Unclaimed trust funds can cause some serious unwanted headaches and financial penalties. Unfortunately, receiving unknown money into your trust account is a common occurrence.
We need well organised plans and systems in place with our tenants to educate them on using the correct reference. However, every now and then you will need to deal with unclaimed trust funds.
So what to do?
If you follow these steps when dealing with unclaimed trust monies, not only will you hopefully quickly and easily find their home, you’ll save even more lengthy administration time and avoid any penalties from Fair Trading (or equivalent) for holding onto funds for too long.
1. Receipt the funds into your cashbook
Receipt the funds to your Unidentified/Unknown Account ledger (otherwise known as ‘Suspense’ or ‘Holding’ Account). Allocating the funds will ensure you can reconcile at day’s end.
2. Attempt to locate the owner of the funds
This is where the fun begins (cough cough). Check the amount against tenants who pay the same matching amount. Contact those via email who may be a match and if successful, ensure to request a receipt of deposit.
It is quite commonplace that those who allocate unclaimed funds are those who pay their rent over the counter at the bank and hence may do so occasionally without the adequate reference. If you receive no email back, it is likely that the owner of the unallocated funds is one without email access. Send hardcopy letters via the post for those without internet access or email addresses. As per the above, ensure to request a proof of deposit.
3. Check your arrears list
It may be the case that the unclaimed funds are from a tenant who has previously fallen into arrears and is rectifying the situation. Check against your arrears list and if a match, once again, seek proof of deposit.
4. If all else fails, check with the bank
If your attempts to locate the owner of the funds returns no results you should contact the bank and request a trace on the funds. This may take quite some time and incur fees so be sure to be patient and allocate the fees to your general account. Keep all correspondence made with the bank for future reference.
5. If the money remains unclaimed
If all your efforts have failed to bring success, you are required to keep the funds in your trust account for two years in case the owner comes forward in that time. Once the funds are two years and one day old, they are considered ‘unclaimed’ (in NSW) and you need to forward them to the Office of State Revenue along with all your correspondence and ‘reasonable attempts’ to find the owner. The onus will be on the Licensee to prove that the funds were handled in the prescribed way and not misappropriated.
It is important to note, that any funds, no matter how small, need to be handled with the above steps. Painstakingly, that means even amounts of 0.01c, as we all know there is no rounding off trust accounting. Implementing a reference system with your tenants is definitely a recommended way to decrease the amount of unknown deposits.
Mistakes are bound to happen, so we hope our steps to processing unclaimed trust funds helps to ease the pain.
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~ 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 19 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.