With all the recent news about serious instances of trust account fraud, we asked CEO of Property Training Solutions Guy Innes to give us some tips for Directors to ensure they stay ‘on the safe side’ and protect their trust accounts.
Trust account fraud: its mere mention is enough to send a shiver down the spine of the most hardened real estate director. Like any business, real estate agencies are open to the potential risk of employee or owner fraud. When you match the huge amount of money cycling through an estate agency’s trust account – received from clients in array of different forms (including difficult-to-track cash) and paid to owners, tradespeople and bond authorities – there are many opportunities for a dishonest staff member to defraud a business. And when businesses and agents are brought to task for failing to manage their trust accounts in line with statutory requirements, waves of concern roll through the community we serve and the industry itself. Weak systems and procedures plus time-poor managers and directors mean that some trust accounts are not sufficiently supervised, making them targets for quick money-siphoning.
Here are a range of ways you can guard against your trust account from coming under dishonest attack, keeping your business and clients safe, and letting you sleep soundly at night.
Staff Checks and Balances
Although larger franchise groups are increasingly establishing systems and procedures to centralise trust accounting and manage higher-risk elements of real estate practice (allowing franchisees to get on with the business of selling and leasing) smaller brands continue to be at risk due to their reliance on core trusted staff and relative lack of time to supervise processes. Vet your staff thoroughly and (where possible) perform a police check (in the ACT a police check as a mandatory pre-registration requirement). Talk to the previous employer of your staff member and ascertain why they left their post. Some agencies would rather move a potentially-dangerous staff member on than report fraud. Create checking mechanisms within your routine procedures so that no employee’s work goes unqualified or unsupervised. Also, keep a keen eye out for accounting irregularities or ‘control weaknesses’ which include unbanked cash monies. Such inconsistencies don’t necessarily mean fraud is occurring in your business – but are indicators of ‘safety gaps’ in your accounting procedures.
Cash is risky business. Where possible, refuse to accept cash in your business. Provide tenants with payment methods that do not involve individual processing by company staff – think about rent cards or BPAY as the primary rent payment method. Rent payments can go astray through incorrect ledger management – either deliberately, or to cover fraud. If cash must be dealt with, make sure it is receipted directly into your software and interim receipt books are avoided. Have cash procedures that are not completed without two staff members cross-checking, and be sure to monitor arrears – tenants suddenly falling behind could be a sign of cash going astray.
Never accept cash bonds, and make sure your business documentation supports your position on no-cash bonds. Where practical, have tenants make their cheques out to the relevant bond authority in your state – take note of the bond lodgement number in your property management software. Ensure both the lodgement AND claim processes involve two staff – and that the tenant having the bond returned to them is verified. Valid supplier invoices must be produced for all bond claims, and bond audits should be executed a minimum of once a year to cross-check the bond numbers against the records you hold.
Payment of invoices to suppliers is a high risk element of trust accounting. Payments to fake suppliers is one of the greatest concerns. Your supplier-approval process should be watertight, and require a minimum of two staff to approve payments, which should preferably be made only by EFT, and the name of the bank account you pay should always match the business name associateds with the suppliers ABN. Whilst it is nice and comfortable to use family and friends as suppliers, this does increase the risks, and where possible, should be avoided. . The process of approving invoices should also be delegated to multiple staff – the person who orders the work, the person who receives the invoice and cross-checks it, and the accountant who pays it should be three different people.
Take all steps to secure your business against fraud – and then insure yourself to make doubly sure. Fidelity Insurance Cover can be obtained from most insurers, and is a non-negotiable when it comes to the safety of your clients and your trust account.