Cash Deposit, Early Release and an Unaudited Trust Account
Mere, a salesperson, holds an open home for a property under contract. The buyer hands her $20,000 in cash as a deposit and asks for a receipt. The agency's branch manager is on annual leave. The office manager tells Mere: 'Put it in the general operating account for now - the trust account hasn't been reconciled since the last audit, and we're switching banks.' The vendor has asked for $5,000 of the deposit to be released early to pay for a pre-settlement repair, promising to repay it at settlement. Mere writes a handwritten receipt on a page from her notebook and gives it to the buyer. The agency's trust account was last audited 18 months ago. The office manager says not to worry because 'the accountant will fix it at year-end'. Mere is unsure whether she can release the $5,000 and whether the cash can go into the general account.
1. What should Mere have done with the $20,000 cash deposit?
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Mere should have issued an official agency receipt, recorded the payer, the property, the amount and the purpose, and ensured the money was paid promptly into the agency's trust account. Client money must not be placed in the general operating account, kept in a desk drawer, or treated as the agency's own money. The fact that the trust account was not reconciled or that the agency was switching banks does not change the obligation; it makes proper handling more urgent.
She should also have told her branch manager or the licensed agent responsible for the trust account, even though the branch manager was on leave. The handwritten notebook receipt is inadequate because it does not create a proper audit trail. The office manager's instruction to use the general account should have been refused and escalated. Trust money must be held separately and accounted for, and the agency must be able to show where it is at all times.
2. Can the $5,000 be released early to the vendor for the repair?
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Not on the vendor's request alone. The deposit is trust money held for the transaction, and early release is permitted only in limited circumstances. Mere would need the buyer's informed written consent, the vendor's written request, and confirmation that the sale and purchase agreement allows the payment. The purpose must be proper and documented. A pre-settlement repair that is the vendor's responsibility may be a legitimate purpose, but the buyer is entitled to know that the money is being paid out before settlement and to agree to it.
Mere should not pay the $5,000 simply because the vendor promises to repay it. If the sale fails, the deposit may need to be refunded or dealt with under the agreement, and an unauthorised payment could expose the agency to a claim. She should refer the request to the licensed agent responsible for the trust account and obtain written instructions from both parties before any release.
3. What are the supervision and audit issues raised by the office manager's instructions?
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The office manager is not the licensed agent responsible for the trust account, and their instruction to use the general account is improper. The branch manager or licensed agent must ensure that trust money is received, receipted, banked and recorded correctly. Mere should escalate the matter to that person and, if necessary, to the Authority. She should keep a written record of the office manager's instruction and her refusal.
The trust account was last audited 18 months ago, which is a serious compliance issue. Trust accounts must be audited by an approved auditor at the required intervals, and the agency must act on any audit findings. Leaving it to 'the accountant at year-end' is not acceptable. The agency should arrange an audit promptly, reconcile the account, and correct its procedures. Mere's own obligation is to avoid participating in the misuse of trust money and to report the position through the proper supervision chain.