Trust Account Compliance And Management – Questions And Answers

Trust Records and Policies and Procedures

1: Trust records are known as those records which are related to the structure of the trust, and it also include those records which are related to the transactions and business activities occurred in the trust. There are number of documents which are required to be kept in the form of trust records and these documents are:

• Financial records such as trust accounts, trust transaction records, bank deposit book, current and used cheque books, bank records, invoice and payment authorizations, etc.
• Records related to the assets and any other property of the trust.
• Records related to the trust execution such as deed of execution, and document in which declaration is made by the owner that he or she holds the land on behalf of another person.
• Records related to the controlled money.
• Records related to the title of the trust assets.

2: Following is the policy and procedure which is established in the organization for ensuring compliance requirement:

• Management of an organization must maintain the sound system of internal control for the purpose of ensuring the compliance requirements.
• Review must be conducted by the management of the internal control system, and this review covers different topics such as financial, operational and compliance controls and risk management.
• Internal control system in the organization must consider certain situations of the business into account.
• Management must review on the continuous basis in context of implementation of the internal control system and meeting its reporting obligations.
• Risk based approach must be adopted by the organization for the purpose of establishing the sound system of the internal control.
• Internal control system must facilitates the effectiveness and efficiency of the operations for the purpose of ensuring the internal and external reporting, and also taking help in the compliance with all the laws and requirements.

3: For the purpose of getting recommendations and relevant advice, trust can also choose professional third parties and these third parties involve adviser or banker. It must be noted that these third parties also own fiduciary duties towards the beneficiaries of the organization. These third parties help the trust in conducting number of transactions and also provide relevant recommendations in context of any issue faced by the trust in different areas. However, law also creates remedies in case these third parties breach their duties towards the beneficiaries.

Following is the process for implementing the recommendation given by third parties and the manner in which this information is communicated to the employees:

• Advice given by the third parties must be reviewed and management must check the suitability of this advice in context of the availability of the resources.
• Once review is completed, management develops the plan in context of this advice and communicated the plan with the advice to the employees through E-mail, personal meetings, letters, etc.

4: Organization can choose electronic accounting system, as this is the application related to the online and internet technologies in context of the business accounting function. Online accounting is considered as the electronic version of the lawful traditional accounting and also the traceable accounting process.

This accounting system is chosen because of the comfort level of the employees with the technology and also because of the large size of the organization. Following is the compliance requirements of the trust accounts:

• Documents related to the trust records must be produced for the purpose of giving accurate record of practice in context of clients.
• Transactions are considered as completed transaction only when proper authorization and documentation is completed.
• All the transaction and entries are recorded in proper manner in context of the trust accounts.

5: This answer defines the meaning of the source document, and also defines the manner in which these documents are identified, stored and retrieved. Source document is considered as the document which is created and received by the business organization in day-to-day business operations. Source documents are considered as the proof of the transaction. In other words, it is the original record which includes the details to substantiate the transaction entered in the accounting system. Following are some of the Source documents:

• Bank statement,
• Cheque books
• Cash receipts
• Bill sent or received
• Deposit Books
• Purchase Invoices
• Employee Pay slips
• Trial Balances
• Cash receipt & payment books
• Proof of sale
• Proof of disposal of assets

All these source documents must be identified and recorded on clear basis in context with the legislative requirements, policies, and procedures. These documents contain the basic elements in context of the transaction occurred such as date, aim, amount, etc.

This document can be created either through the paper or electronic format, and it is the primary article in the process of accounts.

6: Organization can set the framework under its internal control system through which errors in the organization can be reported, as this framework sets the communication system and also the effective cross check of the transactions.

Section 78 of the Act provides the provisions related to the trust accounts deficiency and section 79 of the Act defines the provisions related to the trust account irregularities. In case any deficiency occurred then:

• Licensee whenever get aware about the deficiency in context of the trust accounts or trust ledger accounts, then licensee is under obligation to provide written information of the same to the director of the organization.
• After receiving the information director is under obligation to take appropriate steps.

To,

Registered Government Auditor 

Subject: conduct audit for the organization.

Sir,

This letter is writing for the purpose of making the proposal to Registered Government Auditor for the purpose of conducting auditing of financial statements for the fiscal year ending **** in our organization, and also for auditing the financial statement of some fiscal years. Please provide your conformation within the period of 14 days from the date of letter.

Professional Third Parties

I hope you accept this proposal and deliver your confirmation within stipulated period.

Thanking you

ABC

File Note:

Particulars	date	Matter	To	Confirmation period
Auditing	13th June 2018	Letter to conduct auditing	Registered Government Auditor	14 days

7: Trust is considered as the fiduciary association between the parties in which one party who is known as trustee holds the title related to the property for the advantage of the other person who is known as beneficiary. Structure related to the trust is of such nature as it distinguishes the legal ownership from the beneficial one.

It can be said that trust maintains the structure of formal nature in which beneficiaries hold the responsibility of their property and assets in the hands of the trustee for the purpose of managing such property such manner as it creates benefit for the beneficiaries.

Trust allows the asset to be handover to the trustee and such trustee also get the legal control of the property. Trustee is under obligation to manage the assets for the benefit of any other person, and this duty of the trustee is known as the fiduciary duty.

The main purpose of creating the trust is to provide protection to the assets of the trust, and to manage them for creating advantage. This can be understood through example that is wills in which assets are kept in trust till the time beneficiaries of the assets attain the majority.

Answer 8: Following are the duties of the trustee:

• Trustee is under obligation to act in the best interest of the trust.
• Trustee must not take any personal benefit from the property of the trust.
• In case trustee breach his fiduciary duty then he or she is under obligation to ensure that trust must be put in the same position as it is before in case no trust is created.

The biggest reason because of which, I would not like to become the trustee is the immense liabilities of the trustee towards the beneficiaries.

Following are the powers of the trustee:

• Trustee has power to reimburse those trust expenses which are incurred in the proper exercise of the trust’s powers.
• Power to invest- most but not jurisdictions limit trustees to “authorized trustee investments”
• Power of sale.
• Power to mortgage
• Power to Lease.
• Power to issue receipts for payment made to the trust estate
• Power to deposit trust documents for safe custody.
• Power to call for an audit.
• Power to employ the agents.

9: Trust is the commercial organization which is managed through the appointment of trustee for the purpose of creating the benefits for the trustee. There are different types of trusts and all trusts are stated below:

Express trust- in this document is executed by the owner in which owner made the declaration that they hold the land on trust. In other words, it is the trust which created in the express terms, and generally in writing. This type of trust is different from the one which is incidental by the law from the conduct or dealings of the parties.

Implied trust- in this property is not transferred or conveyance, but in this two people enter into relationship with each other impliedly. It is the trust which is inferred by the operation of the law, and imposed by law by considering the intentions of the parties. There are two types of implied trust that are constructive trust and resulting trust:

• Resulting trust- This trust is creating by the operation of equity where land is conveyed and transferred to the person in context of the equitable interest held by another.
• Constructive trust-this trust arise when equity impose the trust without considering the intentions of the parties for preventing the injustice.

10: Following are the three features of the fiduciary relationship:

• The most important feature is that fiduciary accepts the obligation to act on behalf or in the interest of another person in legal context.
• There must be relationship of reliance.
• Any relationship of disadvantage, vulnerability and unequal bargaining power in context of one person cause dependency on another person.

Trustee, employees, professionals, and third party professionals own duty towards the beneficiaries.

11: Trust created at the time when individual is alive is known as the inter vivos trust, and those trusts which established after the individual death is known as the testamentary trusts.

In context of the express trust, settlor is considered as the creator of the trust. In context of the inter vivos gifting (occurred between the living people), settlor is considered as the donor of the trust.

Types of Trusts

In case of discretionary trust, goodwill and assets of the trust are transferred to the trustee by the will of the individual.

12: Following are the three options through which trust can be wind up:

• Trust assets can be distributed to the beneficiaries in kind or by distributing the cash if authorized either in express manner or as per the terms of the instrument.
• Obligations of the trust can be changed or release either through the trustee or the beneficiaries, or by the Courts.
• By making sale or disposing the property of the trust to any other entity.

13: The only difference between the process of the manual and electronic transactions are the mechanism, which means manual transactions are done by the human with the pen and paper for the purpose of recording the transactions. On the other hand, electronic transactions are recorded with the help of computers and enter in the books electronically. The basics differences between the two are presented in the table below:

Manual transactions	Electronic transactions
Chances of error are more because all things are recorded manually by humans.	Chances of errors are less as compared to manual transactions.
In this things are recoded by hands in the books.	In this things are recoded  electronically.
It takes more time to complete.	It takes less time to complete.

14: Section 308 of the Act impose statutory duty on the auditor for the purpose of providing protection of the funds of the Client is considered as the statutory duty of the auditor, and there are number of ways through which protections of these funds can be ensured:

• Accurate audit and security arrangements must be ensured by the auditor for the purpose of providing adequate protection to the client confidentiality and client funds held by the trust.
• Financial reports are must be prepared on the periodic basis and these reports must be discussed with the clients for ensuring the accuracy.
• Records in this context must be maintained and review of these records must be done on continuous basis.

15: Trustee has power to disburse the funds of the trust in manner they think appropriate, but such disbursement must be fall in the authorized power of the trustee. All these disbursements must be recorded in the books and receipts for the disbursements must be given by the trustee, and in case trustee fail to provide proper receipt for the funds allocated or fails to record the disbursed funds in the books then such disbursement is not considered as accurate disbursement. All these steps are necessary for the purpose of preventing the fraud in the trust.

16: Board of the organization has different responsibilities in context of the P+P system of the organization:

• Process is defined by the organization for review conducted by the board.
• Board is under obligation to receive and review the ongoing reports related to the internal control of the system.
• Particular exercise is carried out by the board on the annual basis for making the statement in the annual report.

It must be noted that, organization’s internal control system and the corporate application of its structure is mainly based on the corporate culture of the business. It must be noted that, internal control system is not the checker for the system but it is the system itself.

17: Auditing and financial reporting system is defined as the examination of the organizations financial statements and this is also accompanied by the disclosures made by the independent auditor, and reports are also prepared by the auditors in context of these examinations. These reports are attested by the auditors in context fairness of presentation.  The main aim of this auditing is to add credibility to the reported financial position and performance.

The main difference between the external and internal audit is stated below:

Internal audit	External audit
Internal auditors are the employees of the company.	External auditors work outside for an audit firm.
In this auditors are appointed by the organization	In this auditors are appointed on the basis of the shareholders vote.
Internal auditors does not have any CPA	In case of external auditors, CPA is the main driver of their activities.
In these auditors own duty towards the management of the organization.	In this auditors won duty towards the shareholders of the organization.
Less accurate reports.	More accurate reporting.

18: It is necessary to incorporate the process of CPD in the organization for the purpose of maintaining the ongoing training for all the members of the staff in context of different areas such as trust accounts, financial and IT systems and implementation of plans. These requirements can be in the form of formal or in the combination, and organization can choose those form which provide best results to both employee and organization. Proper CPD help the organization in ensuring the compliance of records and maintain all the records in context of monitoring the trust accounts and transactions.

19: Following are the five major elements of the trust are:

• Settlor is the person who in context of the express trust results in the emergence of the trust relationship.
• Trustee is another person in whom property of the trust is vested for the benefit of another person.
• Beneficiary is considered as that person who gets the benefit of the trust under the fiduciary relationship.
• It is necessary that particular trust property exist, or there is any interest in the particular property.
• Obligation of individual in context of trustee referred to the duty owned by the trustee towards the beneficiary.

Fiduciary Obligations and Responsibilities

20: If trustee receives the trust money, then trustee is under obligation to maintain the general trust account in which such money is deposited, and any licensee who is under obligation to maintain such trust account must maintain, and trustee must established this account as per the law.

Transactions related to this account must be recorded by the trustee in the fair and proper manner, and these transactions include receipt of cash, payments of cash, expenses occurred from the trust account, etc.  These transactions must be recorded in the fair manner for the purpose of maintaining the fiduciary trust between the parties.

Later, trustee must notify about the account to the director within 14 days after creating the trust account. Licensee also informs the director about the number of the account and the name and address of the branch in which account is maintained by the trustee.

21: Computerized accounting system is the system in which transactions are recorded with the help of computers and enter in the books electronically. Whether organization is using the manual accounting system or the electronic accounting system is based on the two factors and both the factors are stated below:

• Whether employees of the organization are comfortable with the electronic system of accounting, which means organization use computerized accounting is based on the training and skills of the employees in context of technology and how comfortable employees are with the technology.
• Another important element is the size of the organization, which means if organization is large then it is advisable for organization to choose computerized accounting system, and in case organization is small then it is advisable for organization to choose manual accounting method.

22: Trustee is under obligation to maintain the transaction records of the trust account and at the end of each month trustee is under obligation to review the records of the trust account and cross verified the transaction, and also investigates the matter in case there is any difference between the recorded transactions and amount left in the account.

In other words, it is duty of the trustee to maintain the accounts of the trust in proper manner because it is fiduciary duty of the trustee to ensure the fairness in the trust management. Trustee is also under duty to ensure that business of the trust is managed in such manner as it create benefit for the beneficiary. Trustee is also under obligation to give reports to the beneficiary in context of the trust account.

23: This statement mainly impose obligation on the organization to act in such manner which confirms the best interest of organizations as well as those who are directly or indirectly connected with the organization. This obligation ensures the ethical and legal compliance from the firm, and also expects that trust does not involve in any unethical act or illegal act. Act introduces number of statutory duties, ethical obligations, etc. and it is necessary for the organization to compliance with all these standards.

There are number of legal requirements which must be complied by the organizations because any breach or non-compliance can attract heavy penalties and personal liabilities for the trustee.

This statement also imposes obligation on the organization to compliance with all the legal as well as the ethical requirements. Every profession introduces code of conduct and person who is attached with the profession must comply with that code of conduct for ensuring effective performance.

24: While charging the fees from the client, organization provide proper disclosure in written form to the client in context of the fees charged from the client, and such disclosure must contain the following details:

• Amount of the fees which is charged from the client and in here is any breakdown then such breakdown must be present.
• Services provided to client in context of which such fees is charged.
• Details in context of retainer and cost agreement must be provided such as order number, stamp duty, etc.
• Types of services provided to the client.
• Details of the service provider.
• Mode of payment of the fees.

25: Regulation 12 states the provisions related to the Receipt of the trust money, and as per this regulation licensee receives the trust money which must be paid in the general trust account, then licensee is under obligation to make the receipt for the same and such receipt must be made out as soon as possible.

Regulation 13 defines the provisions related to depositing the records for the trust money, and as per this section and this regulation applied when money is required to pay in the general trust account and money is not paid in that account by way of direct deposit.

Regulation 14 deals with the payment made by cheque, and this regulation applied if trust money is withdraw from the general trust account by way of cheque.

26: File note in context of question 6:

File Note:

Particulars	date	Matter	To	Period	Status
Auditing	19th June 2018	Letter to conduct auditing	Registered Government Auditor	14 days	Confirmed
Auditing	30th June 2018	Auditing conducted	Registered Government Auditor	2 months	Pending