EPMEPM: Best Practice & Legislation

Process Equals Protection

This year, a substantial amount of agency trust account fraud cases have come to light. And it’s not only the industry that’s taking note of these unfortunate criminal misdemeanours; the media are reporting widely on them, heightening the public’s distrust of the wider real estate community.

PROTECTING YOUR agency from trust account fraud should be a core concern of all principals – primarily to protect your clients’ interest, but also to safeguard your own reputation.

There are several ways to minimise the likelihood of fraud occurring within your own agency. Central to prioritising the safety of funds held in trust is the keen management of your trust account using property management software. If you’re unsure about setting up protective systems and processes around trust account management, reach out to software accounting experts who specialise in real estate concerns.

Choose to give staff limited access to bank accounts and trust accounting software. We suggest you don’t give full bank authorities to staff; you must always have control of payments from trust accounts. Consider dual bank approval on all trust transfers.

Systematically conduct audit checks on bank account details to confirm payments as legitimate. Trust account fraud flourishes in lax environments without systems, so remain vigilant with your processes without being paranoid. Your trust accounting software will allow you to print a report detailing any crucial account change details. Some programs, such as REST, have a ‘notify of sensitive change’ function that emails an agency’s Director when any bank account details are changed.

Do not allow individual staff to enter new creditors into your software system, as they could easily be set up with forged details. Ensure that dual approval is in place when entering new creditors.

Basic safety procedures should be observed, such as lodging all bonds directly with the bond board. Additionally, make it a rule that cash is not accepted in your business.

Take full responsibility for the crucial trust accounting of your business and do not rely on staff to be expert. The relegation of this responsibility to core staff who present as trust accounting aficionados is often where fraud occurs. Directors have an obligation to ensure that they have a complete understanding and control of their software system and bank reconciliations. Be wary of your trust account reporting as ‘reconciliation successful’ – this isn’t always the case. Ensure your bank account matches the balance on your bank reconciliation. Note: are there any irregularities such as adjustments or total outstanding deposits? Pay close attention to the legitimacy of any irregularities and be sure to pair them with legitimate transactions or amounts waiting to be banked.

If you sense that trust accounting is not your forte, or perhaps you are pressed for time managing other aspects of your business, outsource this essential function to a reputable trust accounting agency. Outsourcing trust accounting to an expert business enhances the safety of trust account funds for your clients and yourself. Additionally, outsourcing this key function minimises staffing costs in your business, whilst you directly benefit from the experience of experts-for-hire. Alternatively, improve your own knowledge and take steps to engage in Director’s Training to help identify fraud occurring in your agency. Remember, knowledge is power!

Act as soon as you know or suspect fraud has occurred. Remove the party responsible from your business. Trust account fraud is a criminal act which endangers both your clients and your business, so don’t hesitate to involve the Police in proceedings. Unless charged, you can be sure the offender will continue to breach agency and client trust with trust account fraud for years to come.

Report the fraud to your relevant business licensing authority. Be proactive, completely transparent and present your agency as bestpractice in the face of adversity.

Have a reputable trust accounting company correctly reconcile your account, providing you with a detailed report of findings and the actions you must take to rectify the situation.

Contact your insurer to mitigate your losses. If you do not have fidelity insurance in place for your business, ensure you take steps to protect yourself today.

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Natalie Hastings

Natalie Hastings is the Managing Director of Hastings + Co. For more information, visit hastingsandco.com.au.