Trust account audits are an important part of Australia’s financial system. They help make sure that money held on behalf of others is managed properly.
Whether you’re a real estate agent, solicitor, credit licensee, or run a business that holds trust money, understanding trust account audits can save you headaches and keep your operations running smoothly.
Why Are Trust Account Audits So Important?
When money is held in a trust account, it means someone else’s funds are being looked after. This could be a client’s deposit, settlement money, or fees collected for a third party. The purpose of trust account audits is to check that this money is handled honestly and legally.
An audit confirms the financial records match the actual money held. It helps catch errors, prevent fraud, and protect everyone involved. Audits also show regulators that businesses are following the rules.
Skipping audits or ignoring problems with trust accounts can lead to serious penalties. These include fines, losing licenses, or even legal action.
Who Needs to Have Trust Account Audits?
In Australia, many different industries must have their trust accounts audited. The rules vary a little depending on the industry, but the idea is the same—transparency and accountability.
Real estate agencies are a key example. They hold deposits and rent payments on behalf of clients. Annual trust account audits are mandatory to prove they’re handling these funds correctly.
Solicitors also manage trust money during legal transactions, such as property settlements. Their trust accounts need audits to make sure client funds are protected.
Motor dealers, credit licensees, and debt collectors who receive money on behalf of others must also maintain trust accounts and submit to audits.
The law applies to anyone licensed to hold trust money. This includes both individuals and companies. If you hold a license allowing you to receive and hold trust funds, an audit is required.
What Does a Trust Account Audit Involve?
An audit is a detailed check of all transactions in the trust account. The auditor examines whether the account was used correctly and if the money matches the records.
They look for missing funds, incorrect payments, or withdrawals made without proper authorization. Auditors check if the trust account was kept separate from other business accounts and if all rules were followed.
Sometimes, auditors may conduct unannounced inspections to make sure everything is in order.
Qualified auditors, often registered accountants with a Public Practicing Certificate, must perform these audits. They must meet strict professional standards set by law.
After the audit, the auditor prepares a report stating if everything complies with the relevant laws and regulations.
Trust Account Audits for Credit Licensees
Credit licensees have special trust account rules under the National Consumer Credit Protection Act 2009. If a credit licensee receives money on behalf of another person while providing credit services, they must hold it in a trust account.
This trust account must be with an authorised Australian deposit-taking institution. The account title must clearly show it is a trust account.
Money in the trust account can only be used for its intended purpose. It can’t be mixed with other business funds or used to pay unrelated debts.
Each financial year, credit licensees must lodge a trust account statement and an audit report with the Australian Securities and Investments Commission (ASIC). These reports are prepared on forms CL70 and CL71.
Deadlines for lodging these reports are strict. Usually, they must be submitted within three months after the end of the financial year. Late lodgement can mean fines or losing the license.
If a credit licensee also holds a financial services license, they must keep separate trust accounts for credit services and financial services.
How to Comply With Trust Account Audit Requirements
To stay on the right side of the law, businesses must keep clear and accurate records of all trust money transactions. This includes every deposit, withdrawal, and payment.
Choosing the right auditor is also critical. The auditor must be eligible and approved under the law to conduct trust account audits.
The audit report and trust account statement must be submitted properly and on time. Many regulators now require online lodgement, which can be quicker and more reliable.
In some cases, businesses may need to provide statutory declarations if they didn’t operate a trust account or didn’t receive any trust money during the year.
Requesting extensions for audit report deadlines is possible, but only with a valid reason and before the due date.
What Happens If You Don’t Comply?
Failing to meet trust account audit requirements can cause serious trouble. Trust account audit penalties in Australia can include fines, license suspensions, or other enforcement actions from regulators.
Non-compliance may also harm your reputation with clients and business partners. Trust is everything when handling other people’s money.
Regular audits protect your business by catching mistakes early and demonstrating to regulators that you take your obligations seriously.
Benefits of Trust Account Audits
Beyond legal compliance, audits help improve how your business manages money. They can highlight areas where your financial controls need strengthening.
Audits reduce the risk of fraud and errors. This protects your clients and your business.
Clients feel more confident when they know your trust accounts are regularly checked by qualified auditors.
Final Thoughts
Trust account audits are essential to protect client money and keep your business trustworthy. Knowing and meeting your audit obligations helps avoid penalties and builds confidence with clients.
Keep good records, work with a qualified auditor, and submit reports on time. If you’re unsure about your duties, seek professional advice early to stay on track and avoid problems.
FAQs
Q: How often do I need a trust account audit?
A: Most industries, like real estate and solicitors, require an annual audit. Some situations may need more frequent checks depending on the volume of trust money.
Q: Can I use one trust account for multiple purposes?
A: No. If you operate under different licenses, such as credit and financial services, you must keep separate trust accounts for each purpose.
Q: What if I didn’t receive any trust money this year?
A: You may still need to lodge a statutory declaration stating that no trust account was operated or no trust money was received.
Q: Who can perform a trust account audit?
A: Auditors must be qualified and registered professionals, such as members of an accounting body with a Public Practicing Certificate.
Q: What if I miss the audit lodgement deadline?
A: Late lodgement can result in fines and possible loss of your license. It’s best to apply for an extension before the deadline if you need more time.
