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Home > Property agents and managers > Legal requirements > Trust account audits (for auditors)

Trust account audits (for auditors)

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Real estate agents, residential letting agents, auctioneers, pastoral house agents and commercial agents that receive trust money must establish and maintain a trust account that complies with the Property Agents and Motor Dealers Act 2000 (the Act). A key requirement of the Act is for trust accounts to be audited and a report lodged with the Office of Fair Trading (OFT) within strict time limits.

To ensure they comply with the Act and relevant standards, auditors are encouraged to review their risk assessment and testing processes with regard to trust account clients. Significant penalties of up to $20 000 can be imposed for breaches of the Act. In addition, non-compliant auditors may also be reported to the Australian Securities and Investments Commission (ASIC) or to the accounting body of which the auditor is a member. 

Early detection and reporting of irregularities is a fundamental part of the legislation designed to protect the rights and entitlements of consumers and to educate licensees of their responsibilities.

In the prevailing financial climate, auditors must be particularly diligent in their review of trust account bank statements and their scrutiny of disbursement transactions.

The following are examples of unauthorised disbursements where auditors must notify the Chief Executive or they will be liable for enforcement action for failing to do so.

Example 1: Pre-drawing commissions /unauthorised withdrawals

Where an auditor identifies irregularities, including amounts being withdrawn from the trust account by the licensee before they are entitled to them, (i.e. before owners have been paid their share of the rental income net of licensee's fees) the licensee is in breach of the Act and the matter should be immediately reported to OFT.

A licensee's entitlement to use rental income and collect management fees is governed by the terms of their appointment (e.g. PAMD Form 20a for residential letting). These dictate when the owner, and in turn the licensee, is to receive their income under the agreement. Terms are negotiated between the licensee and the owner at the time of appointment and are most commonly agreed to on a monthly basis. However, disbursements may be more frequent, such as bi-monthly.

Where trust monies are withdrawn from the licensee's trust account and paid to either the licensee's general account or to creditors before the licensee is entitled to disburse the amount, the licensee is potentially in breach of the following sections of the Act:

Example 2: Format of audit reports

In lodged reports, some auditors fail to clarify whether large amounts of outstanding deposits or adjustments shown in the bank reconciliation are legitimate. Or if they are figures used to cover deficiencies in trust monies held.

The auditor is required to provide specific details on the cash book reconciliation lodged with the report. These include:

Other issues with audit reports include failing to conduct unannounced visits, failing to give the licensee an original copy of the audit and failing to sign audit reports.

It is the licensee´s responsibility to lodge the audit with the Chief Executive, not the auditor.

Trust account auditors must report to the OFT Chief Executive in the prescribed format and include the required content:

• Section 407 (audit reports)
• Regulation 47 (trust account cash book-reconciliation).

Example 3: Charging more for expenses than actually incurred

OFT is investigating a number of complaints about resident letting agents and the commission, benefit or reward that managing licensees are receiving and not disclosing over and above actual operational expenses. This may include linen and cleaning, pay TV and the like.

Resident letting agency clients must maintain complete transparency in relation to rewards received and commissions charged to those that they act as an agent for. Failing to comply will result in breaches of the following sections:

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Last reviewed 17/07/2012

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