Trust Accounting Guidelines 2018 PDF
Trust Accounting Guidelines 2018 PDF
TRUST ACCOUNTING
GUIDELINES
TA B L E O F CO NT ENTS
1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. TRUST ACCOUNTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
One Person Should Be Responsible For Receiving Trust Cash And Cheques.. . . . . . . . . . . . . . . . . . 8
Post-Dated Cheques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Keep The Trust Money Separate From Other Money Until It Is Banked. . . . . . . . . . . . . . . . . . . . . . . . 9
Payments To Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Payment Authorisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. PERSONAL TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Regular Reconciliations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Monthly Reconciliations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Unclaimed Or Unexplained Balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Reporting To Clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
System Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Controls On Input. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Controls On Output. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
22. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Email Scams. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2. DE F I NI TI ONS
(Section 6 of the Act; Regulation 3)
2.1 In these guidelines, unless the context otherwise requires –
• “Act” means the Lawyers and Conveyancers Act 2006 and section references are to the Act.
• “Regulations” means the Lawyers and Conveyancers Act (Trust Account) Regulations 2008.
• “RCCC” means the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.
• “FTRA” means the Financial Transactions Reporting Act 1996.
• “AML/CFT” means the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
• “Principal” means a sole practitioner, a partner or a director of a law firm.
• Terms defined in the Act or Regulations have the same meaning for the purposes of these
guidelines.
• NZLS is the New Zealand Law Society.
3 . TR U ST ACCOU NTS
(Sections 6, 110, 299 of the Act; Regulations 3, 6)
3.1 A trust account is defined in section 6 of the Act as meaning, in relation to a practitioner or
incorporated firm, “any trust account at a bank in New Zealand that is a trust account in the name of
that practitioner or incorporated firm”.
3.2 Trust bank accounts must be a designated “trust account”, and you must advise the bank and other
interested parties in writing that the money in each trust bank account is trust money.
3.3 You must nominate trust bank accounts (other than Interest Bearing Deposit (IBD) accounts) by
written notice to the bank that holds the accounts.
3.4 You must ensure that the electronic banking facility set up with your bank is the commercial version,
rather than the domestic version.
4. TR U ST ACCOU NT R E CO R DS
(Sections 6, 111, 112 of the Act; Regulation 11)
4.1 Trust account records are the records that a practice must keep in relation to its trust account. The
Act and the Regulations require you to keep trust account records that are up to date, clearly showing
the amount of trust money held for each client, and that are secure against retrospective alteration or
deletion (Regulation 11(2)).
4.2 All entries in the primary records must be accurately dated, include adequate references that identify
their source and destination, and enable them to be traced backward or forward, as the case may be
(Regulation 11(3)).
4.3 The records described in this chapter are necessary to maintain a basic set of trust account records,
suitable for a low volume trust account. A purpose-built software package should be used to deal with
higher/larger volumes. A purpose-built software package will include most of the below records.
Trust account records include:
• Trust account receipt book (refer guidelines 5.5 to 5.6).
• Trust account cheque book (refer guidelines 6.5 to 6.7).
• Trust control account or cash book (refer guideline 4.5).
• Trust account journal (refer guidelines 7.1 to 7.6).
• Client ledger accounts (refer guidelines 4.6 to 4.11).
• Appropriate requisition forms or equivalent.
• Transaction supporting documentation for payments and journals.
• IBD client ledgers and control account.
• Bank deposit supplement book.
• Records of valuable property received and held.
The above is not intended as an exhaustive list of trust account records.
4.4 Unused stocks of trust account receipts, trust account cheque forms and other trust account forms
should be kept in a secure place and details of holdings and usage recorded.
Control Account
Notes:
• All transactions should have a unique reference and brief but meaningful narration.
• When a cheque is cancelled after recording, it should be reversed by recording it in the receipts
column of the control account and in the client ledger account as a credit.
• If a cheque is dishonoured, the unpaid receipt should be recorded in the payments column of the
control account and debited to the client’s ledger account.
Trust Ledger
* = Receipt No.
** = Payment No.
5. TR U ST ACCOU NT T R A N SAC T I O N S – R E C E I PT O F
TR U ST M ONEY
(Sections 110 to 112 of the Act; Regulation 12; refer also guidelines 8.6 to 8.9 on money laundering)
5.1 When you receive trust money, the following steps should ensure that you comply with the Act and
Regulations.
One person should be responsible for receiving trust cash and cheques
5.3 For proper accountability, one person should be responsible for receiving and recording trust money,
and should have custody of that money. This should include appropriately secure facilities, up to the
point when it is handed over for banking. Where possible, the person responsible for receipting trust
monies should not also be responsible for trust account payments.
5.4 Receipts must be completed even where the payer does not request a receipt. If using a manual
receipt book, the top copy receipts should remain in the book if not issued. The receipt must always
be issued (provided to the payer) when the money is received in cash or the payer requests it.
Cash should always be counted in the presence of the payer at the time it is received so there is no
doubt as to the amount received. Best practice would be to require two staff members to be present
while this occurs and for both the staff and client to sign the receipt to confirm the balance.
The receipts must record complete information about the parties involved and on the nature of the
payment as indicated by the layout of the form. Receipts must follow a prescribed format (Regulation
13). The receipt writer should ensure that she/he has sufficient information to complete the receipt
form fully.
If operating a suspense account for unidentified monies, on the day the recipient is identified the
original receipt should be cancelled and a new receipt issued in the payer name. The narration on
the new receipt should include the date on which the monies were originally received. Journaling the
funds to the recipient’s ledger would prevent a receipt being produced if requested.
Post-dated cheques
5.10 Post-dated cheques for the trust bank account should be recorded as they arrive in your valuable
property records or a suitable record.
Keep the trust money separate from other money until it is banked
5.12 Trust money received must be held separately from other money until banked and must not be used
as a means of cashing other cheques.
Payments to institutions
6.8 Where a trust account cheque is paid to an organisation on behalf of a client, that cheque should
specify the name of the client. For example, it should be payable to:
“[Name of institution] for credit of [name of client]”
When paying an institution electronically, use should be made of the reference field to provide the
recipient with as much detail as possible of the party paying the monies. Most institutions will provide
guidance as to the reference numbers to be provided.
Payment authorisation
6.9 The person preparing a payment or batch should ensure that the authoriser has sufficient information
and supporting evidence in respect of the payment to be satisfied that it has been properly set up.
8. PE R S ONAL TR ANSAC T I O N S
Regulation 8 prohibits the use of the trust account for your (or your families’ or employees’) personal
transactions. The exception is in property or investment transactions, which are dealt with as if for
a client i.e. a file should be set up, client care information provided and appropriate transaction
authorities retained.
9. TR U ST ACCOU NT R E CO N C I LI AT I O N S
(Regulation 14)
Regular reconciliations
9.1 You must reconcile the trust account records regularly, as follows:
• Ensure that your receipt and payment records are up to date.
• Post the entries from the prime records (receipts, cheque butts, electronic payment records and
journals) to the client ledgers. Update the ledgers and calculate the day-end balance for any ledger
accounts with new entries.
• Investigate and act on any debit balances or other anomalies.
• Compare the total ledger balances and the control account/cash book totals, then compare those to
the bank balance and identify any difference.
It is preferable to reconcile the trust account daily. It is preferable that this task is separated from the
accounts payable person where possible.
Computerised systems generally provide for daily reconciliations. It is also a relatively simple task
to reconcile manual systems daily, as most transactions are real time (i.e. electronic) and in many
instances the control account/cash book will equal the bank account balance. If there are delayed
items, e.g. unpresented cheques or outstanding lodgements, these would need to be allowed
for. Daily reconciliations should be reviewed by someone other than the person producing the
reconciliation. It is good practice to provide each supervisor with a copy of the day’s transactions for
the authors they supervise.
9.2 Entries in the prime records should be made promptly and be in strict chronological order. Where
there is an error in a manual system, you should neatly cross out the entry and write the correct
version next to it. Each entry should be visible and you should avoid using correctional fluid or tape.
Monthly reconciliations
9.3 You must reconcile each trust account at the end of every month (Regulation 17). The most essential
function of a reconciliation is to check that there are sufficient funds in the trust bank account to meet
the clients’ ledger balances, and that those clients’ ledger balances correctly reflect their entitlements.
The ‘Date of last activity’ field is supplied in most software packages but needs to be added in a
manual system. This prompts attention to any inactive residual balances or those that might require
reporting (Regulation 12(7)). The client ledger listing should be checked for any monies that might
need to be placed on IBD (see guidelines 10.2 and 10.3). If a ‘Date of last activity’ field is not added,
then the practice needs to have some suitable alternative mechanism. Lists of such inactive balances
can be produced by reports in most software packages, occasionally described as a ‘Dormant/Stale
Balance Report’.
Notes:
• Transactions are recorded in the IBD control account and the balance will correspond with the bank
statement for the IBD account.
• Every entry on the IBD control account will be posted to the respective client’s IBD ledger account.
• On final withdrawal for an individual client, the net interest added by the bank to the final
withdrawal will also be recorded as a deposit.
• Monthly/quarterly net interest compounded by the bank must also be added to the individual
IBD client ledger account as per the bank schedule, and the total recorded as a deposit in the IBD
control account.
Reporting to clients
13.1 You must provide to each client a complete and understandable statement of all trust money handled
(both trust and IBD):
• in respect of ongoing activity, at intervals of not more than 12 months;
• in respect of transactions which are not completed within 12 months, at intervals of not more than
12 months; and
• in respect of all other transactions, promptly upon or prior to completion of the transaction.
It may be appropriate to report more often depending on the retainer.
13.2 The report should include opening (or last reported) balance/s, all transactions for the period the
report covers and the closing balance. If there is also a balance in the IBD or in term deposit then that
should be detailed as well.
Third party reports such as RWT certificates or accountant’s financial statements do not meet or
relieve a lawyer’s reporting obligations.
13.3 Unless the client specifically authorises sending to a third party such as an accountant, all reporting
must be sent to the client. Where a client’s understanding is limited, you should (where possible)
account to a person who can represent the client’s interest and stand in the client’s shoes as an
intelligent inquiring owner of the money.
13.4 You must take reasonable steps to avoid situations where the only recipient of a statement or invoice
is yourself or an associated person.
Notes:
• This format will serve for security documents as well as chattels.
• Where a computer system includes a deeds register, that will usually meet the need.
System access
19.3 Many practices now operate networked or cloud-based systems throughout the office thus giving
greater access to the various databases in use. Where this is the case there should be first level access
control by password at the network entry level. Each subsequently available application software
should be considered for password entry control depending on the risk presented by the data held in
that application.
Access to the trust account must be controlled by passwords and should give each person only the
degree of access required for his/her responsibilities. Individuals will normally have defined tasks, and
the access which the system allows each individual should reflect those tasks. For example, the trust
accountant would have authority for the full range of accounting entries but other staff would have
access only for those types of entries that they are authorised to make; authors may be limited to
enquiries only.
Proper procedures must be used in respect of passwords including that they are known to only the
respective users, are changed regularly, are not so simple that they might be guessed by others and
that the passwords of staff who leave are cancelled. Time out closure should be installed so that if
staff leave their computer unattended, unauthorised transactions cannot be made.
Any kind of remote access arrangements (e.g. from laptops or home offices) must be similarly
controlled and be secure against hackers.
Software suppliers support their customers by means of remote access, a telephone helpdesk or by
sending technicians to the site. In either case, communications with the supplier should be authorised
by the Trust Account Supervisor and recorded in a log. The log will give a record of problems and
service calls that can prove valuable in later disputes or inquiries.
Controls on input
19.4 Proper documented work routines and procedures should be in place to ensure that input is complete,
accurate and authorised, e.g.:
• Daily routines, where responsibility for different tasks is clearly allocated.
• If input batches are used they should be checked and totalled before entry.
• An input control record should be in use, to record what has been entered and to provide a running
total to confirm that shown by the computer.
• Staff training in input procedures should be considered particularly when staff change.
Controls on output
19.5 Most trust accounting systems provide a daily summary of transactions, or transaction lists of receipts,
payments and journals are available in the system and should be reviewed for any anomalies or
unauthorised entries. This can conveniently be completed at month end when checking the monthly
reconciliation. Particular notice should be taken of transaction reversals and correction entries.
19.6 Lists of balances and other such information should be periodically distributed to authors so that they
can review the balances for which they are responsible and raise any queries as appropriate.
General
19.8 It is prudent to document the system and procedures as they apply to your office, in a form that
assists with introducing new staff to their role and minimising disruption when a person leaves. Many
software systems provide the core of such a procedures manual.
22. M I S C EL L ANEOU S
Email Scams
22.3 The NZLS regularly updates scam information on its website. Refer http://www.lawsociety.org.nz/
practice-resources/email-scam-information. Please advise the NZLS if your practice has been involved
in a scam that is not recorded, or you have been a victim of a scam.
In addition, CERT NZ encourages anyone who experiences a cyber security threat – or even if they
suspect they may have been exposed to one – to contact CERT NZ via www.cert.govt.nz any time or
call 0800 CERT NZ, Monday to Friday, 7am – 7pm.
22.4 Where your firm is to make a payment to a third party (including another law firm) and has received
electronic advice of the third party’s bank account, it is desirable that the bank account details be
verified, for example by a phone call to the third party.
Notes:
1. If remittance is by direct credit to the bank, the date of credit by the bank should be recorded even though
this may cause the receipt to be out of date sequence because of delay in receiving bank statements.
2. The name of the payer. If it is a bank cheque, enter the name of the payer who purchased the bank
cheque.
3. The name of the client ledger account to be credited.
4. An adequate narration to be entered to record the transaction.
5. Tick whether received by cash/cheque/direct credit.
6. Enter client ledger account number.
7. Record any other reference required by you – e.g. initials of author.
AEOI & CRS – Automatic exchange of information and common reporting standards
Similar to FATCA is the OECD version, Automatic Exchange of Information or Common Reporting Standards
(“CRS”). The objective of CRS is to reduce offshore tax evasion by exchanging information with member
countries.
The Law Society has produced a practice briefing to assist law firms which have a trust account to assess
their AEOI/CRS obligations. These include the completion of self-certification documentation where funds
are placed onto IBD. The practice briefing can be found here:
http://www.lawsociety.org.nz/practice-resources/practice-briefings/Automatic-Exchange-of-Information-
and-Common-Reporting-Standard-June-2017.pdf
Lawyers can refer to the IRD’s website for further information including IRD’s Guidance and New Zealand CRS
Applied Standard in relation to categorisation of Financial Accounts, and due diligence requirements.