s trust account Ledger accounts 5. Ensure that each account in the trust ledger, contains: the name and address of the agent s principal the name of other parties to the transaction (if any) the date of each transaction the name of the person from whom the money was received, or to whom the money was paid the purpose of the receipt of payment, or the amount paid or reviewed and the balance after each entry. 6. Ensure that an account at all times shows a continuous running balance disclosing the amount of money held. Review of journals 1. Test postings of journals to the individual client accounts and the trust control account and ensure narratives are appropriate. 2. Ensure that transfers from one trust account to another are in accordance with the appropriate rules whereby the estate agent must record: i. the date of the transfer ii. the account of the trust ledger from which the money is transferred iii. the account of the trust ledger to which the money is transferred iv. a description of the transfer, indicating the purpose of the transfer v. the amount of the money transferred. 3. Peruse journals for unusual entries, such as transfers between client accounts, and investigate, ensuring the transaction is appropriate and properly authorised and does not highlight a breach, i.e. that a deficiency in an individual trust account has occurred. 4. Ensure that the estate agent keeps and records journals, appropriate to enable adequate details of transactions to be posted into a trust account ledger. This extends to receipts, payments and transfers (Rule 25.) Review of dormant trust accounts Procedures 1. Review the trust account ledger for all trust accounts that have remained dormant during the year. 2. Based on the discussion with the responsible staff member and a review of the client s files, determine the reasonableness of the explanation obtained: purpose of the dormant balance the reason why the balance has not changed during the trust year. (It is important to note that, if no one is reviewing dormant or inactive trust accounts, they constitute good candidates for fraudulent activity.) 6:19

20 Review of dormant trust accounts 3. Enquire about the existence of any unclaimed trust money held in the trust accounts and confirm the requirements of the relevant Unclaimed Money Act have been complied with. Audit conclusions and reporting performed by objective achieved Procedures 1. Prepare a summary review memorandum summarising the findings of the audit. 2. Ensure the preparation of the agent s statement is in accordance with the legislative requirements of each state. 3. Prepare an audit report in accordance with the requirements of the relevant Act.