He accepts consignments Monday, Tuesday and Wednesday and then has his auction every Friday beginning at 4:00 p.m.
Ed and his 12-year-old daughter Melissa are walking around the auction house on a typical Monday, when,
- Melissa says, “Dad, why do you double-lock all the auction house doors? Why do you have electronic security and door alarms? Why do you have so much security lighting? We’re out in the middle of nowhere … it’s hardly a place a thief would think to rob!”
Ed didn’t have to even think a second for his answer:
- Ed says, “Melissa, dear … we have to protect our client’s items. All this jewelry, pottery, silver and furniture doesn’t belong to us — it belongs to our clients. It’s our duty to protect it the best we can.”
Melissa seemed satisfied with her father’s answer.
Ed’s Friday auction goes well, with an auction total of just over $10,000.
As the cashiers count the cash and checks, and balance the money total against the clerk sheets, Ed tells his lead cashier to give him the $10,000 in cash and checks.
Ed takes the $10,000 in cash and checks and puts it in a money bag.
Ed and Melissa are the last to leave the auction house. As Ed and his daughter get into their pickup, Melissa asks her father:
- Melissa says, “Dad, did you get $10,000 from Carla? We only charge 20% commission, so that’s about $8,000 too much.”
- Ed says, “Darling, it is more than our 20%. I just took all the money and I’m going to put it in my upstairs desk drawer.”
Ed and Melissa arrive at home. Melissa gets out of their pickup and meets her father on the other side.
- Melissa says, “Dad, that extra $8,000 belongs to our clients — not us. We have to pay them that money with their settlement.”
- Ed says, “Right again, Melissa. I might have a chance to get to the bank on Tuesday, and I think Henry wants to pickup his settlement in cash next Friday. Don’t worry …”
- Melissa says, “I am worried Dad. We don’t have any security system here at home and our back door doesn’t even lock. Everyone knows where we live … Dad, we use double locks, a security system and extra lighting to protect our clients property — but we don’t have to protect their money?”
Melissa is on to something. Auctioneers go to extraordinary measures to protect their clients property, but then all too often use much less discretion when that property is converted to money.
Of course it’s prudent auctioneers use door locks, security systems and extra lighting at an auction house facility to protect client’s property — and it’s equally vital auctioneers protect their client’s money by using a trust account.
A trust account in the classic sense is an account used exclusively for client’s monies. As such, this account keeps client monies partitioned from personal and business funds. The word “trust” suggests the auctioneer is entrusted with the care and custody of this money — that belongs not to the auctioneer, but to others.
And, this partitioning is important, as it helps protect from the inadvertent — or worse yet — intentional mixing of client monies with business or personal funds.
Commonly, the word, “commingling” means business or personal funds mixed in with client monies and, “conversion” means client monies mixed in with business or personal funds — the latter is also considered theft.
As auctioneering is largely regulated state-by-state in the United States, some states require use of a trust account, while others do not.
Nevertheless, since this money we’re talking about here belongs to the client, rather than the auctioneer — there is no reason for any auctioneer, anywhere, anytime to not use a trust account to house client monies.
And, there’s good news regarding insurance on those bank (trust account) deposits.
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law, which, in part, permanently raised the current standard maximum deposit insurance amount (SMDIA) to $250,000. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category.
As an auctioneer, you are charged with protecting your client’s property that comes into your possession — and that necessarily includes protecting their money by use of a trust account.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is adjunct faculty at Columbus State Community College and is Executive Director of The Ohio Auction School.