Know Your Obligations: Cash Book Reconciliation
Mistaking monthly trust account cash book reconciliation obligations with monthly distributions to owners can cause headaches for real estate agents.
Both are very important processes, and while they can be done together, they are not linked – they are in fact, different and separate. Distribution to owners is set in your Appointment to Act (the Form 6), whereas the reconciliation is a process prescribed under regulation.
The Office of Fair Trading (OFT) sees this problem often during its annual compliance spot check program, and the issue often results in enforcement action, including fines. Having a clear understanding of what is required may help to remove some confusion and the risk of being penalised.
Many agents reconcile their trust accounts daily and while the OFT recognises this as best practice, sections 17 and 18 of the Agents Financial Administration Regulation 2014 prescribe a reconciliation must be completed monthly. This reconciliation does not also need to be done with your disbursements to owners.
The regulation stipulates that an agent must reconcile the following balances at the end of every month:
- The trust account cash book balance with the trust account ledger balances.
- The trust account cash book balance with the financial institution’s trust account statement balance on the last day of the month — ensuring all deposits are finalised and the correct balance is available.
The cash book and ledger reconciliation must include each trust account creditor’s name and the amount held on their behalf and the regulation allows the reconciliation to be completed within five business days after the last day of every month, so all deposits are finalised, giving you an accurate monthly balance.
The reconciliation itself must include a number of things. For more information about these talk with your auditor or check out the details listed in the Regulation.
If a reconciliation is completed by anyone other than the licensee in charge, the OFT strongly recommends the licensee review and verify the completed reconciliation within five business days of the end of the month.
More information about trust accounts can be found on the OFT website.