It is an unfortunate part of the role of a trust accountant. At some stage we will all need to deal with unclaimed trust money. Whether it be unidentified or unknown deposits.

It is most common for unclaimed trust money to occur in Residential Management Trust Accounts. However, it can also happen in Sales Trust Accounts. This article will focus on the process for Property Management. However you can take the same applicable steps and apply them to the sales process.

Steps to Avoid Unclaimed Trust Money

We recommend a unique reference number is issued with every new tenancy. Tenants quote this number when they deposit their rental payments into your trust account. Ensure to discuss this with your tenants at the commencement of every lease. Never issue tenants with the same number! It can lead to trust accounting nightmares and cause you to receipt funds incorrectly.

Using names or addresses may be accepted. However this only works if the tenant remembers to use this as the reference. This system can fail when someone with a different surname pays rent for a property you manage.  You therefore have no way of tracking who this belongs to. The other issue is that as tenants are vacating and you find new tenants. Using addresses as references runs a risk of receipting the new tenants rent to the old tenant and vice versa.

The worst kind of unknown deposits are the ones where the tenant uses “Deposit” as the reference. Or the postcode of the rental premises or their mobile phone number (yes, because we all should know their number).

Some agents will use rent cards, DEFT or deposit books. These are all good way of being able to track exactly who that money belongs to as the reference code is uniquely belonging to one person or entity. But using rent cards or DEFT options are not free and as we’re all aware. Therefore remember we must provide the tenant with at least one free option.

How to Guide to handle unknown deposits in your office

You have received a deposit for the sum of $350 in your trust account with the reference “Deposit”…

  1. You are still required to receipt the funds into the cashbook. Receipt the funds into your Unidentified/Unknown Account ledger. This account is sometimes called ‘Suspense’ or ‘Holding’ Account. This entry is presented on the reconciliation as you will still be able to reconcile to the bank statement for that day.
  2. Try and locate the owner of the funds by the amount (I.e. matching the tenants that pay $350 per week with the deposit and contacting who you think it may belong to. Ask them to prove payment by providing you with receipt of deposit.
  3. You have 40 tenants that all pay $350 per week or you suspect that it might be a partial payment. Try contacting your tenants via bulk email advising them of the deposit made into your trust account and ask them to email you with proof of payment.
  4. If none of your tenants reply to the email then you can try the old fashioned snail mail by sending all of your tenants a bulk mail merge letter asking them to provide proof of payment. Remember that the most common ‘offenders’ of unknown deposits are tenants that physically deposit their rent at the bank teller so perhaps snail mail is a more appropriate way of reaching out to these people.
  5. If you do not receive a response to your bulk letter check your arrears list to see if it is obvious for anyone that may have fallen into arrears by the amount that you are seeking, if you manage to identify the funds this way then you again need to seek proof of payment from the person.
  6. After checking your arrears, all of your tenants appear up to date with their rent and you seek the next alternate method to locating the owner of these funds – the bank. Ask your bank to put a trace on this money to see if they can find the owner and you can allocate it correctly. Bank traces can take a couple of weeks and they should direct any fees to your general account.
  7. The bank trace is unsuccessful, they advise that the person depositing the funds paid over the counter and did not provided a reference. Keep a copy of all your correspondence with the bank as this will form evidence for your audit file.
  8. The unknown deposit must remain in the trust account as someone may stake their claim to this money. Once the funds are 2 years and 1 day old, they are considered ‘unclaimed’ and you will need to forward these funds to the Office of State Revenue (previously NSW Fair Trading) along with an explanation of all the ‘reasonable attempts’ that you have made in order to locate the owner of the funds. Again, you will need to keep a copy of anything that you send to the OSR for your audit file. The onus will be on the Licensee to prove that the funds were handled in the prescribed way and not misappropriated.

Many agents fail to follow this procedure. There have been instances where funds sit in the trust accounts over 4 years and are not dealt with properly. If the funds have been in your account for more than 2 year – get rid of it! You may incur a breach for this on your annual audit report or if you receive a random visit from Fair Trading. They will want a full explanation as to why you fail to remit funds according to the Regulations. Failure to comply with this may result in the Licensee receiving a penalty of up to $5,500.

What do you think of this procedure? Do you have a way of combatting this issue in your office? If so, we would love to hear about it.

~ Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting. She knows the legislation, and the requirements of running a successful Real Estate office. She practiced Real Estate herself for 15 years! Don’t trust just anyone with your trust accounting. Trust End of Month Angels and get back to what you do best – growing your business.