Firms that manage client accounts effectively must have robust controls and systems in place to provide confidence to their clients.
Being an RICS-regulated firm that adheres to the client money rules will give independent assurance and confidence to your clients that their funds are well protected and safe. RICS also funds a clients’ money protection scheme. This is a free service provided to clients of RICS-regulated firms.
All regulated firms who hold clients' money pay a regulatory review fee on an annual basis. The income generated from these fees covers the operational costs of the client money regulatory review visit programme. The fee is set based on the number of directors/principals in each firm, which includes both RICS members and non-member individuals.
Following completion of your Annual Return an invoice is issued for this fee which covers the preceding 12 months. The invoice also includes a levy that is collected for the clients' money protection scheme.
If your firm has any surplus client money in a client account, best practice is to:
If, after six years, the client or owner of the money has not been found and no true claimants to the money have come forward, it may be donated to a registered charity. A receipt must be obtained for this transaction so should a true claimant come forward to collect the money it can be made available to them. Preferably the receiving charity should offer the donating firm an indemnity to enable the firm to recover a donation in the event of a claim.
RICS accountants routinely carry out regulatory review visits to firms handling clients’ money. The primary aims of the visits are twofold. Firstly, to ensure that client’ money is held in accordance with Rule 8 of the Rules of Conduct. Secondly, to provide advice and assistance, identify gaps and help regulated firms back into compliance where ever possible. We classify findings from visits into Critical, Serious and Additional points.
Firms not completing ‘three-way’ client account reconciliations. Bank reconciliations may be completed reconciling the cash book or system balance to the bank statement. However, the reconciled cash book balance may not be reconciled to the total of the client ledger balances. This is an essential control to ensure that your accounting records are accurate and complete. Do not assume that the system will always be in agreement as errors and system glitches can result in imbalances which you may remain unaware of.
Some firms give no evidence that reconciliations have been reviewed and signed off by a Principal or an independent senior staff member. It is important that there is a check on the timing and accuracy of reconciliations. We check that old reconciling items, unusual transactions etc. have been followed up and resolved. In a small firm, the review enables the Principal to have confidence that the records are up-to-date and in good order.
The client account bank balance should not be overdrawn or for the cash book to show a negative position. However, if the individual client ledger balances in a general client account are overdrawn, there is automatically an overall deficit – there are insufficient funds in the account to settle all the amounts owing to clients. If discovered, the firm should place funds into the client account pending resolution of the negative balance. Firms should have controls in place to ensure that client ledger balances never become overdrawn.
Firms often have good cheque signing protocols but fail to mirror them for electronic payments. We often see electronic payments being made by non-Principals who also process client money transactions, possibly with no supervision or oversight. Clearly this presents a high risk. Only Principals should be authorised to execute electronic payments.
Items that require reconciling should not be more than two months old with the exception of cheques which may be allowed six months to clear. Electronic receipts should normally be matched and recorded promptly but firms should implement tight procedures to process receipts which are initially unidentified. Particular attention should be paid to bank statement entries which have not been entered onto the accounting system. The presence of old reconciling items may suggest that client balances are incorrectly stated.
Where the bank has not included the full title on statements, the bank should be requested to amend the statement account title as soon as possible. The ‘client’ account designation is critical and the title must be amended if it is not included. Client money needs to be held separately and ring fenced from firm’s funds or other money. It needs to be distinct from any of the firm’s or Principal’s liabilities