Common Form 1 Errors
Cash on hand and bank balances of trust accounts (Line 1)
- The account balance reported is often the balance shown on the bank statement and adjustments for any outstanding deposits or cheques are not made.
- Not all trust bank accounts and balances are being reported.
- Bank reconciliations are being done at dates other than month-end date which could result in transactions recorded in an inappropriate time period. Filter dates set for month-end can easily correct for this error (purpose of bank reconciliation is to verify that the general ledger balance is correct).
- “Outstanding transfers” from the general account to the trust account are not to be included in the trust bank balance (trust funds must be physically in the account at month-end dates to be included).
- Premium receivable balances being reported are not being offset/reduced by the outstanding deposits included in the trust bank balances (results in asset being double-counted and trust position overstated).
- U.S. exchange not being applied to and reported for all trust assets and liabilities.
Total premiums receivable (Line 2)
- Reported balance may not be accurate due to incorrect invoicing dates for new business, renewals, endorsements, cancellations and binders. Total premium balances should be based on the latter of the invoiced date or the effective date.
- The balance on the premium receivable list is not the same as the balance on the general ledger. The balance to report on the Form 1 should be the more conservative figure of the two.
- Valid receivables, which would be included, are omitted because they are shown as pre-bills due to incorrect parameter settings on the premium receivable list.
- Pre-bills being included as trust receivables due to incorrect parameter settings on the premium receivable list.
- Double-counting of post-dated cheque balances if they are included in both the regular aged receivables and the balance summary.
- Direct bill commissions are not to be added to the agency billed receivables.
- Late charges are not deemed to be trust receivable assets and should not be included as an agency bill receivable item.
- U.S. exchange not being applied to and reported for all trust assets and liabilities.
Premiums over 90 days (Line 3)
- The most common error is to report the net amounts generated by the system summary. Only over 90 day debits should be reported here since any amounts owed over 90 days are deemed to be “non-trust assets”. Over 90 day credits should not be applied to amounts owing as these balances are trust liabilities and cannot be applied to “non-trust assets” for any reason.
- Valid receivables which would normally be included, are omitted due to incorrect parameter settings on the premium receivable list (over 90 day balance may not actually be over 90 days).
- Receivables which would be normally excluded, are included as trust receivables due to incorrect parameter settings on the premium receivable list.
- Items on the over 90 day premium receivable balance becomes current due to flipping (e.g. NSF cheques, policy rewrites, policy issuance on a binder.
- U.S. exchange not being applied to and reported for all trust assets and liabilities.
Investments held in trust as allowed by Regulation (Line 5)
- Trust investments that are not owned by the brokerage or that are not in the registered name of the brokerage cannot be reported.
- Only trust investments that are in compliance with Ontario Regulation 991, Section 16(5) can be reported.
- General ledger transactions (sales, purchases, interest payments and/or accruals) are not made. The sum total of the investments should verify that the corresponding general ledger balance is correct.
- U.S. exchange not being applied to and reported for all trust assets and liabilities.
Insurance Premiums Payable (Line 7)
- Reported amounts owed to insurers are improperly reduced by the amount of Direct Bill or monthly Payment Plan commissions expected from insurers.
- Only the company billings for the two months preceding the reporting date are being reported although there are still amounts owed and outstanding to insurers (any amounts owing are still trust liabilities until they are paid).
- Broker insurer payables must be based on broker records rather than insurer/company statements. Insurer statements must be adjusted to match broker records (i.e. trust asset items and trust liability items must match).
- Total insurer payables are not fully reported and only amounts paid in the reporting month and/or next month are being included.
- Binder billed amounts owing are not being included in insurer payables.
- Reporting of old items (credit or debit) in the insurer payable accounts that are no longer relevant. U.S. exchange not being applied to and reported for all trust assets and liabilities.
Prepaid Premiums (Line 8)
- Reported prepaid premiums are not added to net premium receivable balances reported on Line 2 resulting in the double-counting of trust liabilities (net trust position is understated).
- Prepaid premium balances are not reported but are added to net premium receivable balances reported on Line 2 resulting in trust liabilities being understated (net trust position is overstated).
- U.S. exchange not being applied to and reported for all trust assets and liabilities.
Refunds due to Insureds (Line 9)
- Reported refunds due to insureds are not added to net premium receivable balances reported on Line 2 resulting in the double counting of trust liabilities (net trust position is understated).
- Refunds due to insureds balances are not reported but are added to net premium receivable balances reported on Line 2 resulting in trust liabilities being understated (net trust position is overstated).
- U.S. exchange not being applied to and reported for all trust assets and liabilities.
Retail Sales Tax Payable (Line 10)
- Only next month’s payments/remittance for retail sales tax are reported as Retail Sales Tax Payable and the actual total amount owing is not reported. The retail sales tax owing is the amount collected in the current month plus retail sales tax amounts not yet collected which are included in premium receivables balances at month end (trust liabilities are understated and net trust position overstated).
- Reported balance differs from invoice amount when taxes are being remitted on an invoice basis (invoice balance and not general ledger balance should be reported).
Member’s Equity Position (Lines 31 to 35)
- Paid up share capital is not properly reported.
- Any up-to-date earning/loss and the dividends payable balance in the retained earnings/deficit balance at reporting date must be included (adjustments must be made to most recent fiscal year-end figure when semi-annual report is filed).
- Loans to and from indirect shareholders do not qualify as equity and are not to be included in as equity.
- Shareholder loans being reported as contributed surplus on Line 22 and not as Line 34.