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Auckland real estate firm fined $15k for ‘seriously incompetent’ breach of audit rules

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An Auckland real estate firm has been fined over auditing failures described as “seriously incompetent”. Photo / Alex Burton

An Auckland real estate firm has been fined $15,000 and censured for breaches linked to auditing processes described as “seriously incompetent”.

City Realty Ltd failed to ensure its trust account was compliant with auditing rules designed to protect the public, the Real Estate Agents Disciplinary Tribunal said in a decision released last month.

The licensed company, which operates a trust account that a chartered accountant audits, failed to provide its monthly reconciliations on time for 27 months across three financial years, with some provided more than a year late.

The tribunal said that among the numerous breaches committed over three years were the company’s failure to record deposits received, and the paying-out of incorrect amounts from the trust account.

In particular, errors occurred on eight separate occasions in the financial year ending March 2020 and nine occasions in the following year.

By March 31, 2020, the trust account was calculated to be overdrawn by $11,575, which City Realty paid in October that year.

At the end of March 2021, the trust account was calculated to be in surplus, due to a commission of $33,623 being held in the trust account in error, which was eventually transferred out of the trust account a year later.

The company attributed its failures to human error and faulty systems, and added burdens occurring at the time of the Covid-19 pandemic.

City Realty was charged in August last year with wilful or reckless misconduct and in the alternative, misconduct that was “seriously negligent or seriously incompetent” in that it failed to meet required standards.

In December, City Realty admitted the second charge.

The tribunal agreed with the complaints assessment committee, which brought the charges, that due to the length, extent and seriousness of the non-compliance, the misconduct was at the higher end.

It said operating a trust account on behalf of customers was a position of privilege and that by failing to put in place appropriate systems, City Realty had mishandled its customers’ money held in trust.

The committee suggested the most egregious aspect of the offending was that the money was used for purposes other than those for which it was received.

In response, City Realty said the breaches were inadvertent, there was no misappropriation of funds and no loss was suffered by a member of the public.

City Realty’s sole director, Daniel Horrobin, declined to comment when approached by NZME.

His affidavit filed with the committee in February this year gave details about staffing issues and changes with the day-to-day running of the trust account between 2018 and 2022.

Horrobin’s lawyer submitted that due to staff changes and disruption by the Covid-19 pandemic, City Realty was required to undertake a detailed and time-consuming task of restructuring past trust account transactions with limited information available “due to difficulties with a former staff member”.

He submitted that many attempts were made to rectify the situation during the relevant time but due to a lack of expertise available, this was initially unsuccessful.

The tribunal accepted that while City Realty faced staff issues and a changeover of the eligible officer, it should have put in place measures to ensure that the breaches, which it had been notified about, did not continue to occur.

City Realty was given compliance advice by the Real Estate Agents Authority in November 2020.

In deciding on the penalty, which could have been harsher, the tribunal took into account City Realty’s admission and co-operation, its lack of previous disciplinary history and any subsequent breaches of regulations.

It also acknowledged the difficulties arising from Covid-19 that had impacted the firm.

Tracy Neal is a Nelson-based Open Justice reporter at NZME. She was previously RNZ’s regional reporter in Nelson-Marlborough and has covered general news, including court and local government for the Nelson Mail.

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