Businesses that operate a Trust account have strict regulations they must comply with. This is necessary to maintain a trust account and keep the relevant licence. Businesses that usually operate trust accounts include solicitors and real estate agents – basically anyone that holds and deals with money on behalf of clients. If not maintained correctly, trust accounts can become a headache. A poorly maintained account can make it difficult to know what monies belong to clients, the history of those monies, and how they have been invested.
Trust account standards and requirements vary from State to State and industry to industry. The Act and Regulations allow relevant departments to inspect trust account records and impose penalties if any breaches of the Act and Regulations are found.
Given the inherent risk around dealing with other people’s money, an external audit is imperative to ensure all regulations are adhered to. And these audits can assist to keep businesses on track before trust account maintenance becomes unmanageable.
Following are some of the reasons why an annual external audit is necessary for a trust account:
Although every State is different, a business (most of the time) will need a license to operate a trust account. Once the trust account has been opened, the business must comply with the relevant Act and Regulations imposed by the relevant departments. Any breaches of the Act and Regulations may lead to cancellation of the licence and disqualification of the right to operate trust accounts, both of which could be detrimental to the ongoing operations of the business.A Trust account is required to be audited annually (although there are different timeframes for different States and industries) and an audit report is to be submitted to the relevant State Department for review. An audit report is prepared by the external auditor after reviewing the trust account records. An audit report includes the external auditor’s opinion. This opinion relates to whether the operation of the Trust account and associated record keeping complies with the relevant Act and Regulations for that audit period.
Trust accounts are used across various industries exclusively for money received and held by an authorised licensee in relation to trading transactions (sale of property, rental transactions, etc). The licensee is obliged to operate the trust account in good faith. Importantly, money held in the trust account must not be co-mingled with the operating accounts of the business or licensee.An external auditor is acting in a monitoring role to provide independent verification and credibility for the users of the trust accounts. To perform an audit on a trust account the auditor reviews the Trust accounting records and relevant supporting documents and files. These must be provided by the licensee to ensure the funds are held in the appropriate trust account and that the records are maintained as required by the Act and Regulations.
- Prevent Fraud and Error
The requirements for trust account record keeping are strict. An external audit helps to detect any fraud or errors on an annual basis. Any fraud or error found is reported directly to the relevant State department. The State department will rely on the audit report to determine whether a licence can be granted or renewed.
If your business involves dealing with money on behalf of your clients, and you would like more information regarding external audits of trust accounts, please contact your local Accru office.