Auditing a Retention Trust Account
Do Retention Trust Accounts have to be externally audited?
It is mandatory for every Retention Trust Account to be audited by a registered company auditor that is independent of the head contractor and has not been excluded by the Queensland Building and Construction Commissioner (max penalty: 200 PU ($27,570) or 1 year’s imprisonment).
The audit must be carried out annually. For the first annual audit, the Review Period is 12 months’ long starting on the day the Retention Trust Account was opened. For all subsequent annual audits, the Review Period starts the day after the last audit Review Period ends. The audit must be commenced within 20 business days after the end of the Review Period and completed within 40 business days after commencing the audit.
The audit must also be carried out on closure of a Retention Trust Account. For a closure audit of a Retention Trust Account that has not yet had a Review Period, the Review Period is the period from the day the account was opened to the day the account was closed. For a closure audit of a Retention Trust Account that has had a previous Review Period, the Review Period is the period from the day after the last Review Period ends to the day the account was closed. The audit must be commenced within 20 business days after the closure of the Retention Trust Account and completed within 40 business days after commencing the audit.
The Queensland Building and Construction Commissioner may, with the agreement of the head contractor, change the day the review must be started to a later day. However, if the day the review must be started is delayed, the review period is extended accordingly.
Retention Trust Account audit process
The head contractor as trustee of the Retention Trust Account must give the auditor all Trust Records requested by the auditor as soon as practicable after the records are requested (max penalty: 200 PU ($27,570)).
The auditor is required to prepare an Account Review Report (max penalty: 200 PU ($27,570)). The auditor must give a copy of the Account Review Report to the head contractor. The auditor must also give a copy of the Account Review Report to the Queensland Building and Construction Commissioner, in an approved way, within 20 business days after completing the review (max penalty: 50 PU ($6,892.50)).
Auditor's Reporting Obligations
If the auditor reasonably believes any of the following circumstances apply, the auditor must, using an approved way, notify the Queensland Building and Construction Commissioner of the belief within 5 business days after forming the belief (max penalty: 200 PU ($27,570) or 1 year’s imprisonment):
- the auditor cannot report that a trust account has been kept in accordance with chapter 2 of the BIFA;
- the auditor finds an irregularity relating to a trust account;
- the auditor suspects the head contractor has not met its obligations under chapter 2 of the BIFA;
- the auditor suspects a contravention of the BIFA, prescribed by regulation (there is nothing yet prescribed by regulation), has occurred.
The difficulty with these requirements is that the BIFA requires the auditor to report all irregularities relating to a trust account and all non-compliances with chapter 2. However, this is not restricted to accounting recording non-compliances. Compliance with chapter 2 requires an assessment of a number of legal matters including:
- which subcontractors are beneficiaries for the Project Trust i.e. identify whether the subcontracted work is protected work or related services;
- when the head contractor is liable to pay a subcontractor under a subcontract;
- what amount the head contractor is liable to pay a subcontractor;
- what the due date for payment is;
- whether an invoice received from a subcontractor is a valid payment claim;
- whether a valid payment schedule has been issued;
- how a provision of a contract relating to recourse to cash retention operates at law.
The QBCC’s Regulatory Guide has not yet been released for auditors. However, the QBCC has indicated that it expects auditors to focus on compliances regarding accounting records and not interpretation of the BIFA. We urge caution in relying on those representations given the significant penalties that apply under the BIFA for auditors.
An independent company auditor is:
- a person who is a registered company auditor; and
- is not an employee of the head contractor;
- is not an executive officer, investor or shareholder of the company if the head contractor is a company;
- is not a partner in the partnership if the head contractor is a partnership; and
- is not a related entity for the head contractor.
No – an audit of the Retention Trust Account is not required if no retention money was held in the Retention Trust Account during the Review Period provided the head contractor gives the Queensland Building and Construction Commissioner a statement, using the approved form, within 10 business days after the end of the Review Period explaining why the head contractor did not engage an auditor to audit the Retention Trust Account.
This page considers the situation where Retention Trusts apply to subcontracts. Unless noted otherwise, all references to a ‘subcontractor’ in relation to a subcontract Retention Trust refers to a subcontractor that is a beneficiary of the associated Project Trust.
If a head contract requires a Retention Trust, the rules set out on this page are the same but the principal is the ‘trustee’ and all head contractors are ‘beneficiaries’ for head contracts that are Project Trust Contracts.
If a lower-tier subcontract also requires a Retention Trust, the rules set out on this page are the same but the higher tier subcontractor is the ‘trustee’ and its subcontractors are ‘subcontractor beneficiaries’.
Last updated: 1 January 2022