The £85,000 client-account transfer
You are the finance manager of a 60-person RICS-regulated firm managing 320 residential tenancies. On 30 June the monthly client-account reconciliation shows £2.14m in the bank but £2.225m on the client ledgers: an £85,000 shortfall. You trace it to a transfer on 28 June from the client account to the office account, authorised by an equity partner to cover payroll. He says a property sale completes on 15 July and the money will be repaid then; 'it is a timing issue, not a breach'. Two tenant deposit transfers totalling £46,000 are due on 5 July. The firm's client-money procedure says reconciliations must be signed by a partner and shortages reported immediately. The partner tells you to mark the reconciliation 'reconciling item - pending completion' and not to tell the COLP. You are an MRICS member and the same partner is the firm's regulated principal.
1. Explain the client-money breach and why the partner's 'timing issue' explanation is inadequate.
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Client money must be held in a separate client account for the clients whose money it is and must not be used to finance the firm. Moving £85,000 to the office account to pay payroll means tenant deposits and service-charge funds are missing from the client account. The reconciliation is £85,000 short, so the position is not merely a timing difference: the firm has used other clients' money. Marking it as a 'reconciling item - pending completion' would misstate the reconciliation and conceal a breach. The partner's intention to repay on 15 July does not cure the breach, and it exposes tenants to risk if the sale fails or the firm becomes insolvent. Rule 1 requires honesty, integrity and compliance with professional obligations, including client-money handling; Rule 5 requires me to act in the public interest. I could not sign a reconciliation I knew to be inaccurate. The fact that the partner is the regulated principal makes escalation more difficult but does not change the obligation.
2. What immediate steps should you take, including any steps before 5 July?
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I would not sign or alter the reconciliation to describe the shortfall as pending. I would preserve the bank statements, ledgers, transfer instruction and emails, and put my concerns to the partner in writing. I would require immediate repayment from the firm's own resources, not wait for 15 July. I would check the client ledger to identify whose money is missing and ensure the £46,000 deposit transfers due on 5 July can be met; if not, I would escalate before the due date so tenants are not harmed. I would notify the COLP or, if the partner is the COLP/principal, another director or the board. I would also consider whether the firm's client-money procedure requires notification to RICS and take advice on whether a suspicious activity report is needed if I suspect dishonesty. I would keep my own record of what I did and when.
3. What are your reporting obligations if the partner tells you to stay silent?
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An instruction to stay silent does not override my professional obligations. I would use the firm's whistleblowing procedure and escalate to the board or an independent non-executive if one exists. Because the partner is the regulated principal, I would consider reporting the matter to RICS, explaining the shortfall, the transfer and the instruction to conceal it. Client-money breaches can be notifiable, and a deliberate concealment is more serious than an isolated error. I would also take advice on whether the partner's conduct amounts to a criminal offence requiring a report to the National Crime Agency, and I would not tip off the partner if a SAR is made. I would not accept a confidentiality clause or a settlement that prevents me from reporting. My duty is to protect clients and public confidence, not to protect the partner.