Clients trust the transfer of monies into the hands of various businesses and professionals. And they do this in numerous scenarios. They may trust their transaction to the real estate agent who manages rental properties, or lawyers assisting in a property settlement. Once the client hands over their money, they trust that business to complete the transaction as agreed.
An external audit of a trust account provides checks and balances to ensure that the process is completed correctly and gives confidence to clients.
The specific requirements of an audit for the trust account vary industry by industry and state by state. The general principal is to ensure client money is handled correctly and consistently. However the details will vary. For example, one business may require two interim audits plus a final audit while another business may only require a final audit.
Various penalties apply for any business not in compliance with their auditing requirements, such as lodgement of annual reports to the various government bodies.
Even though a Trust account audit is mandatory for a variety of reasons, there are benefits of going through the audit process. These include:
Trust and Credibility
As a client of the business with a trust account, we must be comfortable that the business will receive and pay money on our behalf as appropriate. Often this may involve substantial sums of money which a client trusts a business to deal with on their behalf. These sums may relate to an individual purchasing their first home via a real estate agent trust account for example, or involve a transaction using a lawyer’s trust account. In any such transactions the clients must trust that their money is going to be managed correctly and achieve their objectives.
The annual audit is a regular event for which clients trust another business to manage their funds. The client knows that an independent professional has conducted an audit to ensure the trust account is being run appropriately. The independent auditor will test the accounting records with the supporting documents to ensure these transactions have been completed appropriately and in accordance with the relevant Act and Regulations.
Compliance & Controls
Businesses running a trust account often see their trust account audits as a burden, something that they have to complete in order to keep their licence and stay in business. Obviously the audit needs to ensure that the Act and Regulations have been met and reporting has been completed within the required timeframe. And the trust account operator must be operating the trust account in good faith and keeping it separate to the general business accounts.
There are many benefits for clients who have money in a trust account. As part of any audit, if managing your trust account, we at Accru would discuss the control procedures for the operation of the trust account with you. If we find a weakness as part of an audit, we will discuss this with you, providing you with insights allowing you to make improvements. Following this, employees of the business can usually completing various functions of the trust account operation to ensure appropriate controls, such as segregation of duties, are in place. And they can reduce the chance of any negative events occurring in the future. Not only will this stop the time and cost involved in fixing any breaches, it will allow the business to keep the trust of the client.
The external audit of a trust account is all about trust between the owner of the funds and the business operating the trust account. The audit allows this trust to continue via independent confirmation that the trust account is being operated correctly.
If you would like more information regarding external audits of trust accounts, please contact your local Accru office.
