All accountants want for Christmas
MHA’s head of professional practices Karen Hain presents eight measures that law firms can take to make accounting season a little easier for those burdened with compliance work.
As we head into the festive season, let’s spare a thought for those poor, overworked and harassed reporting accountants who perform your Solicitors Regulation Authority (SRA) Accounts Rules compliance reviews. They would appreciate the following being at the top of a law firm’s New Year’s resolution list:
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Dealing with residual balances
At the substantial conclusion of a client matter, any funds held by the firm remaining in the client bank account should be returned to the client or other rightful recipient, without delay.
As part of the month-end procedures, the older, inactive matter balances should be reviewed to identify the purpose for which you are holding those funds. Where there is no clear reason for the money to be held, the firm should take steps to return the funds to the rightful recipient promptly.
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Not using the client bank account as a banking facility
Funds being held within the firm’s client bank accounts should only be held for the purposes of the regulated services the firm is providing. It is a breach to retain these funds after your service has been completed, even if instructed to do so by the client.
At no point should you agree to send money to any other body than your client, or the rightful recipient of those funds under the legal service you are providing.
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Setting increased security for online banking withdrawals
The biggest risk to client funds is an erroneous withdrawal, either the wrong amount entered into a bank transfer process, or sending funds to the wrong place. There must be a double checking procedure in place firstly authorising that a withdrawal can take place, then that the correct amount is proposed to be sent to the correct recipient’s bank account.
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Maintaining the firm’s breaches register
Every breach of the SRA Accounts Rules should be recorded within the COFA’s breaches register. Even if in isolation the breach is evidently trivial, alongside other breaches it may highlight trends. These may suggest system or control failures, or areas where further training needs are required.
After you have confirmed the severity of the breach or systematic breaches, and agreed it is material, the facts should be self-reported to the SRA, together with any necessary remedial work – already undertaken or planned to be completed.
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Having sufficient procedures in place in respect of client transactions
Internal systems should be implemented and reviewed for all processes relating to client work. This should cover both the authorisation levels in place, ensuring they are vigorous enough to avoid the risk of severe error or fraud without being too much of a burden on senior members of staff. They should also ensure that any transactions are dealt with and recorded on the case management system promptly and accurately.
- Training staff
A vital part of having sufficient and appropriate procedures in place is that all staff within the firm are aware of the SRA Accounts Rules and how they should be performing their role in the organisation to adhere to these rules. Where breaches have occurred, these should be discussed in a team meeting forum to inform staff of the correct procedures for dealing with such matters and avoid recurrence.
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Cybersecurity
Alongside the above two points, as the Covid-19 pandemic has seen a large increase in staff working from home, firms should take this opportunity to review its internal IT procedures. This should include ensuring that anti-virus software and firewalls are robust, and that staff are suitably trained in how to identify and avoid phishing or ransomware attacks, which are becoming increasingly commonplace. Firms should also train their staff to recognise social engineering attacks that may fall alongside a cyber threat.
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Dealing with interest received on client money
The 2019 rules state that firms should account to their clients for a fair sum of interest on amounts held. The firm’s interest policy should be communicated with clients at the engagement stage, usually within the client care letter.
To help make 2022 a stress-free year for reporting accountants, these are some of the small changes law firms can make to improve their procedures and compliance with the SRA Accounts Rules.
