impact OF TRUST ACCOUNTS

There are certain notices that must be sent, records that must be kept and rules that must be followed which takes time to organise and action.

You’ll need to create new and update existing templates to ensure that they include the required information.

You’ll also need to review your existing procedures and add steps to ensure that everything is actioned at the right time, including opening an account, telling others about it, reconciling and auditing the account.

It will be harder to manage your cashflow as money will be split into separate trust accounts per project with strict rules around when funds can be withdrawn.

There is also a top up requirement where the trustee must put more money into the trust account if there are insufficient funds to pay parties when due.

All retention money withheld cannot be touched and must sit in a separate retention trust account until due to be released.

To prepare for these requirements, your company may need to increase its available cash, working capital and access to appropriate financing facilities.

There are strict record keeping requirements for trust accounts which not all accounting software can do.

Some software systems have already or are in the process of making changes to their products to assist trustees with compliance.

You may need to upgrade or switch to a different product so that you are compliant.

You will need to train and upskill your staff on how to set up and manage a trust account.

There are strict rules and significant penalties for non-compliance so it’s critical that your staff are prepared and understand what they can and can’t do.

You may also consider hiring additional staff to assist or outsource to a trust account administrator.

It is recommended that you align the payment terms within your subcontracts to assist with cashflow management, especially since you now have an obligation to top up the trust account when there are insufficient funds.

You may also consider the type of security you are using under your contracts and whether a different form of security to cash retentions is preferred to reduce the administrative overhead and risk of managing a trust account.

There are some general trust account provisions to consider adding to your contracts as well. Some industry associations are in the process of updating their standard contracts to allow for this.

There are strict rules and significant penalties for the mismanagement of funds and incorrect withdrawals.

You may need to reassess your business procedures for how invoices are received, responded to and payments processed so that payments aren’t missed, and parties are paid from the correct account.

You will also need to reassess your reconciliation procedure as there is a certain process that must be followed monthly with copies of all reports and actions taken forming part of the trust records.

It is recommended that you implement appropriate risk mitigation steps or checks and balances to ensure that trust funds are managed correctly.

Due to the increased administrative requirements and compliance risk on a trustee, these increased costs for doing business should be factored into future jobs that you quote/tender for that may need a trust account.

There are a limited number of banks that you can open a trust account with so you may need to consider changing banks to allow for easier management of accounts and faster transfers of funds.

You must engage an independent auditor to review your retention trust account annually. This is an additional cost to your business and can only be completed by a party that is a registered company auditor and that is separate to your business.

Trust accounts bring significant compliance risk to your business as the rules are strict, penalties severe and likelihood of a QBCC audit is high.