I have just had the opportunity to read an interesting case from the Administrative Decisions Tribunal (ADT). In 2008, Member Steven Montgomery brought down a decision in a licensing appeal of Davidson versus the Commissioner of Fair Trading. It was an interesting case not only in its findings, but because it quoted a decision of the Commissioner’s delegate, which shows the thought processes of the Office of Trading.
Mark Davidson was appointed Licensee-In-Charge of Elders Griffiths. He was not the owner of the franchise or of the businesses being operated. He was merely the Licensee-In-Charge. Elders appointed a book keeper to oversee the accounts on behalf of the company.
Property managers in the company were given the standard access to work on a trust account. Through various means, the property manager was able to transfer into her own account $434,000. This was not picked up by the book keeper, nor was it identified in any of the trust accounts audit undertaken by the company auditor.
The property manager was put in goal for two years. The initial decision of the Office of Fair Trading was to disqualify Mark Davidson from holding a licence for a period of five years. He was granted a certificate however to continue working within the industry. The decision was appealed to the ADT and some three years later the decision was handed down.
Member Montgomery quoted large slabs from the decision of Andrew Wilson, Director, Compliance, Office of Fair Trading. Mr Wilson held that it was the Licensee-In-Charge’s responsibility to oversee the accounts and not a book keeper. Although Mr Davidson had also signed off on trial balance reconciliations, he had not checked it against any source documents. Mr Wilson held that this was not sufficient proper supervision.
Mr Wilson went to some length to clearly define proper supervision. After some considerations from the Macquarie Dictionary, he indicated that “proper” meant “accurate”. “Supervision” meant “the oversight of the execution of duties”. Mr Wilson therefore concluded that proper supervision meant that a Licensee-In-Charge responsibility was to “oversee the accurate execution of duties of employees”.
Member Montgomery endorsed this definition. Mr Montgomery’s interesting slant was to also conclude that the establishment of poor policies and procedures may lead to failure to “properly supervise”. Mr Montgomery said that where policies and procedures are in place which increase the risk of theft or non compliance, proper supervision has not occurred.
Member Montgomery believed that the procedures whereby the Licensee-In-Charge merely checked reconciliations and trial balances was not sufficient. Member Montgomery believed that the agent needed to have checked bank statements, cheque butts and other source documents as a means of ensuring that a reconciliation trial balance was correct. Due to this study, and the time that Davidson spent out of the industry, Mr Montgomery reduced Mr Mark Davidson’s sentence to 18 months. This is a reduction in time, however the ADT has upheld the viewpoint of the Office of Fair Trading.
In conclusion, your policies and procedures must be in place and must be such that they ensure that compliance is being effected. Merely signing off on documents is not sufficient. Practices need to be in place to show that all reasonable attempts have been made to ensure that an agency is compliant.
The Davidson case appears to demonstrate the following:
• agencies should be careful in who can sign off on cheques;
• agencies should be vigilant in authority for electronic fund transfers;
• balance sheets need to accompany trial balance and reconciliation been checked off by Licensee-In-Charge;
• random audits of cheque butts, EFT transfers and other documentation need to be undertaken by the Licensee-In-Charge;
• a bond reconciliation needs to occur to ensure that all bonds have been lodged with the Rental Bond Board; and
• source documents should also be initialed by the Licensee-In-Charge.
Strata Managers carry far greater amounts in a trust account than any other agent. Leverage is experiencing a number of clients who have experienced good employees who have for different reasons needed to “touch” the trust account. We are not talking about effective employees, but loyal employees for a number of years. We are in the middle of a financial holocaust, and these are the times that Licensees-In-Charge and those who own businesses, need to be internally vigilant.
If you require a health check or any full assessment, please contact the office of Leverage Australia. We have people who are experienced in this area and can provide assistance to you if required.
Until next time
Bailey Compton and the team at Leverage Australia and The Australian College of Professionals
