An emerging trend in the industry is stealing from the Trust Account. Statistics coming from the Office of Fair Trading demonstrate that Trust Account defalcation is on the rise. Defalcation is where money has been taken out of the Trust Account without authority. What is even more frightening is that it is not those who control the Trust Account who are the thieves. The emerging trend is for employees or business partners to have “touched up” the Trust Account.
In the first quarter of this year, Leverage has worked with three clients where employees, fellow directors or family have manipulated the Trust Account so that money ends up in their personal account. On all occasions, these people were trusted, good operators and what can only be called “good people”.
Fears associated with the financial holocaust are probably at the root of this problem. People who are struggling with the most basic problems of paying their rent, credit card or just to put food on the table, have created the class of good people who do bad things.
Section 31 of the Property, Stock and Business Agents Act 2002, requires the Licensee-In-Charge be appointed for every corporation and every place of business. Section 32 goes on to require the Licensee –In-Charge to demonstrate proper supervision. Proper supervision is not fully defined but is outlined in Section 32 to include:
a. the Agency having a policy manual;
b. the agency having mechanisms to ensure the policy manual is followed; and
c. oversight of staff.
The Licensee-In-Charge bares the total responsibility for ensuring that staff comply with laws. George Bushman’s disqualification from holding a licence in 1998 is clear evidence of the burdens placed on Licensees-In-Charge. George was a licensee of 35 years experience who engaged a hot property manager. The property manager was not just hot in terms of her performance but was a quote “hot chick”. George was captured with her charm and influence and merely followed her instructions on the signing of cheques. Among the many cheques that George had signed, $164,000 over a period of time, went to the “hot chick”.
The comments from the Magistrate in the Licensing Court were interesting to say the least. The Magistrate indicated that George was an “honest” man, but lacked the “ability” to oversee his staff. The Magistrate believed that it was a fundamental obligation of a licensee to be able to oversee staff. It was not George’s dishonesty that caused the problem, but his inability to protect the Trust Account against staff. George lost his real estate licence for three years. Unfortunately, the cost of running the case and loss of family, friends and reputation, culminated in George never returning to the industry.
Licensees-In-Charge – it is your responsibility. To merely sign off reconciliations and trial balances at the end of the month, or just sign cheques as presented by staff, may leave you in a vulnerable position. We suggest the following:
• Examine your reconciliations and trial balances before signing;
• Undertake a bond reconciliation each month to ensure that all bonds have been lodged. A bond reconciliation requires that the licensee in charge looks at the numbers of bonds that should have been lodged against those that have been lodged with the Rental Bond Board. This can be done by simply checking the number of residential properties listed on your practice data base against a print out from the Rental Bond Board.
• Investigate arrears. Always check the under 14 day arrears. The best place for a person to take money on rent is where the tenant would never know about it. If the rent arrears are below the 15 day limit, the tenant will never find out about their rent being siphoned off elsewhere. Investigate a cross section of these properties to ensure that money is not disappearing.
• Do random checks. On an irregular basis, licensees should look at 5 to 10 deductions from the trust account. The agents should investigate what authority exists to take that money; who the money went to and the simple check through to the bank to ensure that the money has gone to that destination.
This is not foolproof. No system is foolproof because criminals for years have been able to outsmart everyone. If you are a Licensee-In-Charge who is a sales person and does not like paperwork, employ a book keeper who is capable of doing this for you. If you do employ a book keeper, sit with them on a monthly basis to do what we said above.
It is your license! It is worth protecting!
Until next time Bailey Compton & The team at Australian College Professionals
