Legal insight: Top tips for some New Year’s resolutions
With a new decade upon us, PM+M’s legal specialist Helen Clayton offers some useful tips for solicitors around setting New Year’s resolutions that will benefit their firm in the long run.
From my experience, it’s a common theme to find that legal cashiers make use of suspense ledgers within a law firm’s accounting function. These ledgers often record client account transactions.
Some transactions date back many years and may have been ‘acquired’ through a merger with another law firm.
Further, in the current digital and automated age, it is commonplace for all businesses to receive funds which have not been adequately explained by the payee. Hence, the information available to cashiers is limited in being able to identify the source of these funds. The support of fee earners in this regard is therefore incredibly helpful and helps with efficiency and compliance with the Accounts Rules.
There is, of course, a money laundering aspect in being able to identify these funds once they have been received, which may have been out of the firm’s control. Bank account details are readily available on bills, instructions, emails, terms of business and engagement letters.
New Year – new start?
We recommend that all suspense ledgers be reviewed without delay. Project management and clear guidelines will help this to be a success. It may also be worthwhile to incentivise those involved.
We also recommend instilling best practice to quickly identify new balances. This will help to ensure these are dealt with appropriately, recorded promptly on client matters in the accounting records or returned to the bank as unknown.
A firm’s Compliance Officer for Finance and Administration (COFA) should be pushing all of the above so it happens without further delay.
For some time, it has been a requirement of the Accounts Rules that client balances be returned to clients towards the end of a matter.
In my view, this remains best practice and, in every case, shows that client money is protected and not being used for any other purpose.
All firms should have appropriate controls and procedures in place to ensure that this is complied with. The use of exception reporting is a great tool for just this purpose. Regular reporting supports actions, appropriate treatment of client money and ensuring that clients are kept fully in the picture as to their legal matter and the financial transactions surrounding it; ultimately leading to fewer complaints.
Most firms have some, if not a lot, of older residual balances. Again, as with the matter of suspense ledgers (mentioned yesterday), some may have been inherited through mergers with other firms.
New Year – new start?
We recommend that a project is established, with appropriate leadership, to work on returning residual balances or remedying such balances.
We are awaiting further guidance from the SRA regarding these specific circumstances and the expectation is that the contents of the former Rule 20.2 may be included.
In any event, we recommend that every firm has written procedures and controls to deal with older balances and to prevent the creation of new ones.
COFAs should be ensuring that this is happening and that compliance is pervasive throughout the firm.
One of the main responsibilities of the COFA is to maintain a register of breaches of the SRA Accounts Rules.
This isn’t something new. The register should be being used proactively, not as a point of blame for errors, but as a tool to recognise where additional training might be required, whether within the fee earner group or in the finance team.
The Code of Conduct replaces ‘material’ with ‘serious’ breach. In my opinion, serious is easier to explain to people.
The register should be utilised to identify patterns and trends whether these are related to departments, fee earners, cashiers or systems.
Training is therefore vital to ensure that all appropriate persons can identify a breach of the Rules, investigate the cause and document all the required information.
Open communication is also critical to ensure that there is a culture of being able to discuss and document breaches. Further, it also supports ongoing training and awareness within teams. Everyone should feel that they can approach the COFA to report a breach, serious or not.
New Year – new start?
We recommend that breaches registers are reviewed to ensure completeness of information and adequacy of decision making on whether a breach is reportable.
We recommend that training and re-education takes place to ensure that everyone understands the importance and relevance of maintaining a complete and accurate register, which supports the focus on quality and serious view of compliance across the firm.
Continuing the theme from yesterday, another responsibility of the COFA is to ensure that file reviews take place on a regular basis. These reviews should be systematic, risk focused and used as a tool to further improve quality and identify where training might be required across departments, fee earner groups or across the whole firm.
With the introduction of the new Accounts Rules on 25 November 2019, firms must ensure that systems and procedures are documented. The COFA can then utilise this information to ensure that files comply with the firm’s own internal systems and controls and with the Accounts Rules and Code of Conduct.
Areas including who can authorise payments from the client bank account and identification of the source of funds will be important in ensuring client account transactions are legitimate and dealt with appropriately.
Other areas such as client care letters, bills to clients, written correspondence with third parties and clients should all be considered in ensuring that enough evidence is retained on matter files.
New Year – new start?
If the file review process has fallen by the wayside, then the New Year gives the perfect reason to re-establish it. Quantity, timescales and the selection process should be documented. Further, this should all be joined up with the COLP.
Regular file reviews should be used to encourage an open culture, regular communication as well as accountability and responsibility.
Quality and client service can only improve as a result.
Risk should be top of all management and leadership agendas within a law firm.
There will be differing risks and various degrees of risk across different law firms, which may depend on geography, services, experience of fee earners, leadership skills, attitude towards quality, development and re-investment into the firm.
The SRA has identified the following areas of risk for 2020:
- Anti-money laundering
- Client money
- Diversity in the profession
- Information and cyber security
- Integrity and ethics
- Investment schemes
- Managing claims
- Meeting legal needs
- Standards of service
New Year – new start?
Every firm should have someone who takes responsibility for risk management, no matter the size of firm. Risk management protects a firm, its employees and its clients.
Consideration to each of the above is a great starting point and demonstrates the intent of the firm and its leadership to consider risks facing the firm, how they might change or evolve and how they can be minimised.
Regular reviews are vital as is assigning accountability and responsibility.
For more information and details on the risks mentioned, please access the Risk Outlook at https://www.sra.org.uk/risk/outlook/risk-outlook-2019-2020/
