Trust Account Handbook

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Government of Western AustraliaDepartment of Commerce

Settlement AgentsTrust account handbook

November 2013


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Disclaimer

This booklet contains general information that was currentat the time of publication. If you have specic inquiries about

matters relating to your situation then you are strongly urged

to seek independent professional advice. The producers of

this publication expressly disclaim any liability arising out of a

readers reliance on this publication.

This publication was produced by the Consumer Protection

Division of the Department of Commerce.

This publication is available on request in other formats to assist

people with special needs.


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SETTLEMENT AGENTS TRUST ACCOUNT HANDBOOK

1

Table of Contents

Introduction ................................................................................................................ .3

Using this publication ................................................................................................. .3

Further information .................................................................................................... .3

Part 1 trust accounting .................................................................................................4

1.1 What is trust money? ....................................................................................... .4

1.2 What is meant by trust accounting? ................................................................. .4

1.3 Why are there special requirements within the Act for the control

of trust money? ................................................................................................ .4

1.4 What happens to the interest on trust accounts? ............................................. .4

1.5 Types of trust accounts .................................................................................... .5

General trust accounts ..................................................................................... .5

Interest bearing trust accounts ......................................................................... .5

1.6 Quotation of tax le number (TFN)................................................................... .5

1.7 Titling of trust accounts .................................................................................... .5

Titling of general trust accounts ....................................................................... .5

Titling of interest bearing trust accounts .......................................................... .6

Licensed entity ................................................................................................. .6

1.8 Receiving and depositing trust money ............................................................. .6

1.9 Opening, closing and amending trust accounts ............................................... .6

1.10 What trust documents and records must be maintained? ................................ .71.11 How long must trust records be retained? ....................................................... .7

1.12 What use is made of the documents and records? .......................................... .7

1.13 Fees and disbursements .................................................................................. .8

Recovery of disbursements cost-recovery only ............................................ .8

1.14 What must an agent do on becoming aware that a trust account

is overdrawn? ................................................................................................... .9

1.15 Aspects of computerised trust accounting ...................................................... 10

Part 2 trust documents and records ..........................................................................11

2.1 Principles of trust account practice ..................................................................11

2.2 Trust receipts ...................................................................................................11

Trust receipt process ........................................................................................11

Trust account receipts ......................................................................................11

2.3 Interim receipts............................................................................................... .12

2.4 Trust deposit forms ........................................................................................ .13

Bank deposit form .......................................................................................... .13

2.5 Trust account withdrawals .............................................................................. .13

2.6 Cash receipts journal and cash payments journal ......................................... .14


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2.7 Trust ledgers .................................................................................................. .15

Sample ledger ................................................................................................ .16

Transfer duty .................................................................................................. .16

2.8 Buffer account ................................................................................................ .17

2.9 Trust account transfer journal entries ............................................................. .17

2.10 Recording withdrawals of fee entitlements..................................................... .18

2.11 Balancing a trust account at the end of each month ...................................... .18

Balance per bank statement .......................................................................... .20

Add outstanding deposits ............................................................................... .20

Less unpresented cheques ............................................................................ .20

Balance per trust cash at bank....................................................................... .20

Example: Trust account reconciliation statement .......................................... .21

PART 3 TRUST ACCOUNT AUDITS ............................................................................22

3.1 What are the annual duties of an agent regarding trust account audits? ....... .22

3.2 What are an agents duties in appointing an auditor? .................................... .22

3.3 What are an agents responsibilities to the auditor? ...................................... .23

3.4 What are the duties of an auditor? ................................................................. .23

3.5 How should an agent respond to an auditors recommendations? ................ .24

3.6 What are an agents duties in changing an auditor? ...................................... .24

3.7 What is a quarterly audit? .............................................................................. .24

3.8 What if a settlement agency closes?.............................................................. .243.9 Unclaimed trust money .................................................................................. .25

PART 4. PREVENTING THEFT AND FRAUD ..............................................................27

4.1 Early indicators of theft and fraud .................................................................. .27

4.2 Computer systems ......................................................................................... .28

4.3 Bank reconciliations ....................................................................................... .28

4.4 Transfer journals ............................................................................................ .29

4.5 Receipt books ................................................................................................ .29

4.6 Agency management ..................................................................................... .29

4.7 Cash payments or cheque payments............................................................. .29

4.8 Trust account management ........................................................................... .30

4.9 What must an agent do on becoming aware of fraud or theft? ...................... .30

Glossary ................................................................................................................... .31


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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 agents 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 sufcientto 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 www.commerce.wa.gov.au/consumerprotection/settlement

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 agents duties and responsibilities relating to trust account audits.

Part Four looks at recommended practices for reducing theft and fraud within a settlementbusiness

Further informationAdditional copies of this publication can be downloaded free of charge from the Consumer

Protection website at www.commerce.wa.gov.au/CP/Auditors

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 Consumers

Protections auditing requirements.

Archived issues of the Settlement Agents Newsand e-Bulletins are available in the websites

publication section. Visit www.commerce.wa.gov.au/ConsumerProtection/Settlement
http://www.commerce.wa.gov.au/CP/Auditorshttp://www.commerce.wa.gov.au/CP/Auditors


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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 certicate to maintain

one or more trust accounts exclusivelyfor 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 duciary responsibilities in relation to trust account management. It is

essential to remember that trust account money belongs to other people. The removal of moneyfrom 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 agents 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 (denitions)

1.2 What is meant by trust accounting?

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 certicate must maintain one or more trust accounts.All trust money must be held in a trust account in the agents name with an authorised nancial

institution. Prescribed nancial 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 signicant 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 requirementsincrease public condence 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.


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1.5 Types of trust accounts

General trust accounts

The Act requires that a licensed agent holding a current triennial certicate 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 les for auditing purposes.

1.6 Quotation of tax le number (TFN)

When opening an interest bearing account in trust for a client, the clients tax le 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 identication of settlement trust accounts for agents,

auditors, nancial 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 certicate.

SA TRUST A/C (the word Account can be abbreviated or in full).

TC followed by triennial certicate number of the licensed entity (up to ve digits).

Example

ABC Pty Ltd (ABN 12 345 678 912) T/A XYZ Settlements

SA TRUST A/C TC 12345

Note: A licensed entity can be a body corporate, partnership or sole trader.


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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 certicate in trust for theperson making the request.

SA TRUST A/C IB.

TC followed by the triennial certicate number of the licensed entity (up to ve digits).

The words in trust for followed by name of the person who requested the separate account.

Example

ABC Pty Ltd (ABN 12 345 678 912) T/A XYZ Settlements in

Trust for John Smith SA TRUST A/C IB TC 12345

Refer: regulation 6B of the Regulations

Licensed entityA real estate settlement agent and/or business settlement agent licence can be granted to a natural

person (individual), a rm (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

certicate.

The person in bona de control of an agency and branch managers must be licensed and hold

a current triennial certicate. If there is a change in the person in bona decontrol 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 rm, with the exception of a new partner, the licence may

cease to have effect. This means the rm 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 nancial 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 notication

must be sent within ve working days.

The notication should provide the name and number of the trust account and the name and

address of the authorised nancial 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 nancial

institution to accept third party cheques.

Refer: section 49C(1) and (2) of the Act


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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 agents auditor or an investigator/compliance ofcer 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, falsication 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 arethen 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

1.11 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 retainaccounting records. Agents who are a body corporate should also be aware of the Corporations

(Western Australia) Act 1990with 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

agents 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


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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 agencys auditor.

Refer: section 49(6) of the Act

Other duties of agents relating to audits are discussed in part three.

1.13 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 agencys 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 agents generalaccount 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 certicate when the services areprovided (section 43(1));

the settlement agent has a valid appointment to act in writing (signed by the person for whomthe services are being provided) before the services are rendered (section 43(1)); and

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 ofthe 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 clients le to

verify the actual expenses were incurred and claimed.

Agents should always keep in mind that the recovery of disbursement expenses is based oncost-recovery only. As labour costs are part of the settlement fee, they are not to be included in

calculating disbursement charges. For example, the agents labour in photocopying cannot be

charged as a disbursement.

Agents sometimes have difculty 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 ve

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).


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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 sufcient period of

time may use that information to work out a at charge to all clients for disbursements. However,

the charge must still be justied 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 at 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 at charge method should keep individual disbursement sheets for a period of time

at regular intervals to ensure charges remain accurate and can therefore be justied.

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.

1.14 What must an agent do on becoming aware that a trust account

is overdrawn?

Section 49C(3) of the Act requires the nancial institution and the agent to inform the

Commissioner whenever a settlement agents 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 notied immediately.

The notication must include the name and number of the trust account and the amount by which

the trust account is overdrawn. The notication must be sent to the Commissioner. This is to be

done within ve 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 itbecomes decient, and to inform everyone who could be affected by the deciency. 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 decient.

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


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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 agents 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 suppliers 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 ofce staff in many agencies,

the licensee is responsible for all trust account records. For this reason, it is essential the agencys

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 agencys licensee should personally check the daily report that is generated and

immediately address any irregularities that may be identied.


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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 allowsotherwise) 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 arerecorded 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 accountshould never go into debit;

agents with computerised accounting systems maintain records in a manner that can beconveniently and properly audited (auditors can advise which documents must be provided in

hard copy); and

back-up computer records are kept offsite.

2.2 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 certicate, and the business name of the holder, that isrecorded in the register;

a number or letter, or a combination of both, in consecutive order to allow the receipt to be

uniquely identied;

the date the money was received;

the name of the person paying the money;


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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 thesignature 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 identied, by including:

a number or letter, or combination of both, in consecutive order that allows the record to beuniquely identied;

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 12 345 678 912T/A XYZ Settlements

Licensed Real Estate Settlement Agent Trust Account Receipt

16 Horizon Street, Perth 6000 No: 00001

Date ........./ ........... / .............Received from ........................................................................................................................

Address ..................................................................................................................................

The sum of .............................................................................................................................

For ..........................................................................................................................................

For and on behalf of ABC Pty Ltd ABN 12 345 678 912

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 agents 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


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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 nancial institution;

the name and number of the agents trust account; and

if the money is paid by cheque, the name of the drawer and the name and branch of thenancial 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 ofce receipts: 1642 1649 $6,471.00

West branch ofce receipts: 1974 1976 $267.48

Total deposit $6,738.48

The trust account deposit book should be clearly identied to distinguish it from the agents general

account deposit book.

2.5 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 markedNot 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 decontrol 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 decontrol to be a compulsory signatory and in this case,


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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 sufcient cleared funds to cover the payment that is to be made. If the money has been

paid by cheque, allow sufcient time for the cheque to clear before drawing on it. Check with thebank 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 thepayment is made.

The below example shows the minimum information that should be shown on a cheque butt or on a

computer printout:

Date: DD/MM/20XX

Payment to: Registrar of Titles

Reason for payment: Registration fees for File # 154/03

Amount: $16

Cheque Serial Number: 767110

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 accountcash journals must contain sufcient 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 agents auditor.

Recommended information to be recorded in the cash receipts journal includes:

date;

receipt number;

from whom money was received;

trust ledger reference;


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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 agents

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:

individual client trust ledger accounts must show a continuous running balance in order todisclose each clients entitlements at any time (it is not sufcient 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 eachtransaction 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 sufcient); and

all client trust ledger accounts must contain sufcient detail so the nature of the transactionscan be clearly understood.

Each client trust ledger account must contain at least the following information:

the account number;

the name and address of an agents 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;


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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 themovement of money; and

the balance of the account.

A sample ledger layout is shown below:

Sample ledger

Client name Account No:

Address:

Description of transaction:

..............................................................................................................................................................................................................................................................

..............................................................................................................................................................................................................................................................

..............................................................................................................................................................................................................................................................

..............................................................................................................................................................................................................................................................

..............................................................................................................................................................................................................................................................

..............................................................................................................................................................................................................................................................

..............................................................................................................................................................................................................................................................

Date Particulars Jnl Ref Debit Credit Balance

Transfer duty

Money for transfer duty (formerly stamp duty) should be held in a separate ledger within the agents

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 Ofce of State Revenue section of the Department of Finance website at

www.nance.wa.gov.au


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2.8 Buffer account

Agents sometimes maintain a surplus amount within the trust account to absorb any inadvertent

deciencies 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 benet 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 decontrol is responsible for checking each ledger account each

month to determine if specic 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:

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 agents authorisation

of the entry. To reduce the incidence of error or theft, the person in bona decontrol should sign off

all entries in the trust account transfer journal.


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A suggested layout for the journal is as follows:

Trust account transfer journal (general journal)

DR CR

Date Particulars Ledger

reference

Transfer

from

$ c

Transfer

to

$ c

4/8/13 James Smythe

A/C 4403

J1 10,000

4/8/13 John Smythe

A/C 4407

Money

incorrectly

deposited to

account 4003 on

31/07/13

W3 10,000 Person in bona de

controls signature

M Brown

2.10 Recording withdrawals of fee entitlements

Fees can be transferred from the clients 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 clients ledger account to the agent, or transferred to the agents 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.

2.11 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 trustaccount 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;

veried, signed and dated by the agent, or if the agent is a corporation, the person in bona decontrol, even if there are no funds in the account; and

retained for auditing purposes.


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Regular monitoring of trust account transactions and account balances may help prevent the

successful fraudulent transfer of money from a trust account, as the bank may be in time to hold or

reverse the transaction. Agents should ensure they only access their banking details in a secure

environment and all devices have appropriate and up-to-date security software.

In preparing a bank reconciliation, which is a major part of a trust account reconciliation, the agent

should be aware that while the bank also records cash receipts and cash payments, the bank

records it from a different perspective to that of an agent. For example, cash receipts that are

debits in the agents cash at bank account entries in the journal are shown as credits on the bank

statement. Similarly, cash payments appearing as credits in the cash at bank account entries in

the agents journal are shown as debits on the bank statement.

Often, there will be discrepancies between the trust records and the bank statement. Once the

agent becomes familiar with these discrepancies, the process of trust account reconciliation

becomes easier.The procedure for preparing a bank account reconciliation is as follows:

Add the cash column (total) of the cash receipt journal for the particular month (eg March).

Add the cash column (total) of the cash payments journal for the particular month (eg March).

Read the bank statement for the particular month (eg March) and check that the moneydeposited each day went into the bank account. These amounts will be entered as credits on

the bank statement.

Check all the cheques drawn appear in the bank statement and they are all for the sameamount. These amounts will be shown as debit entries. Check also that all cheques appearing

in the bank statement were in fact authorised and issued.

Using a pencil, tick off each entry on the bank statement against the corresponding entry inthe cash journals. Items appearing in the bank statement but not in the cash journal could be adirect deposit. The agent should deal with a direct deposit by issuing a receipt and completing

the details of the receipt, ensuring the date the deposit was actually credited to the account is

shown on the receipt. The agent should enter this information into the cash receipts journal and

credit the appropriate client trust ledger account.

Deposits not ticked in the cash receipts journal represent outstanding deposits and will be usedlater in the bank reconciliation statement.

Cheques appearing in the cash payment journal that have not been ticked are referred to asunpresented cheques and will be used in the preparation of a bank reconciliation statement.

The balance of the bank statement and trust cash at bank ledger (or balance as per trust cash

journal) should be the same after making adjustments for outstanding deposits and unpresented

cheques. If they do not, an error has been made and will need to be identied.

Agents should check:

additions;

all entries from receipts to the cash receipts journal;

all entries from cheque butts into the cash payments journal;

all unpresented cheques have been added together correctly;

all outstanding deposits, including electronic transfers, have been accounted for; and

the bank statement for any bank charges that may have been debited to the trust bank account.


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The agent should ask the bank not to debit the trust account with bank charges because this

will create a deciency. However, banks may inadvertently debit the trust bank account with

certain charges. The agent should deal with these charges immediately and transfer an amount

from the general account to the trust account to cover the deciency if the bank is not immediatelyable to rectify the error. Frequent access to the balance held in the trust account, through means

such as internet banking, allows the agent to identify withdrawals quickly and take action in a

timely manner.

Balance per bank statement

This is the nal balance on the bank statement and it is from this basis the reconciliation will

be made. Bank statements must be received at least monthly. In practice, bank statements are

received more often, even daily in many cases. Note how the bank balance is described with the

term Cr (credit or in funds).

Add outstanding depositsThese are deposits that have been taken up in the trust cash receipts journal (or credit side of the

cash book) but have not yet been taken up by the bank. They are easily identied because they are

deposits that remain unticked after the trust cash receipts journal/cash book and bank statement

have been compared.

Where there is more than one outstanding deposit, a list must be made showing alongside each

deposit the date as disclosed by the trust cash receipts journal/cash book. Outstanding deposits

are added to the balance per bank statement because when these deposits are eventually taken

up by the bank, they will increase the funds held in the agents trust account.

Less unpresented cheques

Unpresented cheques are ascertained in the same manner as outstanding deposits and when

listed, are identied by cheque number as well as amount. Such cheques are deducted because,

when presented to the bank, they will reduce the trust funds in the agents trust account.

Unpresented cheques should be followed up after three months.

Balance per trust cash at bank

If the outstanding deposits are added to the balance per bank statement and the unpresented

cheques are deducted, the resultant gure will be a balance, which should always be a credit at

the bank.


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Example: Trust account reconciliation statement

ABC Pty Ltd T/A XYZ Settlements

Trust Account Reconciliation Statement

as at 31 August 2013

$ $

1 CASH BOOK

Balance brought forward from 31 July 2013 67, 500.00

Add: total receipts for August 52,000.00 119,500.00

Deduct: total payments for August 48,000.00

Balance as at 31 August 2013 71,500.00

2 BANK STATEMENT

Balance as per bank statement 31 August 2013 78,000.00

Add: deposits not credited on FIS Nil 78,000.00

Deduct: unpresented cheques 357 2,500.00

358 4,000.00 6,500.00

Total trust money at 31 August 2013 71,500.00

3 CLIENTS TRUST LEDGER BALANCES

Total of attached listing of ledger balances as at 31 August 2013 71,500.00

Signed: M BROWN XX/XX/20XX

Section 49(6)(d) of the Act, provides that a settlement agent must correctly balance the accounts at

the end of each month and certify in records this has been done.

Trust reconciliation statements, including related bank statements, must be retained as they form

part of the trust account records.


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PART 3 TRUST ACCOUNT AUDITS

3.1 What are the annual duties of an agent regarding trust

account audits?

Persons who carry on business as a settlement agent must cause the trust accounts to be audited

by the approved auditor and the audit report lodged with Consumer Protection (section 51(1) and (3)

of the Act). If the agent has not held any trust funds during the year, then the agent is not required to

have an audit and must instead lodge a statutory declaration to this effect (section 67 of the Act).

All audit reports or statutory declarations (as appropriate) are required to be lodged within three

months of the end of each audit period. For most settlement agents, the audit period ends on

30 June of each year, which means that the audit report or statutory declaration must be lodged by

30 September. It is the auditors responsibility to deliver the audit report to Consumer Protection.

Penalty: $3,000 neRefer: section 51(3) and section 65(1)(b) of the Act

3.2 What are an agents duties in appointing an auditor?

Before an agent can receive or hold any trust money the agent must appoint an auditor.

To audit an agents trust account, a person must be a registered company auditor, under Part 9.2

of the Corporations Act 2001(Cth). In regional areas where no qualied company auditors are

available, Consumer Protection may approve another person with appropriate qualications as

an auditor.

To comply with section 53(3) of the Act, an auditor must disclose to the Commissioner anyrelationship by blood or marriage, or any business dealing, with the settlement agent. Agents should

ensure their auditor is aware of this requirement, and are encouraged to notify the Commissioner as

well, if any relationship exists. Consumer Protection will consider each instance of disclosure on a

case-by-case basis.

Where an auditor is related to an agent by blood or close relationship, there is a clear conict of

interest that could compromise the auditors independence. Where an auditor has business dealings

with an agent, the Commissioner will consider the facts in each case. Generally, the Commissioner

will disqualify an auditor where that auditor also acts as the agents general accountant.

Section 56 of the Act allows Consumer Protection to disqualify an auditor from acting for an agent

if it believes there is just cause. A disqualied auditor can apply in writing to the Commissioner for

Consumer Protection to request the decision be reconsidered. For disqualication to be reversed,

the auditor needs to show that any business dealings with the agent have ceased or establish

that there are no longer reasons for concern regarding independence. The disqualied auditor may

also apply in writing to the State Administrative Tribunal (SAT) to have the decision reviewed under

section 23 of the Act.

In certain circumstances, for example in rural areas, a suitably qualied auditor may not be

available. In such cases, Consumer Protection may notify the agent of its intention to disqualify the

auditor and the agent is then given the opportunity to outline the reasons why the auditor should

be retained.Refer: section 53(3) of the Act


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3.3 What are an agents responsibilities to the auditor?

As part of the audit process, the agent is required to prepare a statement of trust account money

held for the auditor. This statement should show details of all money held for or on behalf of any

other person, as well as deposit receipts and negotiable or bearer securities in the name of the

agent, which represent money drawn from the agents trust account. The statement made by the

agent must be veried by a statutory declaration.

As part of the audit process, the auditor will request a copy of the completed checklist and report

provided by Consumer Protection for any proactive compliance visit/s conducted during the audit

period. This may assist the auditor in reviewing any compliance issues noted at the time of the

proactive visit.

In the statement to the auditor, the agent is required to provide full details of the trust accounts

held, including:

details of the names, account numbers and nancial institution name and branch name wherethe trust accounts are maintained (this reporting requirement also applies to clients separate

interest bearing trust accounts); and

the reconciled balance held in each trust account as at the audit date (including those closedduring the audit period).

After examining the prepared statement, the auditor will certify the document and return a copy

along with a copy of the audit report to the agent. A copy of the agents declaration and statement

of trust account money held is required to be attached to the audit report and submitted to

Consumer Protection.

All trust account records must be made available to the auditor at every audit, or when the auditorreasonably requests.

Refer: section 58 and section 61 of the Act

3.4 What are the duties of an auditor?

An auditor must audit trust accounts in accordance with accepted auditing practice, including

selective testing when the auditor considers it appropriate. The auditor must also be satised the

trust records are kept in accordance with the requirements of the Act. The audit of an agents trust

accounts is a compliance audit, where materiality does not apply and the auditor is to report every

discrepancy to Consumer Protection.

The auditor must determine if any proactive visits or investigations by Consumer Protection staff

have taken place, obtain a copy of correspondence from Consumer Protection and address any

issues raised in a management letter accompanying the audit report.

On completion of an audit, the auditor is required to deliver the original audit report to Consumer

Protection. Generally, the audit report must be delivered to Consumer Protection by 30 September

each year ie within three months of the end of the audit period, which is from 1 July to 30 June.

It is the duty of the auditor to report any relevant issues to Consumer Protection. The auditor is also

required to provide copies of any management letters issued to the agent and attach these to the

audit report.

Consumer Protections publication,A guide to auditing settlement agents trust accounts,can assist

auditors and agents in understanding the requirements for an audit of an agents trust account.

Refer: section 51(2 ) of the Act


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3.5 How should an agent respond to an auditors recommendations?

An agent must promptly implement any recommendations made by the auditor where the

recommendations arise from a breach of the Act. The Commissioner looks upon any breaches of

the trust account provisions seriously.

If an agent considers the recommendations to be unfair or unreasonable, the agent may make a

request in writing to the Commissioner to reconsider the recommendations in light of the objections.

3.6 What are an agents duties in changing an auditor?

Under section 54(3) of the Act, an agent must continue to employ the statutory appointed auditor

unless the Commissioner approves a change in the appointment. Agents seeking to change their

statutory appointed auditor must lodge an application with Consumer Protection no later than one

month after the end of the year of being audited. Applications for a change of auditor will not be

accepted after this time due to the proximity with the due date for provision of the annual audit.For example, where the audit period expires on 30 June 2013, an application must be received by

31 July 2013.

All agents seeking to change their statutory appointed auditor must complete a Change of Auditor

request form (www.commerce.wa.gov.au/CP/Auditors) and return this to Consumer Protection.

The Commissioner does not consider delays caused by a change in the appointment of an auditor

as an acceptable reason for granting an extension of time for the submission of the audit report.

Further details on these points can be found on the Consumer Protections website,

www.commerce.wa.gov.au/CP/Auditors

3.7 What is a quarterly audit?

Section 51(8)(a) of the Act provides for an interim quarterly audit to be conducted on the

settlement agents trust account for the rst three months they conducted business. The auditor is

required to deliver the audit report to the Commissioner within two months after the end of the rst

three months of trading.

In some circumstances, the Commissioner may approve combining the interim audit with the

annual audit. Section 51(9) of the Act provides for the Commissioner to waive the requirement of

an interim audit where appropriate.

3.8 What if a settlement agency closes?The closing of a settlement agency can be a complex matter. Some guidelines are provided on

page 25 but it is recommended the agent seek legal and accounting advice to address all of the

issues involved.

If the business is licensed as a partnership or body corporate, written notication of the date of

closure and surrender of the licence and triennial certicate of the business must be given to the

Commissioner.

If the business is being conducted by a sole trader, written notication of the cessation of use of the

business name must be given to the Commissioner and the Australian Securities and Investments

Commission (www.asic.gov.au), who now has the responsibility for the registration of businessnames. The agents triennial certicate should also be returned to the Commissioner.


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As well as advising Consumer Protection, the appointed trust account auditor must be advised of the

closure of the business. All current clients of the business should also be notied.

In addition:

Where there is a change of the entity which owns the business, and transfer or closure of abusiness, a termination audit must be carried out within three months of the change occurring

(ie when the triennial certicate ceases to have effect) and the auditor must deliver a termination

audit report to the Commissioner within two months after the end of the three-month period.

If funds held in the trust account cannot be disbursed within three months following the closureof the agency, they may be disbursed to another agent or solicitors trust account provided there

is written agreement from the parties who own the funds, which authorises the agent to deal with

the money as instructed.

If funds are still held in the trust account after a termination audit report has been delivered

to Consumer Protection, the auditor is required to deliver a nal clearance letter to theCommissioner when the trust account has reached a nil balance.

If unclaimed money remains in the trust account, they may be disbursed in accordance with theprovisions of the Unclaimed Monies Act 1990(see 3:9 Unclaimed trust money).

All accounting records must be kept for not less than six years from the date on which themoney was received.

Refer: section 51(8)(b) of the Act

3.9 Unclaimed trust money

An agent must notify the Western Australian State Treasurer (the Treasurer) of any unclaimedmoney 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 notication should be provided to the Treasurer no later than

31 January in the succeeding year.

The Unclaimed Money Act 1990provides for voluntary payments to be made 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 nalised, the Department of Treasury (Treasury) will accept unclaimed money that

has been deposited for less than two years.

Treasury requests agents note the following points when making a payment:

one transfer to be made in the middle of June; all money in that transfer must have been held, unclaimed, for at least two years (exceptional

cases may apply, such as when an agent ceases to operate); and

Treasury must be provided with a covering letter, a cheque for the amount being transferred andthe following payment information:

name of the owner of the money (Treasury may not accept money where ownership is in

dispute or unclear, eg the agent should not list both a seller and a buyer as the owner);

owners last known address (street name, suburb/city);

amount payable;

date cheque issued; and description of the payment.


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Please note, where information is not available, an agent is to state unknown on the covering

letter. Agents should be aware that it is a requirement of section 49 of the Act to keep full and

accurate records of all money received and paid.

For further details, please refer to the unclaimed monies section of the Department of Treasury

website at www.treasury.wa.gov.au/UnclaimedMoney


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PART 4. PREVENTING THEFT AND FRAUD

4.1 Early indicators of theft and fraud

As in any other business, theft and fraud can occur from within a settlement agency. In the majority

of cases, these acts are committed by an employee of an agency and often the person in bona de

control is not aware of the activities of the perpetrator.

Commercial criminals are likely to identify and target organisations perceived as soft targets. A

proactive approach to prevention is essential and there are certain tools and techniques available

to make an agency a hard target (eg advise staff on induction that it is agency policy to refer all

criminal issues to the police).

It is in the interests of the agency and, in particular, the person in bona decontrol to ensure that

proper control and supervision of all staff takes place.

The person in bona decontrol has strong legal responsibilities in relation to the protection of trustaccount money. The agent could even be held responsible for reimbursing money misappropriated

by employees.The person in bona decontrol can help limit the possibility of theft and fraud of trust

funds, and other money, by putting in place some internal controls and early indicators.

If one or more of the following seems familiar, the agency could have a problem:

missing original supporting documents for transactions;

unaccounted for/missing receipts;

altered documents;

outstanding or incomplete account reconciliations;

complaints from clients about delays in receiving money;

long-term unpresented cheques;

balances held in client trust accounts for a long period of time;

deteriorating nancial position of the agency; or

auditors access to people or information in the agency is restricted.

Agents cannot rely solely on statutory appointed auditors to identify theft and fraud in their agency.

A misappropriation may occur well before an annual audit is performed. The auditor also relies on

the accounting work within the agency, which may have been falsied by the perpetrator.

It is recommended that agents discuss internal control mechanisms with their auditor. Some

common measures that can be carried out by the person in bona decontrol include:

making periodic checks on the work of employees;

involving themselves in bank reconciliations;

maintaining control over cheque books and receipt books;

understanding and operating the computer system; and

following-up on outstanding cheques and client balances.

Encouraging a whistle-blowing culture within the agency can also be an effective and relatively

cheap way to encourage honest employees report suspicions of theft or fraud to their superiors.


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4.2 Computer systems

Acts of theft and fraud can also occur in agencies using computer systems. This can happen when

an agent is not familiar with the system in use or does not monitor staff that have access to the

system. The person in bona decontrol needs to pay special attention to the following areas:

creation of new ledger accounts;

complete and accurate processing of receipts and cheques;

use and authorisation of transfer journals;

procedures for dispatch of cheques;

the validity and payment of expenses; and

ensuring there are sufcient funds to cover cheques before they are drawn.

The following are some problems that can emerge from computer systems used by agencies:

The system is down. This obviously causes interruptions to ofce procedures and a delay inthe processing of trust account transactions. It also provides an opportunity for an employee to

advise a client the system is down (allegedly) and issue a manual (interim) receipt. The money

received by the employee is subsequently not brought to account in the computer.

The order that transactions are printed within the ledger. It is possible for a debit balance toappear in the ledger that is not a true debit balance. This may occur when a payment and

receipt relating to a particular trust ledger account occurs on the same day and the computer

prints the payment before the receipt. There are several computer systems available that will

not allow a payment to be processed if the client ledger reects an overdrawn situation or there

are insufcient client funds to cover the cheque.

The person in bona decontrol should be conversant with all computer systems used to maintain

records and accounting systems for trust funds. They should not rely on one or two staff members.

The person in bona decontrol is also responsible for maintaining backup copies of computer

records and ensuring their secure storage offsite, as these records are invaluable, particularly if

there is a theft or re at the agencys premises.

4.3 Bank reconciliations

The trust account is required to be correctly balanced, with the accounting records held within

the agency balancing with the reconciled balance held by the bank at the close of business each

month. Some agents choose to complete this exercise more frequently. Incorrect balances fromthe bank statement have been used to falsify monthly reconciliations and effect a reconciliation

between the cash book, bank account and client trust ledger balances.

The person in bona decontrol needs to:

examine daily receipts against the daily banking to detect any short banking (in which cashreceived today is used to cover up money misappropriated the day before);

periodically check the banking and the procedure for correctly balancing the trust account;

check for false invoices by ensuring the font and other aspects of the invoices are consistent.Original bank statements should be sighted; and

follow-up any warnings provided by the computer system immediately.Regular monitoring of trust account transactions and account balances may help prevent the

successful fraudulent transfer of money from a trust account, as the bank may be in time to hold or


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reverse the transaction. Agents should ensure they only access their banking details in a secure

environment and all devices have appropriate and up-to-date security software.

4.4 Transfer journalsAll journals between trust ledger accounts should be veried.

4.5 Receipt books

Maintain strict control of all receipt books, particularly those that are not in use. This will make

it difcult for a person to issue a receipt improperly and subsequently misappropriate a clients

money. Check deposits against receipts each month and establish receipt cancellation procedures.

4.6 Agency management

The employee who manages the accounts should not be responsible for banking the money. Inlarge agencies, duties should be rotated between employees so that their activities are monitored

by others in the agency. The person in bona decontrol must ensure that duties are rotated

between employees on a periodical basis to avoid one person having sole responsibility of the

computer system. Where this is unavoidable, the work of the employee who has sole responsibility

for the computer system should be reviewed on a regular basis.

Where possible, the person receiving trust funds and issuing receipts should not be the same

person who is charged with the preparation and banking of trust funds. The person in bona de

control should prohibit the use of IOUs by staff and establish procedures for recovering outstanding

money. The licensee should also pay close attention to the division of duties between staff handling

client queries and those involved in the cash transactions. As part of the policies of the agency,

the person in bona decontrol should instruct new employees that misappropriated funds will

be reported to the police immediately and internal control systems, including obtaining copies of

cheques that have been presented to the bank, are in place.

4.7 Cash payments or cheque payments

All payments from the trust account should be by cheque or authorised electronic transfer. All

drawn cheques should have a supporting invoice or documentation. The person in bona decontrol

needs to ensure cheques are crossed Account Payee only Not Negotiable or that bearer only is

replaced with order.The person in bona decontrol should be a compulsory signatory to the trust account, or a system

to review cheques issued on the trust account should be put in place. The person in bona de

control should restrict access to the trust account chequebook. If the agent has any concerns

about the management of the trust account, ask for a printout of the cheques and ensure cheque

numbers are consecutive (sometimes theft occurs when an employee issues or takes cheques

from the bottom of the cheque book).

If the agency operates more than one trust account, and therefore has more than one cheque

book, each cheque book should be readily identiable to its corresponding account. The person in

bona decontrol should obtain copies of presented cheques from the bank to ensure no cheques

have been forged.


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4.8 Trust account management

Trust accounts should not be treated as the agencys general bank account. Section 49(1) requires

that one or more trust accounts are maintained exclusively for the purposes of the Act. Trust funds

should be paid out to the rightful owner as soon as possible after the completion of a transaction.

Disbursements of money from a trust account maintained for the purposes of the Act must be

associated directly with the settlement of a real estate or business transaction that incurred those

disbursements. Agents should draw fee entitlements from the trust account after settlement and

pay them into the agencys general account (from which payments for agency operating costs

and payments to partners/directors can be made). If large amounts of money are held in a trust

account, the risk and scale of the potential theft is increased.

4.9 What must an agent do on becoming aware of fraud or theft?

If an agent becomes aware that money has been stolen from the trust account, the agent must: notify the Commissioner, advising the date on which the theft occurred, the amount involved,

the reason for it and any action taken to correct it;

contact the auditor to conduct a special trust audit to attempt to quantify the amount of themisappropriation and possibly identify the culprit;

notify the police of the misappropriation of trust money and that a special audit is beingconducted;

replace the misappropriated amount immediately; and

alert the agencys professional indemnity insurer.


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GLOSSARY

Act (The)

The Settlement Agents Act 1981(the Act)

Agent

A person who is a real estate settlement agent or a business settlement agent within the meaning

of the Act.

Approved

Approved by Consumer Protection.

Auditor

A person appointed under section 54 of the Act to audit the trust accounts of a settlement agent.

Authorised nancial institution

A bank, a society, or any other body that is prescribed or that belongs to a class of bodies that is

prescribed by the Act.

Bank account

An account kept with a bank, society or other similar body.

Banker

The manager, or other ofcer, for the time being in charge of the ofce of a bank, society or other

body in which any account of an agent is kept.

Code of Conduct

The agents code of conduct prescribe

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