What is a trust account deficiency?

S. 259 of the Legal Profession Act 2007 ("the Act") provides that a practitioner must not cause a deficiency in any trust account or trust ledger account.

Traditionally, we have understood the term "deficiency" to mean a shortfall in trust funds.

Example 1 - a law practice held $1,000 in trust for client A but inadvertently, or intentionally, paid the sum of $2,000 from trust for client A. There is a shortfall (deficiency) of trust funds to the extent of $1,000. This is a general trust account deficiency in that the shortfall (deficiency) of $1,000 has been proportionately funded by all the remaining clients on whose behalf money was held in the trust account. The loss is borne proportionately by all of them.

Example 2 - funds were held in trust for one client and were misapplied for the benefit of another client. $20,000 was held in trust for client B and a practitioner paid the sum of $10,000 from client B's funds for the benefit of client C, without client B's authority. This is a specific trust account deficiency. The loss is borne in full by Client B.

Example 3 - funds were received for deposit to a trust bank account but were stolen by a practitioner and deposited to the practitioner's personal bank account. This is another example of a specific trust account deficiency. The loss is borne in full by the client on whose behalf the money was received.

Ss 259(3) of the Act provides that a deficiency in a trust account or trust ledger, includes the non-inclusion, or exclusion, of the whole or any part of an amount that is required to be included in the account.

A fraudulent payment of $100,000 from a trust account to a practitioner, or some other person or entity, not entitled to receive the payment, in circumstances where the payment is not recorded in the trust accounting records, is an example of such a deficiency. It is a general deficiency in that there is a general shortfall (deficiency) of $100,000 that is borne proportionately by all the clients on whose behalf money was held in the trust account at the time the payment was made.

Ss 259(3) merely gives 2 examples of deficiencies. It does not provide a definition of the term.

Trust Account Statements - are law practices issuing them?

To determine whether law practice is complying ,Trust Account Investigator to review transaction file
– if copy of trust account statement is located on file - no further action
– if no copy of trust account statement on file ask law practice if statements issued
o if no, report as breach
o if yes, sight actual copies retained by law practice

Small trust Account Balances - Procedure to be followed

Agreed procedure is as follows:
• Review the relevant transaction file to determine whether the law practice has recovered all outlays (note outlays now need to have been paid prior to reimbursement).
• If all outlays have not been recovered, prepare a bill of outlays and forward them to the client's last known address (assuming that the law practice has no knowledge that the client has changed address). I remind you that a Notice of withdrawal/request for payment (s58(3)(b) of the LPR needs to be given or sent to the client (most law practice seem to be placing this as a footer to their bills of cost).
• If all outlays have been recovered and the client's whereabouts is unknown, then a unclaimed money return needs to be prepared for the Public Trustee (see s713 of the LPA and section 12.0 of the Trust Accounting Guide).
• If additional costs have been incurred in trying to disburse these funds, I believe that the law practice is entitled to prepare a bill of costs for follow up work, stop payment of cheques, telephone calls, electoral roll searches and other searches eg Whitepapges. The bill of costs should be prepared and given to the client. If the client's whereabouts are unknown then the bill of costs should be presented to the Public Trustee as a deduction from the funds included in the unclaimed money return prepared for the Public Trustee.

Is a trust account authority required to transfer a person's trust money to another trust account?

Ss. 249(1) of the Legal Profession Act 2007 provides, inter alia:

"A law practice must -
(a) hold trust money ............................. exclusively for the person on whose behalf it is received; and
(b) disburse the trust money only under a direction given by the person.

There is no definition of "disburse" for the purposes of S. 249.

The ordinary meaning of "disburse" is "pay out; expend".

The transfer of trust money from one ADI trust account maintained by a law practice to another ADI trust account maintained by that same law practice is not a payment out of the client's trust money. The law practice continues to hold the money for the client.

Accordingly, there is no requirement for a law practice to obtain an authority, from the person on whose behalf trust money is held, in order to transfer that person's trust money to another ADI trust account maintained by the law practice.

Is a law practice partnership required to open a new trust account upon the resignation of a partner

Section 33 of the Legal Profession Regulation 2007 provides that a law practice may establish a general trust account at any time.

The term "law practice" is defined in Schedule 2 to the Legal Profession Act 2007 to mean:

1. an Australian legal practitioner who is a sole practitioner; or
2. a law firm; or
3. an incorporated legal practice; or
4. a multi-disciplinary partnership.

Except in the case of a law firm consisting of 2 partners, a law firm does not cease to be a law firm as the result of the resignation of a partner. The resignation of a partner simply changes the composition of the law firm. Similarly, the appointment of a new partner changes the composition of the law firm.

Accordingly, whilst it is open to a law firm to open a new trust account each time there is a change in the composition of the law firm, it is not a requirement of the legislation that the law firm do so unless the law firm changes from a law firm to a sole practitioner (as the result of the resignation of one or more partners).

Can MYOB or Quickbooks be used to record trust account transactions?

MYOB and Quickbooks do not satisfy the requirements of section 31 of the Legal Profession Regulation 2007 and therefore do not qualify as a computerised accounting system for the purposes of sections 29 - 32 of the regulation.

Notwithstanding that, MYOB and Quickbooks can be used to keep the trust accounting records provided that updated trust account cash books and trust ledger accounts are printed at the end of each day and retained as a record until they are replace by updated printouts.

Is it necessary to give a notice of intention to open a trust account?

No but it is required, pursuant to subsection 46(1) of the Legal Profession Regulation, that written notice be given to the Queensland Law Society of the opening of a trust bank account, within 15 days of the opening of the account.

Further information in relation to the opening of a trust bank account is available at http://www.qls.com.au/content/lwp/wcm/resources/file/ebacfe05c5a68e7/Opening%20a%20Trust%20Account.pdf