10 Common Trust Account Breaches

05-Dec-2017
No matter how well you prepare for it, when you receive your first breach from your auditor, it may very well come as a shock. 

We are here to help before any potential meltdowns occur.
So we have compiled a list which highlights the top 10 most common breaches from last year's audit results. 
In collaboration with Jane Morgan, from End of Month Angels - The trust accounting specialist, this is our list: 

10 most common breaches:

1. Using non-compliant software
Using software that is not compliant such as Xero, Quicken, Quickbooks and MYOB can result in a hefty $1,100 fine in NSW. At the start of the financial year, double check your software is compliant to avoid this simple, yet costly error. 

2. Not banking your trust money on time
Creating good habits from the outset will ensure you don’t run into any lazy errors – such as holding on to your trust money for too long. Bank your trust money regularly and on time. Trust Accounts need to be reconciled accurately within 10 days from end of month.

3. Failure to reconcile within the prescribed period
Same goes as above, set yourself regular monthly deadlines to avoid a pileup of overdue tasks. Apart from avoiding potential breaches, it will keep your office in better order with more efficient and timely systems.

4. Failure to backup data
As we have covered in previous blogs, it is crucial that you back up your data to avoid losing vital records, which can result in missing information come audit time.

5. Failure to display the words “Trust Account” on source documents 
The auditor enforces the regulations which specify that identifying your trust account documents very clearly and simply with the words “trust account”. This also helps your own administration processes by keeping trust account documents separate from trading account documents.

6. Incorrect bank account name
Your bank account name must match your trading name exactly on all accounts. A simple error such as leaving off the ‘Pty Ltd’ on your trust bank account can mean the difference between a breach-free audit and not.

 7. Transferring Funds from Trust Accounts before funds are cleared.
On a number of occasions, a licensee has received monies from tenants or purchases and transferred the funds out of trust account before it is cleared. Be aware that EFT funds are not cleared for at least 2 days.

8. Failure to keep correct trust records
Regardless of whether your trust account balance is $100,000 or $0, you need to produce accurate trust records when requested. Even if there have been NIL transactions in a particular month.

9. Closing monthly records too early or inconsistently
Another good habit to start at the beginning of the financial year is setting the same date in your yearly calendar for your end of month. It will ensure a consistent end of month process. Breaches occur if you are closing accounts on different dates each month. It results in inconsistent end of month reporting which is not considered “end of month”. For example, closing on the 25th of the month in one month, 27th of the month thereafter and the 29th the month after that.

10. Using unexplained or undefined adjustments to balance monthly transactions
Your auditor likes to see correct, identifiable and explainable adjustments in your monthly ledger that result in a balanced trust account. Any regular undefined adjustments to balance outstanding discrepancies will raise the red flag immediately.

I’M IN BREACH – WHAT NEXT?

Chances are if you are new to trust accounting, you may very likely be called up for a breach in your first 12 months. Don’t let this alarm you! Use it as a learning process. Take the time to understand where your errors occurred. Implement the actions you need to ensure your breach is not repeated. Simeoni has extensive experience with assisting clients to rectify problems from the past. 

Your auditor will instruct you on where your breach has occurred and what you need to do to rectify it. Listen to instructions and ensure you understand everything that is required. Always follow through as most breaches involve a follow up.

It is recommended to ask for assistance from the team at Simeoni with their knowledge and experience as trust account auditors in the lead up to performing the next audit.

You contact the team at Simeoni on 02 9370 0400 or email us at: simeonico@simeoni.com.au



Share:

Please wait... loading