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(Section 110(1)(b) of the Act; Regulation 12)

Trust Account Guidelines contents

You must have client authority

6.1      You must make transfers or payments from a client’s trust money as the client directs, ie, only with instructions (or some other authority) from the client to make the transfer or payment. You should therefore obtain and hold on file a signed authority from the client for the payment or the series of payments. Alternatively, where you act on other than a signed instruction (eg, a telephoned instruction), you should send a written report the next day to the client and keep a copy of the report on the file.

6.2      The only situations where express client authority is not required are:

• where the payment is to the client; or
• where the transfer is to the client’s interest bearing deposit account; or
• where the authority is inherent in other documents (such as a will or agreement for purchase of a property).

There must be sufficient funds

6.3    You must not make transfers or payments from a client’s trust money unless the client’s ledger account has funds that are available for the purpose. In some cases this may include funds that you advance to the client account from your own funds to cover disbursements such as filing fees. Some computer systems expressly provide for this.

Only one person should be responsible for preparing cheques and electronic payments

6.4    If possible, only one person and a back-up should be responsible for preparing trust account cheques and electronic payments. This person should be trained in the correct procedures and given proper authority to perform this task.

Trust account cheques and electronic payments

6.5   The only two acceptable methods of making payments from the trust account are by electronic banking transfer and by cheque. Payments effected by electronic banking transfer now significantly outnumber those by cheque. Funds on interest bearing deposit must be withdrawn and credited to the trust account before payment can be made.

6.6    Each payment must include the date, amount, account debited, payee and a short narrative as to its purpose. That information should be recorded by any one of the following methods:

• on the cheque butts which are then used as the posting medium
• on the cheque butts but transcribed into a cash book
  
• on carbon copies of cheques and attached slips.
• by way of an authorised cheque requisition (prepared before the cheque is drawn) that contains the same information. In this case, cheque requisition forms must be numbered consecutively (usually with cheque numbers) and filed in the same order
• in sequentially filed electronic payment reports.

6.7    Every payment should be drawn in a way that permits the crediting of money only to the account of the intended payee. For electronic payments, the payee should provide their account details (eg, encoded deposit slip) and this must be checked before the payment is sent (see also guideline 11.8). For cheques, these should be printed “not transferable” or equivalent crossing and without the words “or order” or “or bearer”.

Making cheque payments to institutions

6.8    Where a trust account cheque is payable to a bank, financial institution, government department, local authority, business house or other institution 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]”

Obtaining bank cheques and bank drafts

6.9    Cheques payable to a bank for the purpose of obtaining a bank cheque or bank draft will normally be made out with the bank as payee, with the words added “for purchase of a bank draft in favour of…”. Depending on the system in your bank, you should record your request for a bank draft on the back of that cheque or on the bank’s form:

"[Name of bank] for issue of a bank cheque in favour of [name of intended payee]"

Arranging for trust account cheques to be signed

6.10     The person preparing a trust account cheque should ensure that the cheque signatory has sufficient information and supporting evidence in respect of the cheque to be satisfied that it has been properly drawn.

Delegated authority for signing trust account cheques and releasing electronic payments

6.11     NZLS has obtained legal advice to the effect that the law does not require that all cheques be signed or electronic payments released only by the principals or directors of practices operating a trust account.

6.12     However, it is recommended that whenever possible a principal or director of the practice should sign trust account cheques and release electronic payments because the very act of doing so represents an important part of the control of the trust account.

6.13     Where a practice gives employees the signing authority or electronic password:

• authority should be given only to suitably knowledgeable and experienced employees and for use only in urgent cases where a principal or director is not available. Such authority should be supported by procedures to ensure that payments released are true and correct
• wherever possible another appropriate person should counter-sign, both carefully checking the documentation. For example, a staff lawyer who has checked that the transaction is in order for settlement might have authority jointly with the accountant who has verified that the appropriate funds are in place.
• where practicable, in the case of a sole practice, the attorney appointed under s44/Schedule 1 of the Act should be called upon as the preferred cheque signatory.

Procedures should include a detailed scrutiny of the payments made under such delegated authority and the related transactions immediately upon the principal’s return to the office

6.14     Practices should be aware that any such delegated authority has an element of risk, that the risk remains the responsibility of the principals or directors who must at all times take steps to minimise that risk. This might include an extension to the professional indemnity insurance policy to cover employee dishonesty.

Taking fees from trust money

6.15     You must, prior to commencing work for a client, provide that client with information in writing on the principal aspects of client service including the basis on which the fees will be charged, when payment of fees is to be made and whether the fee may be deducted from funds held in trust for the client (RCCC 3.4(a)).

6.16     You are not permitted to deduct fees from a client’s trust money unless you have provided that client with an account for the services carried out or unless the client has authorised the deduction in writing, specifying the purpose and amount (Regulation 9(1)).

6.17     You may receive funds to cover fees in advance only on the basis that these are held for the client’s account in your trust account. No deduction in respect of fees may be made from funds held unless the client gives an authority for the deduction or an account has been provided to the client for the fees that are to be deducted (Regulation 10; RCCC 9.3).

6.18     There are three recommended methods of transferring money from a client’s trust ledger account in payment of an invoice:

• by way of journal entry debiting the invoice to the client’s trust account and crediting the practice’s float account in the trust account ledger; or
• the amount of the invoice can be paid into the practice bank account by trust account cheque or electronic payment debited to the client; or
• the trust accounting software can be used to debit the client and credit the practice’s float account in the trust account ledger with the fee.

6.19     Copies of invoices and trust account statements to clients should be kept in a central file in client alphabetical order (or in numerical order with an alphabetical index for each client) with further copies on the relevant client files. Invoices should be sequentially numbered and cross-referenced to the ledger entries.

6.20 Where disbursements are included in an invoice or trust account statement to a client, the disbursements should reflect only actual payments by the practice and must not include any undisclosed fee charged by the practice.