A review of white collar crime: investigating the role of governance and compliance for property agents' trust accounts
Creators: name: ANTONIADES, Hera
Publisher: name: RMIT University
Year: 2024
Subjects: classificationCode: 330299
subject: Building not elsewhere classified
classificationCode: 350403
subject: Real estate and valuation services

description: Documented increases in trust accounting fraud indicate that there is a clear need to enhance consumer protection in the property industry. During the last 120 years, regulatory policy has been developed to exemplify the standards for social responsibility and ethical behaviour between property agents and their principal. In New South Wales (NSW), property agents are entrusted with the responsibility of monitoring and accounting for all trust money held on behalf of their principal, for example the landlord and vendor. This procedure includes, but is not limited to the receipting and banking of trust funds, correct allocation of the money into the ledger accounts, and the appropriate accounting of trust funds to their principal.

During the last decade, there has been a steady increase in fraud with agency's trust accounts. These identified trust account deficiencies and actions of dishonesty have been disguised by licensees and their employees using various methods of application. Literature suggests white-collar crime is "those illegal activities that occur in connection with a person's job or work" (Sutherland 1939 speech). 

The purpose of the research was to undertake a document analysis of public records such as court cases and enforcement notices relating to the misappropriation of trust account funds. The aim of this research was to identify any trends contributing to trust accounting fraud in property agents' trust accounts. The research design was a sequential exploratory research approach comprising of four stages using a mixed method approach. This incorporated archival research, document analysis, and quantitative licensing data, which was mapped against the trust accounting fraud occurrences to identify any correlation. 

There were two distinct themes in the literature review relating to occupational licensing and fraud. These themes were the legislative governance in NSW for property agents, and the second theme was the Corruption Equation (Boyd 2005), comprising of four fraud elements, motive, target, access and opportunity, and their association with white-collar crime. This provided the background for the development of the conceptual framework, where the Occupational Corruption Equation emerged, comprising of six fraud elements. 

Motive + Target + Access + Opportunity + Inadequate Education + Inadequate Industry Experience = White Collar Crime 

Therefore, these six fraud elements were mapped against the analysis for trust accounting misappropriation. A pilot study was initiated to develop the coding for the archival research and to provide a basis to formulate and steer the larger research project which consisted of a 20 year data set analysis from approximately 1st July 1997 to 30th June 2017. Additionally, in 2003, the new Property Stock and Business Agents Act (2002), and the associated regulations commenced. The changes included the softening of educational requirements and abolishing the requirement for industry experience, which effectively provided an open door policy for new licence applications. Therefore, within the 20-year data set, the analysis includes comparisons of data pre 2003 and from 2003 to ascertain whether inadequate education and inadequate industry experience impacted on the trust fund misappropriation increases. 

The analysis identified three categories of fraud within the data set. The first category comprised of owners, directors and licensees-in-charge, second category was related to employee fraud and the final category was attributed to negligence. The findings identified a total of 140 instances of fraud, involving 171 individuals, with 84.80% of these individuals licenced, and 13.45%, holding a certificate of registration. A very small percentage, 1.75%, did not hold either a licence or certificate of registration. 

The total individuals involved in the fraud, who obtained their licence prior to 2003 was 57.93% and 42.07% obtained their licence from 2003 and onwards. The results from the 20 year data set analysis indicate that all of fraud instances were a deliberate misuse of trust funds. An analysis of the pre and post 2003 fraud activities, i.e. the 15 year subset within the larger 20 year data set, indicated that a higher percentage of individuals who obtained their licence from 2003 were involved in the fraud instances occurring between 2003 and 2017. The data showed 45.54% individuals were licenced prior to 2003 and 54.46% individuals were licenced from 2003. Reasons provided for the misappropriation of trust funds include gambling, funds to operate the property agency business, personal debts, loan scheme scam, pre-drawing of sales commission, and funding legal expenses. 

Within the 140 instances, there were eleven (11) instances which related to employees only, with no involvement from the owners, directors and licensees of the business. One employee was licenced before 2003, five (5) held a certificate of registration prior to 2003, and four (4) obtained their certificate of registration from 2003. One employee did not hold either a certificate or licence. However, the results indicated that fraud occurrences relating to employees had diminished considerably over the years. This appeared to be primarily due to the changed restrictions of access and opportunity, so the employees were unable to target the trust funds. However, in a couple of instances, the motive element was so intense for one employee, that regardless of these restrictions, it became necessary for them to falsify records in order to feed their gambling habit. 

There were seven (7) instances (5.00%), comprising of nine (9) individuals, related towards negligence and careless management skills with overseeing the trust account, rather than genuine accounting errors. Three (3) individuals were licenced prior to 2003, one (1) individual held a certificate of registration prior to 2003, with the remaining five (5) individuals licenced from 2003. The data for the negligence category identified that individuals who were licenced from 2003 and onwards were more likely to commit negligence within a short time frame of acquiring their licence in comparison to individuals' licenced before 2003. For instance the data indicated within three (3), four (4) and seven (7) years plus, for individuals licenced from 2003; in comparison to those individuals licenced prior to 2003, the time frame was ten years plus, of acquiring their licence. This indicated a lack of appropriate understanding of trust accounting record keeping and correct processes in operating a property agency office, which is also linked to inadequate education and inadequate industry experience. 

The final group comprising of owners, directors and licensees of the property agency business displayed the six elements of the occupational corruption equation. With unlimited access to the trust funds, the opportunity to target and access these funds was initiated by the individuals' motive. Similarly increase of consumer complaints relating to real estate transactions and an increase in penalty notices were attributed to include the fraud elements, inadequate education and inadequate industry experience. 

A major milestone was reached with new legislation implemented on the 23rd March 2020. The new reforms include improvements to property agency licencing and certificates of registration, upgrading educational qualifications and the incorporation of industry experience. These reforms provide a five year pathway aimed to raise the industry standards and thereby enhancing and supporting consumer protection. 

In conclusion, this research will inform industry and government with practical overviews of the fraud issues and trends, related to misappropriation of trust moneys. And simultaneously provide an ongoing platform to efficiently adapt legislation to maintain and strengthen consumer protection. Furthermore, the theoretical framework for the occupational corruption equation can also be applied to other industries which transact with trust funds, such as the legal profession.