What records / documentation do I need to keep if I am the trustee for a Project Trust or a Retention Trust?
It is mandatory for the trustee of a Project Trust and/or Retention Trust to keep a copy of all documents that fall within the definition of “Trust Records” (max penalty: 300 PU ($41,355) or 1 year’s imprisonment). This applies to:
- a principal that is the trustee of a Retention Trust for a head contract;
- a head contractor that is the trustee of a Project Trust and/or Retention Trust for a first tier subcontract;
- a first tier subcontractor that is the trustee of a Project Trust and/or Retention Trust for a lower tier subcontract; or
- a lower tier subcontractor that is the trustee of a Retention Trust for a lower tier subcontract.
Accounting records that must be kept include the following:
- individual trust ledger for the Project Trust and/or the Retention Trust;
- all financial institution statements for each trust account;
- all bank reconciliations carried out each month for each trust account, including all information used to complete the bank reconciliations;
- all trust account ledger trial balance statements for each trust account, including all information used to prepare the statements;
- records of all deposits and all withdrawals from each trust account;
- all notices about withdrawals from, or deposits to, each trust account; and
- all Account Review Reports prepared by a trust account auditor (this is only required for a Retention Trust Account at this time);
- records of all changes to the above trust accounting records including the reason for the change and the correction of errors.
Project records that must be kept in relation to the head contract (i.e. the Project Trust Contract) include the following:
Project records that must be kept in relation to a subcontract (but only if the subcontract is with a subcontractor beneficiary) include the following:
- subcontract for each subcontractor beneficiary;
- all payment claims made by each subcontractor beneficiary to the head contractor;
- all payment schedules given by the head contractor to each subcontractor beneficiary; and
- all documents relating to variations or amendments to each subcontract.
If a Retention Trust Account is required for a lower tier subcontract, all payment claims for the subcontractors who have retention money held in the Retention Trust Account must also be kept.
Similarly, if a Project Trust is required for a lower tier subcontract, all payment claims for the subcontractors under that Project Trust must also be kept.
What other requirements apply to Trust Records?
Trust Records must:
- be recorded in Australian dollars and in English;
- be accurate records of transactions of the trusts;
- enable convenient and proper audit of the transactions affecting the trusts;
- be retained for 7 years;
- be capable of providing separate information for each beneficiary;
- include records of the completion of compulsory trust training for the Retention Trust Account;
- include explanations in English for any abbreviations or codes that are contained in trust records.
All deposits to, and withdrawals from, the Project Trust Account and Retention Trust Account must be recorded in the trust account ledger within 5 business days after the deposit or withdrawal is made.
What specifically needs to be recorded in the Trust Accounting System?
There are a number of strict requirements for what must be recorded in the trust accounting records for both the Project Trust Account and the Retention Trust Account. This information can be recorded by hand in hard copy ledgers or in a computer software accounting package.
The following requirements apply to each trust account:
- all transactions affecting the trust account must:
- be recorded in the trust account ledger; and
- be listed in chronological order of the date the transaction occurred; and
- be recorded in the trust account ledger within 5 business days after occurring;
- a trust account ledger trial balance statement for the trust account must be prepared within 15 business days after the end of each month;
- the following information must be recorded for each transaction recorded in the trust account ledger for the trust account:
- the date of the transaction;
- the transaction number, or other unique identifier, for the transaction;
- the amount of the transaction;
- details of each beneficiary to whom the transaction relates and the amount to which each beneficiary is entitled for the transaction;
- the reason for the transaction;
- the balance of the amount held in trust for each beneficiary after each transaction;
- the record of deposits and withdrawals for the trust account must be a consolidated record that lists the transactions in chronological order of the date the transactions occurred;
- the record of deposits and withdrawals (trust transaction records) for the trust account must include the following information for each deposit or withdrawal:
- the date of the deposit or withdrawal;
- the transaction number, or other unique identifier, for the deposit or withdrawal;
- the reason for the deposit or withdrawal; or
- details of a payment claim for the deposit or withdrawal;
- the amount of the deposit or withdrawal;
- for a deposit – the entity that made the deposit;
- for a withdrawal – the beneficiary or other person for whom the withdrawal was made, including the following information for the account to which the amount of the withdrawal was deposited into:
- the account name;
- the identifying number of the financial institution (BSB) where the account is kept;
- the account number;
- the balance of the trust account after the deposit or withdrawal is made.
- all transactions affecting the trust account must:
Is there a particular computer system that must be used for Trust Records?
No, however, if a computer system is used, it must not be capable of deleting all or any part of a:
- deposit or withdrawal record; or
- trust account ledger for the trust account.
The system must also be capable of producing a report about:
- the details of transactions for a particular trust account for particular periods of time; and
- details of the transactions for a particular beneficiary (both head contractor and subcontractors).
Computer systems that are typically used in the industry to track the financials for a construction project will not comply with these requirements. This is because those systems allow users to delete transactions at any time. Even if a system can turn this functionality off for particular users, it is still possible for management personnel to change this setting. A similar issue often arises with a number of standard accounting systems such as MYOB or XERO. Therefore, a separate accounting system may need to be implemented to actually record the trust account ledgers and generate the trust reports.
At this time, the QBCC has advised industry that it will not enforce strict compliance necessarily with this particular requirement provided the computer accounting system complies with all other BIFA requirements and the trust records are otherwise compliant. However, how long this approach by the QBCC will be adopted is uncertain. We strongly recommend that you take steps to implement a computer system that does comply as quickly as possible to avoid being caught out when the QBCC decides to strictly enforce this requirement.
There are computer packages available in the market for trust account management that comply with the trust requirements in BIFA, however, care must be taken that you do not select a package that is more cumbersome for construction projects than it needs to be and/or does not integrate easily with your existing construction management and accounting packages to minimise your costs and administration time and to ensure that the focus can remain as much as possible on actually doing the project. Please contact us if you wish to discuss systems that comply or if you need assistance with integrating / linking those systems with your existing systems.
What is required for the 'monthly bank reconciliation'?
The trustee of a Project Trust and/or Retention Trust must also complete a bank reconciliation for each trust account within 15 business days after the end of each month (max penalty: 50 PU ($6,892.50)). The purpose is to ensure that the trust transaction records match the bank account records with regard to deposits and withdrawals, and also to ensure alignment with the trust account ledger trial balance statement.
The bank reconciliation for each month must include the following information for the Project Trust Account and the Retention Trust Account:
- the balance of the trust account at the end of the month as shown on the financial institution statement for the account for the month;
- the amount of each outstanding transaction for the financial institution statement for the trust account for the month, including:
- deposits recorded in the trust accounting records for the account that are not shown on the financial institution statement (this may be because the deposit was made on the last day of the month and has not yet been processed as such by the bank);
- withdrawals recorded in the trust accounting records for the account that are not shown on the financial institution statement (this may be because the withdrawal was made on the last day of the month and has not yet been processed as such by the bank);
- the balance of the trust account at the start of the month, as shown in the trust transaction records for the account;
- the balance of all deposits recorded in the trust transaction records for the trust account for the month;
- the balance of all withdrawals recorded in the trust transaction records for the trust account for the month;
- the balance of the trust account at the end of the month, as shown in the trust transaction records for the account;
- the amount of each outstanding transaction for the trust transaction records for the trust account for the month, including:
- deposits shown on the financial institution statement but not recorded in the trust transaction records;
- withdrawals shown on the financial institution statement but not recorded in the trust transaction records.
The trustee must reconcile the balance of the Project Trust Account and the Retention Trust Account at the end of each month, as shown on the trust transaction records, against the amount worked out by:
- adding the balance shown on the bank statement to the total of deposits calculated in paragraphs (b)(i) and (g)(i) above; and
- deducting the withdrawals calculated in paragraphs (b)(ii) and (g)(ii) above.
The trustee must also reconcile the balance of the Project Trust Account and the Retention Trust Account as shown on the trust transaction records with the total balance held on behalf of beneficiaries as shown on the trust account ledger trial balance statement for that month.
Document Management Systems
It is extremely important to ensure that whatever document management system you use for your business and/or a particular project is capable of easily capturing a copy of the documents (emails, letters, text messages etc) that are Trust Records. Given so much of the communication that passes between parties on a construction project occurs by email, we strongly recommend that consideration be given to adopting a system that easily allows emails to be ‘tagged’ and a copy automatically kept whilst not interfering with your normal email system and/or construction management system.
A significant number of ‘document management systems’ used in the industry are not, in fact, good at managing documentation for construction projects. A lot of these packages have a single level of filing which means that all documents are ‘dumped’ or saved to a single folder or level within a system. It is good that the documents are saved to the one location, however, unless it is easy to locate one particular document and retrieve it, then the document management system is not of help to your business in our view. Our team has more than 50 years’ collective experience with managing construction project documentation and the most important factor that must be considered when looking at whether a particular system is good for your business or not is how easy it is to identify, locate and retrieve a particular document. If it isn’t, then there is not a lot of benefit over a ‘shoe box’ filing system.
Many single level filing systems allow the user to search for a document using key words. That is fantastic and a must for any document management system, however, that system is of no use to the user if the user does not know what particular words the person who wrote the document or filed the document used (and whether they had any typing errors!). Again, whilst absolutely necessary for any document management system to have this functionality, it is of no real use to the user unless the user knows the exact words used by the author of the document.
The focus of your business must remain on the construction project because that is the point of doing the project. The systems that assist you the most with managing the project and the build are unlikely to be the systems that will assist you in complying with your obligations under a Project Trust or Retention Trust.
It could be in some respects but you will need to generate a number of separate and filtered reports in order to comply with other requirements i.e. you need to generate a separate statement of all transactions for each subcontractor beneficiary. This can be done if you filter the spreadsheet transaction listing but you will also need to include a subtotal function in order to comply.
We strongly recommend that you consider implementing a compliant trust accounting software package that will not just record the transactions, but will also make it easy to prepare the monthly bank reconciliation and also, if possible, the many automatic notices that you are required to give to subcontractor beneficiaries after each transaction. Please contact us if you would like to discuss what systems may work best for your business.
Last updated: 1 January 2022