5. Keeping of trust accounts
Trust accounts must be maintained with absolute accuracy, in part because the money held belongs to others, but also, as licence holders must be aware, because this type of account is particularly attractive to money launderers. Licensees must ensure that trust accounts are used properly.
5.1 Monthly bank reconciliation
5.2 Trust Transaction Report
5.3 Sums considered as unclaimed property
5.1 Monthly bank reconciliation
A licence holder must maintain separate accounting for each trust account and prepare a monthly reconciliation thereof, according to generally accepted accounting principles.*1
Bank reconciliation is a process used to ensure that a business’s books agree with its bank statements. This means that the accounts’ debit balance must match the bank’s credit balance
When performing a bank reconciliation, the information in the general trust account register is compared with the information on the bank statement. If the ending balances of the two documents differ for the period, these differences must be explained (e.g.: cheque outstanding at month end) or corrected (e.g.: an amount was mistakenly deposited in the trust account instead of the general account).
Appropriate bank reconciliation processes can, for example, quickly uncover the following problems:
- unauthorized transfers;
- bounced or failed client payments;
- bank charges for insufficient funds;
- a missing entry in the register of general trust account transactions;
- bank errors;
- bank fraud.
It is also essential to have a list of the sums held at the end of the month. This will enable you to easily determine the balance of the funds held in trust and to whom the money belongs.
Keeping the register up to date is mandatory, as filling the register using the bank statement does not allow for a reconciliation to be performed. This practice is to be avoided.
*Generally accepted accounting principles
Generally accepted accounting principles (GAAP) are a set of standards and rules that provide general guidance for financial reporting. The term “generally accepted” means that these principles are validated by the major regulatory authorities.
In Canada, accounting standards are set by the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB) of the Chartered Professional Accountants of Canada.
5.2 Trust Transaction Report
The licence holder must send to the OACIQ, before March 31 of each year and upon request from the Organization, the Trust Transaction Report along with the register and bank statements. This is mandatory even if there was no activity in the trust account during the year, if the account was closed or if the licence holder has ceased his activities.2
It is not only important that the trust transaction report be submitted on time, but also that it be complete and balanced. Failure to do so may result in action being taken, up to and including the filing of a disciplinary complaint.
Performing a monthly bank reconciliation facilitates the production of the annual Trust Transaction Report, which is basically an annual bank reconciliation.
As with the monthly bank reconciliation, the annual Trust Transaction Report is actually a reconciliation of the trust accounts which includes explanations of the differences between the register of trust transactions and the bank statements for the general and special trust accounts.
When the report covers the entire year’s activities, i.e. January 1 to December 31, the information comes from the registers of general trust account and special trust account transactions and the general trust account and special trust account bank statement as at December 31.
Attention - In his practice, the licence holder must, at all times, take into account his abilities, the limits of his knowledge and the means at his disposal3. This principle also applies to the preparation of the Trust Transaction Report. It is therefore strongly recommended to retain the services of a chartered professional accountant (CPA) to assist with this task.
The Trust Transaction Report must contain the following information:4
- A summary of the deposits into and withdrawals from the general trust account and all special trust accounts, with the mandatory disclosures or a certification from the financial institution to the effect that there was no activity in the trust account for the period concerned;
- A copy of the bank reconciliation statement, with the mandatory disclosures, which is prepared at the end of the calendar year or for the period requested by the OACIQ (for the general trust account and each of the special trust accounts);
- A detailed list of the amounts held in the general trust account and the special trust accounts at the end of the calendar year or for the period requested by the OACIQ. This list must include the mandatory disclosures.
Attention - The totals in items 1, 2 and 3 above must balance and each of the document required for these items must contain the name of the licence holder, be signed by a person authorized by the licence holder and be dated.
It is the responsibility of the agency or the broker acting on is own account to reconcile the accounts. Any difference must be explained and documented and the necessary entries made.
TOOL :
2 S. 38 of the Regulation respecting records, books and registers, trust accounting and inspection of brokers and agencies.
3 S. 73 of the Regulation respecting records, books and registers, trust accounting and inspection of brokers and agencies.
4 S. 38 of the Regulation respecting records, books and registers, trust accounting and inspection of brokers and agencies.
5.3 Sums considered as unclaimed property
A licensee who holds money in trust that is considered as unclaimed property within the meaning of the Unclaimed Property Act, must dispose of it in accordance with the Act and notify the OACIQ without delay.5
In the context of real estate brokerage, any amount held in trust will be considered as unclaimed property when it has not been the subject of any claim, transaction or instruction as to its use from a beneficiary domiciled in Quebec within three (3) years of the date it became due.
Example :
At the time of a transaction, $5,000 is deposited in the trust account for the purchase of land for a development project planned for two (2) years later. The signing of the notarized deed is pushed back several times. In the end, the transaction is cancelled. During this period, the depositor has moved and has not informed the trustee of his new contact information.
What the licence holder must do:
First, every effort must be made to locate the beneficiary (Canada 411, registrar of enterprises, search engines, etc.); as the licence holder will be required to demonstrate the efforts he has made to do so.
If, three (3) years after the transaction falls through, the depositor has still not been located despite attempts to do so, the trustee must follow the guidelines in the Unclaimed Property Act to have the money transferred to Revenu Québec.
Failure to remit the funds promptly could result in the licence holder being charged interest from the date they should have been remitted to Revenu Québec.
For more information, visit the Revenu Québec website.
