5. Receiving trust money
(Sections 110 to 112 of the Act; Regulation 12; refer also guidelines 8.6 to 8.9 on money laundering)
Trust Account Guidelines contents
5.1 When you receive trust money, the following steps (properly followed) should ensure that you comply with the Act and the Regulations.
One person should be responsible for receiving trust money
5.2 For proper accountability, one person should be responsible for receiving and recording trust money, and should have custody of that money. This should include appropriate lock-up facilities, up to the point where it is handed over for banking. You should arrange suitable relief during lunch hours, etc.
Enter the receipt of the trust money in the trust account receipt book
5.3 When trust money is received, it should be entered in the trust receipt book or computer equivalent record.
5.4 Receipts should be written even where the payer does not request a receipt (unless a different system is used, as discussed in guideline 5.6). If not issued, the top copy receipts should remain in the book. The receipt must always be issued 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 handed over so there is no doubt as to the amount received. The receipts are to record full information about the parties involved and on the nature of the payment as indicated by the layout of the form. The receipt writer should ensure that s/he has sufficient information to complete the receipt form fully.
Trust account receipt book or equivalent records
5.5 Trust account receipt records record and acknowledge the receipt of trust money. Trust receipt forms (where used) must be in the approved design and either printed by the practice’s own system or obtained from a supplier authorised by the NZLS. That design includes the name of the practice on the receipt form, provision for all the required information as to date, amount, purpose and parties, and a fast copy to remain in the book (Regulation 13 and Appendix A).
5.6 Any type of system other than a trust account receipt book for recording the receipt of trust money must:
- include the equivalent information
- be secure against any retrospective alteration or deletion
- provide for issuing receipts in the prescribed form when requested by the payer or when money is received in cash.
5.7 Trust receipt records should provide a reliable and tamper-proof numerical sequence of entries to ensure that none can be “lost” from the sequence. Money received must be recorded in the receipt book promptly. The trust account receipt book has an important role in providing a complete, accurate and secure record of money received. Any alternative recording system (see guideline 5.6) must therefore be of a high standard.
Bank deposit supplement book
5.8 The bank deposit supplement book keeps a detailed record of the composition of each banking (refer Appendix B).
Trust money received in the form of a cheque should be crossed
5.9 If you receive trust money in the form of a cheque that is not crossed, you should cross the cheque with a stamp that states that the cheque is payable only to your practice’s trust bank account (naming the bank and branch).
Cheques intended for third parties
5.10 You may receive cheques that the client has directed you to pass on to a third party such as Inland Revenue. Such cheques will usually be made out to the third party. In these cases, you should make entries in your valuable property records required under s112(1)(b) of the Act, recording full details of the cheque, the date on which it was received, and details of the disposal of the cheque including the date on which, and the person to whom, the cheque was disposed of. One option is to record this information in a register of third party cheques. The format of the suggested register for valuable property (see Appendix C) could be adopted for this purpose and modified as necessary.
Post-dated cheques
5.11 Post-dated cheques for the trust bank account should be recorded as they arrive in a suitable record of post-dated cheques. Each cheque should be marked off when banked and recorded at that stage through the inwards cash system. A sample format is as follows:
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Date rec’d |
Amount $ |
Drawer |
Payee |
Cheque |
Client |
Trust receipt written |
Other method of disposal |
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Pay the money into the trust bank account
5.12 Subject to guidelines 5.10 and 5.11, you must pay all trust money that you receive into your trust bank account. Trust money should be banked promptly, daily where practicable.
Keep the trust money separate from other money until it is banked
5.13 Trust money received must be held separately from other money until banked and must not be used as a means of cashing other cheques.
Banking reconciliation
5.14 Bankings should be reconciled against receipts as follows:
- Agree the money on hand with the total value of the receipts issued and note the total opposite the last receipt issued.
- Calculate the banking to the same cut-off point and agree the banking with the total receipts.
- Show the reconciliation clearly in the trust receipt book.
This process will ensure that money received is confirmed as correct and agrees with the amount banked.
Automatic payments and direct credits
5.15 Where you arrange for trust money to be paid to you by way of automatic payment, direct credit or other electronic means, you should ensure that the payer is provided with full and correct details of the trust bank account to be credited, the purpose of the payment, etc, as appears in the trust bank account statement. The best way to achieve this is to send the payer an encoded bank pay-in slip. The record of each credit received in the bank statement should then comply with guidelines 5.5 to 5.7.
5.16 You do not have to send a receipt to the payer unless you are requested by the payer to do so, as the record in the trust bank account statement should be sufficient.
5.17 You must keep suitable records of all such arrangements, including copies of automatic banking authorities. This will ensure that if the arrangement changes, you will be able to retrieve the information you require to effect those changes (for example, if you change your bank).
5.18 You should be aware that banks might reverse electronic money transfers and exercise due care in making any payment in respect of trust money received electronically.
Transfer of funds between clients
5.19 Funds transferred in transactions between clients must be traceable. Where money is received from a client for transfer to the account of another client, the money should first be credited to the payer client’s account before being transferred to the other client’s account. Evidence of authority to transfer funds must be held before the transfer is made.
Trust money may be paid to Interest Bearing Deposit (IBD) Accounts
5.20 Trust money may be deposited in an IBD Account with a bank, by transfer from the trust bank account. IBD Accounts are discussed in guideline 9.
5.21 A building society is not a bank (see definition of bank in s6 of the Act) and therefore maintaining building society accounts for client money is in breach of s110(1)(a) of the Act. To make use of a building society for clients’ interest bearing deposits, practices must first have authorities from clients and have made the disclosure required by RCCC 3.4(c) as to exclusion from Lawyers’ Fidelity Fund cover.