Complaint No C05592 [2014] NZREAA 283 (26 September 2014)

Last Updated: 3 April 2015

In the Matter of Part 4 of the Real Estate Agents Act 2008

And

In the Matter of Complaint No: C05592

In the Matter of Licensee One

License Number: XXXXXXXX

The Agency

License Number: XXXXXXXX

Decision of Complaints Assessment Committee

Dated this 26th day of September 2014

Complaints Assessment Committee:

CAC306

Chairperson: Paul Biddington Deputy Chairperson: Michael Vallant Panel Member: Marjorie Noble

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1 The Real Estate Agents Authority (the Authority) received an independent auditor’s report following an audit of the trust accounts of the Agency. The Agency is licensed under the Real Estate Agents Act 2008 (the Act).

1.2 Licensee One is the Eligible Officer of the Agency.

1.3 The auditor’s report which is for the period from 1 April 2013 to 31 March 2014 highlighted:

1.3.1 Instances where transactions in the Trust bank account were not recorded in the Trust account records

1.3.2 Two instances where the trust ledger became overdrawn

1.3.3 The bank reconciliation for December 2013 did not agree with the bank statement.

1.3.4 Three instances where the monthly reconciliation was not provided within the prescribed timeframe.

1.4 The complaint was received by the Authority on 10 July 2014 and referred to the Committee.

The Committee initially considered the complaint on 21 July 2014 and made a decision pursuant

to section 79(1) of the Act to inquire into the complaint. The Committee considered further evidence gathered on 8 September 2014 and now issues its determination on these matters.

2. Material Facts

2.1 The bank made an error in each of the first three issues in wrongly deducting fees from the Agency’s Trust Account, which resulted in the Trust account becoming overdrawn (contrary to Regulation 7), and these transactions were not recorded in the Trust account records (as required by Regulations 6 & 7), and finally resulted in the December 2013 monthly bank reconciliation for the Trust account not agreeing to the bank statement (as required by Regulation 15).

2.2 The auditor, upon further investigation into the conduct of the Agency, resulted in the auditor advising that in fact the October 2013 and the December 2013 reconciliation were received on time leaving only the November 2013 reconciliation remaining noted as received late.

2.3 The Agency submitted to the Committee the November reconciliation may have been inadvertently filed with other papers awaiting signature by a solicitor causing the delay in filing of the document with the auditor.

3. Relevant Provisions

3.1 The Real Estate Agents Act 2008

Section 72 of the Act provides:

Section 72 Unsatisfactory conduct

For the purposes of this Act, a licensee is guilty of unsatisfactory conduct if the licensee carries out real estate agency work that –

(a) falls short of the standard that a reasonable member of the public is entitled to expect from a reasonably competent licensee; or

(b) contravenes a provision of this Act or of any regulations or rules made under this

Act; or

(c) is incompetent or negligent; or

(d) would be regarded by agents of good standing as being unacceptable. Section 73 of the Act provides:

Section 73 Misconduct

For the purposes of this Act, a licensee is guilty of misconduct if the licensee’s conduct –

(a) would reasonably be regarded by agents of good standing, or reasonable members of the public, as disgraceful; or

(b) constitutes seriously incompetent or seriously negligent real estate agency work, or

(c) consists of a wilful or reckless contravention of- (i) this Act; or

(ii) other Acts that apply to the conduct of licensees; or

(iii) regulations or rules made under this Act; or

(d) constitutes an offence for which the licensee has been convicted, being an offence that reflects adversely on the licensee’s fitness to be a licensee.

3.2 The Real Estate Agents (Professional Conduct and Client care) Rules 2012 (Rules) set out the standard of conduct and client care that agents, branch managers or salespersons (licensees) are required to meet when carrying out real estate agency work and dealing with clients. Whilst these rules are not meant to be an exhaustive list, they set minimum standards that licensees must observe and are a reference point for discipline.

In relation to this complaint the following rules may apply:

Rule 6.1 A licensee must comply with fiduciary obligations to the licensee’s client.

3.3 The Real Estate Agents (Audit) Regulations 2009 (Regulations) Regulation 6 Trust account Records

(1) Every agency must-

(a) Keep trust account records in a manner that enables those records to be conveniently and properly audited; and

(b) Ensure that those trust account records –

(i) Are up to date; and

(ii) Clearly show the amount of trust account money held for each client; and

(iii) Are, as far as practicable, secure against retrospective alteration or deletion.

(2) All entries in the client ledger accounts, and in other records that are the source of those

entries, must-

(a) Be dated; and

(b) Include references that identify their source or destination and enable them to be traced backward and forward.

(3) All entries in the journal must include sufficient detail to make their purpose evident.

(4) Trust account records relating to a client must be retained for a period of at least 7 years from the date of the last transaction recorded in them, but-

(a) May be retained after the first 3 years, in the form of imaging, or other similar technology; or

(b) In the case of computer generated trust account records originated by the agency, may be retained in the form of electronic storage, imaging, or similar technology.

Regulation 7 Receipt & Payment of trust account money

(1) Every receipt, payment, transfer, and balance of trust account money must be recorded in a trust account ledger with a separate ledger account for each client and no ledger account may contain money of more than 1 client, but a client’s account may be subdivided into various matters.

(2) For the purposes of sub clause (1), a joint client must be treated as a single client.

(3) Any trust account money received by an agency must be recorded promptly and accurately in that agency’s trust account receipt records and the relevant client ledger account.

(4) For the purposes of sub clause (3), each entry of the receipt of trust account money

must state –

(a) The amount, date, purpose, and source of the receipt; and

(b) The client for whom the trust account money is to be held.

(5) Where trust account money is paid in cash to an agency, or the payer of the trust account money so requests, a receipt must be issued to the payer (“trust receipt”) and a copy of the trust receipt must be retained by the agency in electronic or paper form.

Regulation 15 Duty to provide Monthly Lists of balances and reconciliation statement

(1) Every agency must, at the end of each month, reconcile the balance of the agency’s trust

accounts to –

(a) The balance of the agency’s cash book; and

(b) The total of the balances in the list required under sub clause (3)(a).

(2) Every agency must keep the reconciliation statements prepared in accordance with sub

clause (1) in the agency’s cash book, or in any other appropriate manner.

(3) Unless sub clause (4) applies, every agency must, by 27 January and the 20th day of every

other month, give to the agency’s auditor-

(a) A list of the balances in each client ledger account, and of the amount of money (if any) in each trust account, as at the end of the last preceding month or balance period; and

(b) The reconciliation statement referred to in sub clause (1) for that month.

(4) If there is no money in any of the agency’s trust accounts at the end of any month the agency must give the auditor a “nil” return.

4. Discussion

4.1 The bank provided correspondence to confirm the transactions identified as not recorded were

in fact bank fees deducted in error from the Trust account. The Agency had no part in this error and the bank corrected the error as soon as it was practicable.

4.2 The same deductions wrongly made from the Trust Account by the bank also resulted in the Trust Account becoming overdrawn. The Agency noted it has provided further training to its administrator to ensure correct procedures being followed should this type of situation arise again.

4.3 The Agency has submitted it has followed the advice of the auditor to deposit funds into the

Trust account to cover unexpected incidences such as happened here.

4.4 One of the incorrect deductions by the bank resulted in the December monthly bank reconciliation for the Trust account not agreeing to the bank statement. The Agency provided the form sent to the bank which clearly shows this was a bank error. Unfortunately this error happened in the Christmas period and was overlooked until the New Year and then the bank took until 20 January to correct the error. The Committee was again satisfied that the Agency had done all it could to ensure the fees were deducted from the correct account but the Agency has not underestimated the seriousness of this issue and will clearly be more careful with its checking for the future.

4.5 The auditor confirmed that in fact the October and December 2013 reconciliations were received by them on time leaving only the November 2013 reconciliation having been received late by the auditor.

4.6 The Committee accepted the Agency’s explanation for the late filing of this one reconciliation. It appears likely on the balance of probabilities that a simple filing error has resulted in this mistake.

4.7 The Agency appreciated the seriousness of the issues in the investigation and has taken steps to ensure that this does not happen again including further training for administration staff, discussions with the bank and making a deposit into the Trust account in case of future error by the bank.

4.8 The Committee considered all the evidence carefully and came to the conclusion that in this case the nature of the breach was so minor as to not warrant any further consequences to the Agency and because of this will take no further action.

5. Decision

5.1 The Committee met to consider the complaint and pursuant to section 79(2)(e) determined to inquire into it, conducted an inquiry and a hearing (on the papers in the usual case), and then determined the matter (section 89).

5.2 After conducting an inquiry into the complaint, pursuant to section 89(1) of the Real Estate Agents Act 2008 (the Act), the Committee held a hearing with regard to that complaint. In accordance with section 90(1) of the Act, the Committee conducted the hearing on the papers, and pursuant to section 90(2) the Committee’s determination was made on the basis of the written material before it.

5.3 The Committee has determined under section 89(2)(c) of the Act to take no further action with regard to the complaint or any issue involved in the complaint.

6. Publication

6.1 One of the Committee’s functions pursuant to section 78(h) of the Act is to publish its decisions.

6.2 Publication gives effect to the purpose of the Act of ensuring that the disciplinary process remains transparent, independent and effective. The Committee also regards publication of this decision as desirable for the purposes of setting standards and that it is in the public interest that the decision be published.

6.3 The Committee directs publication of its decision, but omitting the names and identifying details of the Complainant (including the address of the Property), the Licensee and any third parties in the publication of its decision.

6.4 The Authority will publish the Committee’s decision after the period for filing an appeal has ended unless an application for an order preventing publication has been made to the Real Estate Agents Disciplinary Tribunal (Tribunal). Such an application can only be made as part of an appeal to that Tribunal. In order to ensure publication of the decision does not take place it is important that you serve a copy of your application on the Authority. Publication of the decision will not take place until the Tribunal has made a decision on the application.

7. Right of Appeal

7.1 A person affected by a determination of a Committee may appeal to the Tribunal against a determination of the Committee within 20 working days after the date of this notice.

7.2 Appeal is by way of written notice to the Tribunal. You should include a copy of this Notice with your Appeal.

7.3 Further information on filing an appeal is available by referring to the Guide to Filing an Appeal

at www.justice.govt.nz/tribunals.

Signed

Marjorie Noble

Panel Member

Complaints Assessment Committee

Real Estate Agents Authority

Date: 26 September 2014