Trust Transaction Dating and Trust Money Recording
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Trust Transaction Dating and Trust Money Recording

As solicitors deal with other people’s money which is recorded in trust money records, the recording of entries and the strict reliance on the integrity of those records is paramount. If it was allowed that transaction could be back dated (ie recorded as the date it may have taken place, such date being the order in which transactions would be shown in the records) in the system, then this would allow the manipulation of transactions. Transactions could be manipulated so that debit balances, for example, are covered up. You could end up with many different versions of the one trust ledger account/statement of account, depending at which point the document was printed.

If actual transaction dates were allowed as the order of entries, again being back dating, then this would cause problems with month end balancing. If, the records are balanced at month end, being a strict requirement of the regulations, and then after month end we allow an entry to be processed which is back dated prior to balancing, then that ledger account will no longer agree with the month end trial balance amount. This then destroys the integrity of the balancing of the records.

An additional danger with the above scenario is that if the cash book has been run at month end and a transaction is entered in the following month and back dated, it will not be shown in either the current month’s cashbook or the prior month’s cashbook, as that has already been printed. Fraudulent entries could easily be hidden in this way. Any person reviewing the records must have a reliance that they are reviewing all the records entered into the system. This is the primary reason numbered month end reports are required and a strict regime of entry order in all reports is essential.

Such integrity in general accounting systems is not the primary goal of the recording system as is the case with trust accounting. All modern trust accounting systems are run in real-time ie they run off the operating system date and as a consequence this date must be the date of entry into the system.

The regulations require any entry which took place at a date prior to the date of entry to show both the date of entry (Posting Date) and the date it took place the (Transaction Date). Thus users of the cashbooks and ledgers will be aware of both dates and understand the relevance of this.

If transactions are not posted into the system at time of doing month end balancing for any reason, then such transactions should be entered into the bank reconciliation as adjustments and eliminated following their processing into the records. It should be remember that the regulations require transaction to be recorded within 5 days after they have been effected. Allied to this are the requirements of, S.264 Keeping trust records (Legal Profession Act 2004)

  1. A law practice must keep in permanent form trust records in relation to trust money received by the practice. Maximum penalty: 100 penalty units.

  2. The law practice must keep the trust records:

    1. in accordance with the regulations, and

    2. in a way that at all times discloses the true position in relation to trust money

      received for or on behalf of any person, and

    3. in a way that enables the trust records to be conveniently and properly

      investigated or externally examined, and

    4. for a period determined in accordance with the regulations.

Maximum penalty: 100 penalty units.

If the strict requirements, as detailed earlier, were not put in place, then the records would not comply with S.264. The necessity of S.264 is to ensure the integrity of the recording of the dealing with trust monies by legal practitioner and their staff.
This description has been provided by : Garry Napper, Investigator, Trust Accounts Dept 
The Law Society of New South Wales