Section 115 of the PSBA Act 2002

Yawn. Your eyes glaze at the mention of legislation. Everyones least favourite topic. However some of you may appreciate and share my frustrations in this Section of the PSBA Act after reading this article.

I’m of the opinion that recent changes to this part of the legislation have opened a floodgate for compliance issues within the Real Estate industry.

Breaking down the PSBA Act 2002

Section 115 of the PSBA Act 2002 deals with who may audit your trust account. In simple terms, the legislation was amended as of 1st July 2013 to include authorised audit companies and members of certain professional accounting bodies who hold a Public Certificate or Certificate of Public Practice.

I firmly believe that there is only one person that may audit your trust account and that is the role of a qualified Real Estate trust account auditor.

My question is, do you believe that your tax accountant has the skills and knowledge to appropriately audit your Real Estate trust account?

Choosing the right person for the job

On many occasions my own accountant and I enjoy robust discussions on the topic of tax and trust accounting. Just as I do not possess the necessary skills on taxation law, BAS requirements, PAYG, GST etc. my accountant is also not aware of Real Estate requirements and trust accounting legislation. I often seek taxation and accounting advice from my accountant as he is a qualified professional in this area. He also questions me from time to time about Real Estate and trust accounting laws for his own education & knowledge.

The purpose of this article is not dissing accountants for one moment. They have spent many years at University and have earned the appropriate qualifications in their field. There is no doubt that your accountant knows about cashbooks, ledgers, reconciliations and trial balances but does he/she have the in-depth knowledge of Real Estate practices and can they appropriately map your trust accounting activities back to the legislation? For example;

This list only begins to touch on the surface of legislative requirements when auditing a Real Estate trust account.

The Importance of Trust Account Knowledge

My theory of possessing in-depth knowledge of Real Estate, the PSBA Act 2002 & Regulations 2014 was proven a last year when I was visiting a client on a non trust related matter but which coincidentally tied in with their annual audit. The accountant that they had engaged to do their annual audit word for word verbatim asked them if he could “see their cashbook, a couple of receipts, the reconciliation and I suppose I’ll need to see the trial balance as well”.

He also went on to question the client “and you’re not writing any cash cheques are you?” For starters, why would you let the client answer that question as he should be the one checking. I was totally stunned at the lack of knowledge and casual attitude of this so called professional.

Seven months after this conversation with the accountant, the client received a random inspection from NSW Fair Trading. A notice to rectify breaches in the trust account was immediately issued. The accountant failed to detect that the trust receipts did not have the words ‘trust account’ on them, the monthly trust reports were closed and dated 24th & 25th of the month and there was a ongoing discrepancy between the computer trust reconciliation and the actual bank statement balance.

The client subsequently was forced to pay monetary fines but did not disclose what they were.

Where does the Responsibility Lie?

Many will argue that it is the responsibility of the Licensee to ensure that trust accounting activities are properly supervised and meet the requirements of the Act and Regulations. So whilst the actions of this agent are undoubtably questionable, why was the audit signed off with no breaches? In short, because the accountant was not aware of the requirements.

In summary, it is entirely at the discretion of the Licensee who they choose to annually audit their trust account. Despite what legislations says, I will always be of the opinion that agents should seek the professional services of a qualified Real Estate auditor. I just do not believe in taking the risk of a penalty in a random NSW Fair Trading inspection.

Do you agree or disagree with the Section of the legislation? As an agent, do you use a Real Estate auditor or do you use your tax accountant? Are you a tax accountant and have something to add to the discussion. I would love to hear your thoughts.

~ Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. Jane knows the legislative requirements of running a successful Real Estate office through her 18 years industry experience. Don’t trust just anyone with your trust accounting. Trust End of Month Angels and get back to what you do best – growing your business.