Trust account audit issues

The legislation reads:

17 Trust account cash book reconciliation

(1) A principal agent must, within 5 business days after the end of each month- a. Reconcile the trust account cash book balance as at the end of the month with the trust account ledger balances that show-

By Jonathan Hanaghan, Director, Jonathan Grant Accountants

I have been seeing, for some time now, an increase in Office of Fair-Trading activity in reviewing and penalising licensees for breaches to the Agents Financial Administration Act 2014. While some appear to be more serious in nature the focus appears to be educational with warnings common for first time offences. With this in mind I thought it prudent to set out the issues I’m seeing on a regular basis below.

Monthly reconciliations

What a lot of licensees don’t appear to understand is that the trust bank account must be reconciled to the balance on the last day of each and every month. Not the second last day or the first day of the next month but the last of the month. This doesn’t mean you literally have to reconcile that day. You have up to five days following the last day of the month to perform the reconciliation, but it must commence with the bank balance at the last day of the month.

Queensland legislation, Agents Financial Administration Act 2014, requires the bank reconciliation to be performed on the last day of each month.

i. Each trust accounts creditors name; and ii. The amount held on behalf of the creditor as at the end of the month; and b. Reconcile the financial institutions statement balance for the principal agents trust account as at the end of the month with the trust account cash book balance as at the end of the month.

Receipting and banking

This is another area where many licensees are not aware of their responsibilities. While receipting must be done as soon as practical following the receipting of funds, the banking of any cash and cheques has strict rules. All banking must be done either on the day of receipts or the following business banking day. For cash or cheques received on a weekend the OFT allows an extra day with Tuesday being the final day in which these funds must be banked.

Non-trust funds

This will predominately apply for short term accommodation providers when they receipt funds which represent trust funds (accommodation on behalf of an owner) and non-trust funds eg, internet, tours, or meals income. As the non-trust funds are the income of the licensee these funds must be cleared and transferred out of the trust account within 14 days. The OFT have been very strict on this matter in recent years.

Mid-month licensee draws vs mid-month owner payments

I have seen many instances where the licensee has taken mid-month drawings towards their end of month fees and commissions. This is a clear breach unless the funds represent non-trust funds (see above). To take midmonth licensee payments the licensee must perform a full reconciliation (say on the 15th) and ensure that all owners and other relevant payments are made prior to the licensee withdrawing their mandated fees, charges and commissions.

Owner letting agreements

This is another area which causes confusion. All current charges to owners need to be documented within the respective owner letting agreement. This means if you have updated or intend to update your schedule of manager fees and charges you need to update your owner letting agreements. We always advise seeking legal advice from your industry specialist before proceeding.

What your auditor wants

This will vary depending on the auditor and software being utilised. As a general rule the following is a minimum of what needs to be kept in hard copy on a monthly basis and be available to the auditor at each audit:

• copy of the final EOM threeway bank reconciliation on last day of each month (If your system produces multiple three way reconciliations, as part of the month end reconciliation process you should ensure only the final version is retained);

• reports detailing outstanding and unpresented deposits or payments;

• reports detailing any adjustments;

• report detailing monies held in trust;

• all original bank statements;

• copies of all receipts or access to computerised duplicate copies;

• cashbook report; and

• owner’s statements and ledger detail reports.

It is important to ensure that the last six points above support and reconcile with the detail of the final EOM three-way reconciliation.

I encourage all licensees to discuss the above with their auditor to determine if there may be any risk within their current practices or how they may improve the presentation of their paperwork.