The recently enacted Property Practitioners Act (PPA) and its regulations have paved the way for property practitioners who use accredited payment processing agents to apply for exemption from operating their own trust accounts.
PayProp chief executive, Jan Davel, says now that the Property Practitioners Regulatory Authority (PPRA) has finalised its guidelines for audits, accounting records and trust accounts, there is an opportunity for property practitioners to be relieved of some administrative responsibilities.
He says the previous regulator’s requirements necessitate these annual audits to be carried out by accredited auditors.
“Although many of the audit requirements and property practitioners’ responsibilities have remained the same, there are a few significant changes - and, possibly, a few temporary complications.”
Annual audits
Most property professionals dread the administration work – and costs - that accompany the annual audit season.
Section 54 of the PPA states; property practitioners must open and keep separate trust accounts for their clients’ trust monies. In addition, these accounts must be audited annually, along with the agents’ business accounts.
One of the changes in the requirements is the timeframe property practitioners have to get their trust and business accounts audited after their financial year-end. Davel says the audit report submission deadline has increased from the previous four months to a six-months timeframe under the PPA.
“Although this might sound simple, it isn’t,” he says.
The new PPA came into effect on 1 February 2022, but property practitioners have different financial year ends. In many cases, the effective date of the new legislation does not coincide with property practitioners’ financial year ends - and consequently, the property practitioners’ mandatory audit reporting periods.
“To address this misalignment, the PPRA introduced transitional provisions through its guidelines, which were issued towards the end of May 2022. Essentially, the guidelines stipulate that the submission deadline of audit reports will be determined by the financial year-end dates of the agents.
- If the financial year ends on or before 30 September 2021, the submission deadline remains four months after this date, and the provisions of the old Estate Agency Affairs Act (EAAA) apply.
- If the financial year ends on or after 31 October 2021, the new six months submission deadline will apply, along with the provisions of the new Property Practitioners Regulations (PPRs).
- Interest earned on trust accounts before 1 February 2022 will be accounted for in terms of the old EAAA.
- Interest earned on trust accounts on or after 1 February 2022 will be accounted for in accordance with the provisions of the new PPRs.
Because of the temporary overlap of the two Acts, the guidelines contain a detailed table clarifying which Act applies to which months of the financial year, as determined by each property practitioner’s financial year-end.
Exemption
“As a very positive exception to the general requirement of Section 54, the PPA introduces the possibility of exemption in Sections 4 and 23,” says Davel.
“In terms of Section 4, any person may be exempted from compliance with any specific provision of the PPA, subject to specific provisions of this section.”
In particular, Section 23 offers the possibility of exemption from keeping a trust account under certain circumstances. In terms of this section, exempted property practitioners’ accounting records may undergo a different and less stringent reviewing process.
Regulation 2 of the act provides further details, with Regulation 2(1) outlining the circumstances in which this can happen.
Examples include the following:
- When a property practitioner has never received any trust monies, other than that as permitted in terms of Regulation 2(4), or
- When a property practitioner no longer receives any trust monies, other than as permitted in Regulation 2(4), and
- When a property practitioner submits an affidavit to the PPRA asserting that they already meet all these requirements and undertakes to continue meeting these requirements in future.
Davel says agents need to apply for exemption as the process does not happen automatically.
“Regulation 2(3) specifies that property practitioners must comply with all the above-listed requirements to be exempted from having their financial statements and other accounts audited. Once exempted, they can have those accounts independently reviewed by a registered accountant. This would be a far simpler – and less costly - undertaking.”
He says property practitioners must also use an accredited payment processing agent - such as PayProp - to be exempted from operating their own trust accounts.
“Because of the extensive audit processes that need to be carried out by payment process agents, their clients are excused from formal annual audits. They only need to have their accounting records independently reviewed by a registered accountant each year,” says Davel.
Regulation 2(4) describes a compliant payment processing agent as follows:
- The agent must also be a property practitioner, who possesses a valid Fidelity Fund Certificate (FFC).
- All the trust funds belonging to property practitioner’s must be processed by the payment processing agent.
- The payment processing agent must operate a trust account environment complying with the Act and the Regulations. It must operate a suite of different trust accounts for different property practitioners in a single trust environment.
- The overall trust account environment must be audited annually, together with each property practitioners’ individual trust accounts within that trust environment.
- The payment processing agent must enable two trust account audit processes: one for each of its clients and another holistic audit of all of the property practitioners’ trust accounts together in the payment processing agent’s overall trust environment.
- Audit reports on the overall trust environment must be submitted to the PPRA annually, together with individual audit reports on each of the property practitioners’ trust accounts.
Property practitioners must also follow the prescribed procedures. The guidelines include 11 annexures that provide template affidavits in respect of trust monies that property practitioners should use when they apply for exemption, as well as a template audit report on trust accounts.
The guidelines also contain a summary of fines for contraventions of the PPA and a list of frequently asked questions.
In future
“The PPRA members have been working through numerous challenges, and the guidelines provide much more clarity on the various sections and regulations,” says Davel.
“We understand that the Independent Regulatory Board of Auditors (IRBA) will soon discuss the proposed audit report on trust account templates with the PPRA, after which the guidelines may be further updated.
“From PayProp’s perspective, we believe we have met - and will continue to meet - all the requirements of being a payment processing agent and will be able to implement any further necessary changes,” concluded Davel.
Writer : Sarah-Jane Meyer
