Legal practices must have good financial controls and governance in place to adhere to the Solicitors’ Accounts Rules and prevent breaches.
Breaches generally fall into two categories of material and non-material breaches:
These are serious breaches of the Solicitors Accounts Rules and should be reported to the SRA upon discovery. They usually include:
These are breaches of the Solicitors’ Accounts Rules and should be noted internally on a breach log to monitor breaches and prevent reoccurrences. Regular repeats of breaches signify a lack of financial controls and will constitute a material breach. Non-material breaches usually include:
If you would like professional advice please contact us on 01332 981920, or via our contact page
Regular reporting should be undertaken by the Legal Cashier and COFA to identify potential issues on ledgers and rectify them upon discovery. Here we will look in a little more detail at some of the common breaches and how to identify and rectify them.
Issue – Client account ledgers can become overdrawn if payments are made from matters where no funds or held or payments are made on uncleared receipts, such as cheques from clients which may bounce.
Identification – Running a client/matter balance report on a regular basis to identify any debit client account balances
Resolution – The error should immediately be rectified, and funds should be made up from the office account to replenish any overdrawn client account balances.
Issue – Funds held on account of costs become earmarked once a bill of costs is raised and these funds become office monies. They should be transferred to office account within 14 days.
Identification – Running a client/matter balance report on a regular basis to identify any matters with client account balances and outstanding bills
Resolution – Regularly running a client/matter balance report and undertaking client to office transfers.
Issue – Office credit balances can occur for a number of issues. These include client money incorrectly being held in the office account, a paid invoice being credit noted or a disbursement included into a paid bill, being cancelled or credited by a third party.
Identification – Running a client/matter balance report on a regular basis to identify any office account ledgers with a credit balance.
Resolution – The ledger should be identified to investigate the reason for the credit balance. Any client monies found in the office account should be transferred to the client account immediately.
Issue – Third party fees such as counsel and expert fees which have been included into a client bill, must be paid by the next working day following receipt of the bill payment. If the payment cannot be made, funds should be transferred to client account until the payment is possible.
Identification – Most Practice Management Systems should include a report to identify disbursements included into paid bills. Alternatively when posting a bill receipt, the original bill should be checked to see if it includes any denoted “unpaid” disbursements
Resolution – The disbursement should be paid out by the next working day or funds moved to the client account.
Issue – At the end of a matter, client account monies should be returned where there is no reason to continue holding them. If monies are retained, the client should be written to informing them of the amount and reason of the retention and thereon written to every 12 months.
Identification – A client/matter balance report should be run regularly to identify matters which may have come to an end. This is best achieved by identifying matters where no financial or time transactions have occurred for 3 months or more.
Resolution – Clients should be written to every 12 months where client funds are retained at the end of a matter.
Issue – Third party disbursements such as counsel or expert fees should be listed on a client bill as paid or unpaid
Identification and Resolution – When bills are drawn up for processing, they should be checked and marked as paid or unpaid. Some Practice Management Systems are able to automate this process.
Issue – Uncleared funds are deposited and payments or transfers made against them prior to the funds clearing. If uncleared funds bounce, this can lead to overdrawn client accounts and other issues.
Identification – Where a cheque is deposited, it should be noted (usually on the practice management system) that it is not cleared for payments for a number of working days.
Resolution – Payments should only be made against uncleared funds once they have cleared.
Ascentant undertake regular compliance checks on client/matter ledgers to identify potential issues and ensure that they are rectified upon discovery. To further discuss potential breaches or your Legal Cashiering requirements, please ring us on 01332 981920 or contact us.