Trust Money in the General Account and Cash in the Safe
At a branch in Wellington, the branch manager, Sione, returns from leave to find that the office’s trust account has not been reconciled for two months. The administrator shows him a spreadsheet with a $48,000 deposit from a sale settlement that was banked into the agency’s general operating account “because the trust account transfer limit was reached”. A salesperson also received a $5,000 cash deposit from a buyer and kept it in the office safe for three days before giving it to the administrator. The annual audit is due in six weeks. Sione is unsure whether to notify the REA, the agent licence holder, or the auditor first. He is also worried that the salesperson will be blamed.
1. What are the trust account obligations that have been breached, and who is responsible?
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Client money must be paid into the agency’s trust account, receipted and banked promptly, and must not be mixed with the agency’s general operating money. Trust account records must be kept and reconciled at least monthly, and the account must be audited annually by an approved auditor. Here: the $48,000 settlement money was banked into the general account, so trust money has been misapplied; $5,000 cash was held in a safe for three days without proper receipting and banking; and no reconciliation occurred for two months.
Sione is responsible as branch manager for ensuring trust account systems and supervision in the branch, even though an administrator handled the transactions. The agent licence holder is also responsible for the agency’s trust account. The salesperson who held the cash breached procedures and must be addressed, but the branch manager’s failure to have controls is the supervisory issue. A trust account breach can be a criminal offence as well as unsatisfactory conduct, even if the money is later restored.
2. What immediate steps should Sione take, including reporting and audit obligations?
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Sione should act immediately, not wait for the audit. He should: secure and transfer the $48,000 into the trust account and receipt the $5,000 cash; reconstruct the trust ledger, identify whose money was affected and correct the records; stop any further general-account use of trust money; notify the agent licence holder in writing the same day; instruct the auditor and provide a full account before the audit; consider notifying the REA promptly, because early disclosure and remediation are better than concealment; and document everything and cooperate.
He should not backdate records or shift blame to the salesperson. The annual audit will test the reconciliations and the misapplied funds. The branch manager may face disciplinary action for inadequate supervision; the agency may face audit and regulatory consequences. Remedial steps may mitigate but do not erase the breach. The salesperson’s cash handling should be dealt with separately through the agency’s disciplinary or supervision process.