1. Trust Accounting Session 1
Professional Skills 2
Trust Accounting
Session 1

2. What is Trust Accounting
Is the difference between Trust Accounting and Trust Booking???
Trust or Office Accounting is the analysis of the financial reports prepared from the information recorded in your financial records (book keeping).
Not much useful analysis can be assertained from the Trust Account records as opposed to the Office Account where your firms financial performance can be monitored.

3. What is trust account money?
Section 52 of the Conveyancers Licensing Act 2003 (CLA) defines trust money as:
“money received for and on behalf of any person by a licensee in connection with the licensees’ conveyancing business”
Money also means ‘instruments for the payment of money’ (s 3) (cheques, money orders, etc).

4. What you must do with trust money
Once it is established that the money is received certain obligations are imposed by section 53 CLA, these include:-
Must be held exclusively for that person;
To be paid or disbursed only as directed; and
Until paid or disbursed the money is to be paid into and retained in the trust account.
If the money received is in connection with the payment of costs following the rendering of an account or Bill, then it is not trust money.

5. Handling trust money
Money to be invested: (see module 2) This money remains trust money under the control on the licensee.
Money held for third parties such as stamp duties or deposit money is not trust money but ‘money in transit’ (s 53(3)(b)).
Authorised deposit taking institutions is an institution approved by the Director General to hold trust money under the CLA. [listed institutions in Study Guide have been added to and some deleted]

6. Payment of money into the trust account
The trust account is to be held in the name of the licensee or if a corporation, then in the name of the corporation (S 53(1) & (2)).
Clause 24 of the Regulations requires:-
Trust money must be deposited before the end of the next banking day following the day on which it is received; or
If not practicable then as soon as practicable.
Separate Trust Accounts and General Trust Accounts.

7. Withdrawal of trust money for costs
Clause 23 sets out the procedure for a licensee withdrawing costs from the trust account where the licensee must have:-
Made a disclosure of costs in accordance with Division 5 Part 3; (unless section 39 applies)
Delivered a bill of costs or account containing an appropriate notice giving 30 days notice; and
One of the following circumstances set out in Clause 23(5) applies:
The person has authoresses in writing the withdrawal;
The 30 day period set out in the notice has expired; or
If an objection is notified then it has lapsed (clause 12)

8. Licensee’s obligations when maintaining the trust account
The licensee must notify the deposit institution that the account opened is a trust account under the CLA: s 53(6).
Interest paid by the institution is not paid to the licensee but in accordance with the CLA.
The licensee is not entitled to any interest earned on the trust account.
Licensees must notify the Director General within 14 days of the closure of any trust account (53(7)).

9. Licensee’s obligations when maintaining the trust account continued
Once a licensee is aware that a trust account of the licensee is overdrawn he must notify the Director General within 5 days and provide:-
The account number;
The amount that the account is overdrawn; and
The reason why it is overdrawn. (s 56)
Under s 24 a licensee “must account” as soon as practicable for money held in the trust account or notify the Director General (s 92)

10. Keeping trust account records
Section 69 deals with the licensees’ obligations to keep documents and records relating to the conveyancing business.
Section 70 requires those documents to be available for inspection by an officer of OFT.
Part 5 of the Regulations requires records and documents to be kept at the licensees place of business (cl 16(2).
All records to be in English and in ‘viewable form’ (cl 33) and retained for 7 years (cl 32(1)) plus the current year

11. Trust Account Records - Regulations
See Part 5 (trust account records generally) and Part 6 (individual client's trust records).
In Part 6 of the Regulations you are required to keep all documents (listed) relating to the dealing with involving trust money of the individual client in the client's file (cl 31)

12. Access to Records
2003 ACT:-
Section 66: Director General may require information relating to details of any trust account be produced within 7 days
But not for accounts over 3 years !!
Failure to produce - is an offence
100 penalty points penelty

13. Licensees accounting records
SOURCE DOCUMENTS
BOOKS OF FIRST ENTRY
BOOKS OF SUMMARY OR OF SECOND ENTRY (ledgers)
REPORTS (bank reconciliations & trial balances) [see Session 3]

14. SOURCE DOCUMENTS (Step 1)
ORIGINATING DOCUMENTS PRODUCED BY THE ACCOUNTING SYSTEM TO RECORD IMPORTANT DETAILS OF THE
TRANSACTION – created at the time of the transaction
1. CASH RECEIPTS
RESULT IN A RECEIPT AND BANK DEPOSIT SLIP BEING PREPARED
2. CASH PAYMENTS
RESULT IN A CHEQUE AND CHEQUE BUTT BEING PREPARED
OR ELECTRONIC PAYMENT RECORD

15. Disclosure of Costs: Part 3 Division 5
The first action a licensee should take is to prepare a cost agreement (obligatory) and ask for money on account of disbursements (optional).
This results in the issue of a receipt.
Section 36(2) lists the matters that must be disclosed in a cost agreement (see next slide).
Section 37 requires a cost disclosure ‘before or when the licensee is retained’ unless it is not practicable (s 37(2)).

16. What must be disclosed: Section 36(2)
The amount of costs, if known;
If the amount of the costs is not known, the bases of calculating the costs (hourly rates);
The billing arrangements (payable when);
The client’s rights under Part 4 in relation to the hearing of disputes by the Tribunal;
Any conflict or beneficial interest of a kind required to be disclosed by the regulations;
Any other matter required to be disclosed by the regulations.

17. Disclosure of Costs: Division 5
Section 38 requires it to be in writing and s 38(2) sets out the form the disclosure can take (must be in writing).
A cost agreement may take the form of an agreement or contract or a simply a letter disclosing all relevant matters.
Cl 10 requires non-conveyancing work to be disclosed in accordance with Div 5 of Part 3
Cl 11(1) [service of notice under s 67 & 11(2) where and how the disclosed in the itemised account requested must be delivered.

18. Effect of non-disclosure of costs
Various rights are given for the protection of clients in the CLA.
Section 41 says:-
If non-disclosure of matter set out in s 36(2) then the client need not pay convayancing costs.
And the licensee cannot maintain proceedings to recover costs.
Under the previous Act if there was non- disclosure the cost question could be referred to the Supreme Court for assessment but not now

19. Summary as to costs requirements
The client has a right to be given information about costs and disbursements;
The client can refuse to pay for your services if there is no disclosure;
The right to notify the NSW Consumer and Administrative Tribunal (NCAT) if there is a dispute about costs (see sections 42 to 51);
There is a need to disclose conflicts and beneficial interests.

20. Receipts for cheques and cash & receipts for electronic transfers.
Need to comply with the requirements of clause 22 CLR (see T2).
Original to be handed to client or retained in file (cl 22(5) & (6)) and a duplicate created simultaneously and retained (cl 22(3)).
If funds are directly deposited then a receipt showing the date of receipt and details need to be prepared retrospectively.
It is suggested that a deposit form should be prepared and stamped by the bank (???).

21. Bank Deposits
Money received on behalf of a client must be paid into an approved deposit taking institution in NSW (s 54). Approved by the Director General.
Clause 21 requires banking before the end of the next day following the receipt of money or as soon thereafter as possible.
Clause 24(1)(b) sets out the requirements of the deposit slip.
A duplicate book to be used and retained by the licensee (cl 24(1)(c)).

22. Cheques and electronic payments from trust
Payments from the trust account can only be made by cheque or electronic funds transfer.
Clause 23 sets out the record keeping required in respect to cheque [usually on the cheque butt] (cl 23(3)) and electronic transfers (cl 23(4)).
Those to sign cheques (cl 29):
Licensee [or director licensee if a corporation]
Up to 2 employee authorised by the licensee.

23. Books of First Entry There are 3 so called books of first entry:-
Cash Receipt Book or Journal;
Cash Payments Book or Journal; and the
Trust Journal.
Sometimes the cash receipts book and the cash payments book are the left and right pages of the one book which is known as the ‘cash book’ (clause 25).
Clause 26 set out to what is required to be recorded in the Trust Journal (Transfers between individual trust accounts)

24. Cash Receipts Book (see T3)
Clause 25 is very precise as to what is to be included in this book.
From the receipt book you obtain and enter:-
Date of receipt;
Name of client on behalf of whom money is received;
Particulars sufficient to identify the transaction;
Amount received;
From whom the money is received;
The ledger account to be credited.
From the deposit book you obtain and enter:-
Total amount of deposit;
Date of deposit.

25. Cash Payments Book (see T4)
Whether the payment is made by cheque or electronic transfer the details to be recorded are the same (cl 23(3) & (4)):-
Ledger to be debited;
Reason for which cheque was drawn;
Person to who cheque is paid;;
Number of the cheque; and
Amount of the cheque.
The pages in the cash books and the entries themselves must be consecutively numbered.

26. Bank cheques as opposed to private
Usually required to complete a settlement of a purchase.
Drawn by the bank on its self.
Procedure:-
Check that you have sufficient cleared funds in the respective account (see next slide);
‘Draw’ a trust cheque in favour of the bank for the amount required;
On the back write ‘draw cheque in favour of ABC Pty Ltd for $5,000’ and sign the direction;
Attend the bank and exchange the cheque for the bank cheque supplied by the bank.

27. Clearance of cheques
You would be in breach of section 53 if you draw (claim) against an ‘uncleared cheque’.
Normally 3 to 5 days should be allowed though bank cheques should be sooner.
Computerised accounting programs have an inbuilt ‘limiter’.
Check with your bank if you are uncertain.
You can arrange special clearance on cheques

28. Cancelled cheques and receipts
Clearly write ‘CANCELLED’ on the face of the cheque or receipt and on the butt/duplicate.
Keep the cancelled cheque/receipt in the respective book (stapled). Remove the signature from the cheque.
Enter the cheque/receipt number in the appropriate cash book to maintain sequenceled entries and write the word ‘cancelled’ next to the entry.

29. Adjusting the payment cash book
Replacement of a lost or distroyed trust cheques (see T5);
Dishonored cheques (see T6);
Reversal entry.
Record in the cash payments book as ‘cheque dishonored’;
In the cheque number column you write ‘bank advise’;
Any fees incurred must, by arrangement be debited to your office account not your trust account.

30. Trust Journal: third book of first entry
Provides an alternative method of transferring funds within the trust account.
It allows you to move funds between individual ‘Ledger accounts’ without using cheques and receipts.
Clause 26(1) require the following entries:-
The date;
The amount transferred;
The names of the ledger accounts to be debited and credited;
References and particulars of the transfer.

31. Trust Account Ledger: the book of second entry (see T7)
Clause 27(1) requires a separate ledger card for each client;
Unlike a solicitor’s trust account it is not necessary to have a separate ledger for each separate matter the same client may have.
It is, however strongly recommended that you use a separate ledger card for each matter.
The so called ‘Trust Account Ledger’ consists of a number of individual client ledgers.

32. Trust Account Ledger continued
The individual ledger card must contain:-
The clients name;
Reference and other identifier; and
Details of the transaction.
Each transaction records must show:-
The date of the transaction;
The description of the transaction;
Particulars sufficient to identify the transaction;
The amount of the transaction; and
The resulting balance on the account (cl 27(3)(e))

33. Trust Account Ledger continued
All transactions involving your client (money in and money out) are recorded in the individual ledger card and you can see at a glance what money you are holding.
A trial balance (see later) of the ‘Trust Account Ledger’ against the ‘Cash Book balance’ is a way of making sure your accounts are in balance.

34. Trust Ledger Card Account name: Wilson to Andrews Account No.: 128
Date
200X
Rec’d from or paid to
Purpose
Fol
ref./No
Debit $
Credit $
Dr/ Cr
Balance
Mar 7
Andrews
SD and disb
RCB 23
38,400 21
OSR
Stamp duty
PCB 28
35,400
3,000 28
ABC surveyors
Survey report
720
2,280
One pest
Pest report
220
2,060
Fast build
Building report
450
1,610

35. The Legal convention in communications and record keeping
You always put your clients’ name first when communicating with the other parties representative or writing up financial records.
If you are acting for the vendor, [Mr Smith who was purchasing from Mrs Jones] you would use the reference heading ‘Smith to Jones’.
If, on the other hand, you were acting for Mrs Jones you would use ‘Jones from Smith’.
It is usual to shorten ‘from’ to ‘fr’.

36. Trust Ledger Account in Licensee’s name
Clause 30 provides for two situations:-
Cost clearing account; and
Where the licensee has a direct or beneficial interest in a matter.
In situation 1 the money must be transferred out within 21 days (clause 30(2)); and
In situation 2 the money must be withdrawn at the conclusion of the matter or if rent, interest or installment of principal within 6 months.

37. Trust Account Statements (see T8)
Clause 19 requires the Licensee to provide the client with a Statement of Account that shows the status of the funds held and disbursed.
The statement must be provided (frequency):
Within 14 days of a request (cl 19(2)(a))
21 days of the completion of the matter (cl 19(2)(b)(i); and
On the closure or removal of the ledger (cl 19(2)(b)(ii))
By 31 March and 30 September (cl 19(2)(b)(iii))

38. Trust Account Statements continued
The statement must show:-
The money received and held on behalf of the client;
The disbursement of the money; and
The remaining balance.
A copy of the statement needs to be retained as part of your financial records.
If the statement does not have to be prepared if the account has been open for less than 6 months and in certain other situations.

39. Exemption for the requirements to provide periodic statement; Where:-
The account is open for less than 6 months;
The balance of the account is zero and no transactions have taken place within the last 6 months;
The statement of account has been furnished within the proceeding 6 months and there has been no subsequent transactions; or
The licensee has received notice under sub-clause 19(5) waiving compliance.