6.7 Trust money

6.7.1    Legislative provisions

Trust money is defined by section 66 of the Act as:

• Money that is deposited with the Crown pending the completion of a transaction or dispute and which may become repayable to the depositor or payable to the Crown or any other person.
• All money that is paid into court for possible repayment to the payee or a third party, by virtue of any Act, rule or authority whatsoever.
• All money that is paid to the Crown in trust for any purpose.
• Money that belongs to or is due to any person and is collected by the Crown pursuant to any agreement between the Crown and that person.
• Unclaimed money that is due to or belongs to any person and is deposited with the Crown.

Trust money exists only where there is a trustee/beneficiary relationship. Money set aside by the Crown or department for a particular purpose will normally not be trust money as there is no directly identifiable beneficiary who has deposited the money with the Crown.

Trust money held by the Crown is to be managed separately from public money.

Any money held by a department which is not trust money is public money.

Under the Act, the Treasury has the responsibility to manage and invest trust money. The Treasury may appoint agents (including departments) to act on its behalf. Written Notices of Appointment to Manage and Invest Trust Money are issued in these cases.

Section 68 of the Act establishes the constraints on the investment of trust money.

6.7.2    Notice of appointment

A written Notice of Appointment to Manage and Invest Trust Money, in accordance with sections 66(4) and 67(3) of the Act, specifying the terms of the appointment to administer trust money, will be issued by Treasury to departments acting as trust money agents. Only those departments holding such a Notice are authorised to manage and invest trust money and operate trust bank accounts.

Departments must not establish or create trusts whether in respect of trust money as defined in the Act, or otherwise. Departmental monies may be deposited into a trust bank account only if the following conditions have been met:

• the department is purchasing services from the trust; or
• the department is not the sole beneficiary.

6.7.3    Accounting for trust money

Where a department is acting for the Crown as manager of trust money, the department must manage and account for trust money separately from public money. Trust money must be banked into a separate bank account for each trust.

In accounting for trust money, departments are responsible for maintaining documentary evidence of contributions, distributions, revenue and expenses for each beneficiary.

6.7.4    Internal control and trust money

Under the Notice of Appointment to Manage and Invest Trust Money, the Chief Executive of a department must ensure that the appropriate internal control systems are in place in respect of trust money managed by the department.

Internal controls in respect of trust money include the following:

• keeping detailed records of all outstanding money held in trust;
• controlling receipting procedures and ensuring proper authorisation of payments;
• monthly balancing of the trust bank account and investments to the department's accounting records;
• adequate security and control over the blank cheque forms; and
• adequate security over receipt books.

6.7.5    Reporting of trust money

Departments must provide reports to the Treasury, in the form specified, detailing receipts, payments and balances of trust money managed by the department. These reports must be made at year-end for inclusion in the financial statements of the Government of New Zealand, and at such other times as the Treasury may from time to time request.

6.7.6    Records of trust money

The department is responsible for maintaining records of the deposit. The records must include the current (and any preceding) Notices of Appointment to Manage and Invest Trust Money and show the following in respect of each category of trust money specified in the Schedule to the Notice of Appointment:

• documentation supporting existence of trust relationship (i.e. contracts, letters of agreement/appointment, legislation, trust deed, etc);
• name of depositor(s);
• name of beneficiary(ies);
• date of deposit;
• bank where deposit is held;
• amount of the deposit;
• interest terms;
• treatment of interest payments;
• maturity date;
• date deposit is to be refunded;
• date and amount of interest refund(s); and
• date and authority releasing the deposit from the trust account.

6.7.7    Trust bank accounts

Departments appointed to manage trust money must operate a separate bank account for each trust. The Notice of Appointment to Manage and Invest Trust Money will contain authority to establish the bank account(s). These accounts will be separate from departmental bank accounts or Crown bank accounts.

Trust money must be banked into a trust bank account(s), and may be invested only in accordance with the Notice of Appointment. Payments may not be made from trust bank accounts until the money representing the payment has been credited to the account. Trust bank accounts must not be overdrawn.

Unclaimed trust money is deemed to be public money and must be credited to a Crown bank account. Full details of the payment of unclaimed trust money to a Crown bank account must be provided to the Treasury. Section 70(1) of the Act details the circumstances giving rise to unclaimed trust money. Subsequent claims on unclaimed trust money paid into a Crown bank account must be treated in accordance with section 70(2) of the Act.

6.7.8    Investment of trust money

A department which is delegated authority to invest trust money may invest only in accordance with the Notice of Appointment to Manage and Invest Trust Money. Where practicable, any interest earned on trust money must be either added to the original sum and accounted for by apportionment to each beneficiary, or distributed to each beneficiary. The Treasury must be consulted and concur with the method of treating interest when a department does not consider it practicable to treat interest as detailed above.

6.7.9    Taxation

Departments must ensure that they are aware of relevant taxation legislation to the extent that it affects trusts. The Inland Revenue Department should be consulted, or legal advice sought, as necessary.

6.7.10  Definition of terms

Contribution: Amount that has been contributed to the trust by donors during the reporting period and which has been banked to the Trust bank account.

Distribution: Sum paid to beneficiaries of the trust during the reporting period.

Expenses: These are only the direct costs paid by the trust in achieving its aims. This may include cash paid for taxation, administrative and accounting fees, salaries and wages of trust employees, purchase of goods and services and the purchase of items of property, plant and equipment.

Revenue: The amount of interest or other income received by the trust on trust investments, assets, and current balances.