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Shining the light on trust accounts

By Staff Reporter
29 August 2013 | 13 minute read

In the past few months, several real estate professionals have been caught committing trust account fraud, damaging the industry’s reputation. Residential Property Manager examines how agencies can protect both themselves and their clients from this problem

Trust account issues have emerged as a point of concern for the industry following the prosecution of several agents in Queensland for fraud.

One agency was hit with a $50,000 fine, while another real estate company and its director were fined $35,000 for illegally withdrawing money from a trust account.

In one shocking case, the Queensland Office of Fair Trading (QOFT), together with the Queensland Police Service, investigated a Brisbane real estate agent’s activities, leading to the agent being sentenced to five years’ jail for misappropriating $412,000 from trust accounts.

A QOFT spokesperson tells Residential Property Manager that the department takes breaches of real estate trust account laws extremely seriously.

“Clients entrust large sums of money to real estate agents and it is vital the public has peace of mind about the money held in trust by members of the real estate industry,” she says. “The OFT will not tolerate misuse of this money.

“The OFT has always proactively monitored property agents to check they are operating trust accounts correctly,” she adds.

The spokesperson explains that by law, each real estate trust account holder is required to have an auditor appointed to audit their trust account and the licensee is required to lodge an audit report with the QOFT each year.

“In addition, the OFT conducts regular spot checks on licensees and the operation of their trust accounts and may also investigate any complaints made concerning trust accounts,” she says.

Executive manager of policy and legal at the Real Estate Institute of Queensland (REIQ) Antonia Mercorella says the recent number of trust account prosecutions is both disappointing and concerning.

“Issues with trust accounts can [no doubt] cause very severe damage to the reputation of the agency in question ... and to some extent, it causes a level of concern amongst the community – but it’s certainly the minority,” she says.

“A majority of real estate agents are doing the right thing, but when these things get reported it can have some impact on the broader industry.”

Recent prosecutions highlight the importance of complying with legislation, she explains.

“It’s one of the most critical compliance issues of all of them because at the end of the day, money is sitting in a trust account and it’s money that’s held on trust and the law imposes very strict obligations [on agents],” she says. “It’s really important to be on your game; it’s not an area where you can afford to get it wrong. The consequences are just too serious.”

Best practice tips
Each state and territory has its own legislation, which governs how trust accounts are to be operated, and it is important that agents remain properly up to date with the laws.

Principal licensees are ultimately responsible for the money they hold in trust for consumers, but there are several steps that can be taken to prevent fraudulent activity.

The QOFT and REIQ recommend the following strategies:
1. Do not have one person solely responsible for the trust account – but do not have too many staff members with access to it either.
2. There should be distinct segregation of duties between staff members involved in the handling of accounts and banking duties and those responsible for following up outstanding rent payments and complaints by tenants and clients.
3. Principals should put checks in place to ensure trust money is banked immediately, reconciliations are conducted monthly and clients are correctly accounted to.
4. Auditors should conduct unscheduled spot checks to identify any potential issues with accounting systems.Principals should also conduct random checks from time to time.
5. Payments in the form of cash should be discouraged to remove temptation and to prevent funds from being misplaced or mixed up with other money.
6. Principals should ensure all staff are well trained in trust accounting procedures and the trust accounting systems they are using. REIQ runs specialised training courses that run through trust account management, legislation compliance and the identification of abnormalities and misappropriation.

Checking and double checking
Melbourne agency Thomson Real Estate uses three levels of checking to ensure its trust account operations are always up to date on legislation and are operating within the law.

“When the money is received by a property manager, there is a process for where it must go, so it can be checked along the way,” says Thomson Real Estate director Anthony Lee.

“There are multiple people involved in the transactions, rather than just one person who is ticking off that it’s been received into the trust account,” he explains.

At Thomson, the receptionist receives the funds, which are then double checked by a second person. The accountant will verify the balances and another party (acting on a rotational basis) will then take the money to the bank for safety and security.

The company accountant audits the accounts on a quarterly, half-yearly and annual basis to check for irregularities, omissions or errors. Once a week and at the end of the month, Mr Lee will check the accounts.

“We are very vigilant in seeing where our payments go, both to creditors and to landlords,” he says. “It’s very much a case of being on top and being involved.

“The main horror of trust accounting is when one person seems to have been almost [entirely] in control of it and if they’re dishonest, they can take advantage of the situation.”

According to Mr Lee, having more than one person capable of doing each role allows irregularities to be picked up quickly and ensures someone is able to step in when required, such as when a staff member is absent.

Ms Mercorella advises principals to look out for any strange behaviour in staff but also to pay particular attention to any complaints from landlords that they have not received their money.

Ultimately, it is about ensuring there are measures in place to prevent trust account fraud from happening in the first place.

“Be an active principal rather than leaving it to others because it’s your licence and trust account that’s on the line,” Mr Lee advises.

However, should evidence of fraud be discovered, REIQ advises agents to immediately notify their professional indemnity insurer and to contact the police or the OFT.


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