Every law firm authorised by the Solicitors Regulation Authority (SRA) has a mandatory requirement to comply with the SRA Accounts Rules.
As legal news headlines show, law firms of all sizes are regularly found to be in breach of the rules.
Breaches aren’t just a small firm problem, despite the popular assumption it’s SMEs who are the riskiest. Breaches aren’t just a big firm problem either, although these are the businesses where the stakes are highest and implications furthest reaching.
Accounts breaches are a human problem.
The human factor
To clarify, while breaches of the rules can be unintentional, often they’re deliberate. Some people get into dire financial situations and look for an easy way out. Other people want a lifestyle they can’t afford and seek an easy source of funds.
Whatever the issue and whatever the reason, client funds are seen as the easy money solution.
Dive beyond the headlines and you’re likely to discover a deviant and desperate partner or cashier with an addictive gambling habit to feed or crippling debts to pay. In extreme cases, you’ll find individuals using illegally obtained funds for criminal activity.
The aftermath of fraud
Protecting client money is the first priority for law firms. According to the aforementioned SRA Accounts Rules, money belonging to consumers of legal services is ‘sacrosanct’ and its misuse has very serious consequences including SRA intervention, referral to the Solicitors Disciplinary Tribunal, being struck off and permanent closure. Not to mention possible criminal convictions.
There’s a good reason for this safeguarding focus and harsh treatment… the theft of client money causes great distress and ruins lives. Move to the other side of the fence for a moment and imagine you’ve completed the sale of your home with £500,000 of proceeds sitting in your law firm’s bank account. Then, they go bust and you can’t get your hands on your money. Your life’s turned upside down in an instant.
These are the real-life, devastating implications of solicitors failing to keep client money safe, neglecting their regulatory duties and undermining the public trust in our profession.
The compliance challenge
The truth of the matter is that if someone’s intent on defrauding, they’ll find a way to do it. Typically, the misappropriation of funds isn’t visible from standard accounting reports.
For instance, your bank reconciliation will list inbound and outbound monies to and from your bank. If a swindler’s changing the recipient details on the bank payment in order to redirect into an account owned by themselves, it’ll only come to light when clients check the whereabouts of their cash and subsequent investigations including involvement by your bank clarifying accounts paid into. Suddenly, everything starts to make sense.
Alternatively, a forensic audit of your books will highlight discrepancies for earlier resolution – before potentially millions of pounds of debt and stolen funds build up. More on this later.
The steps to compliance
So, what do you need to do to keep your accounts clean, pristine and secure? Here are a few tips to help you out:
Tip #1: Make sure your financial management processes are robust
Clearly documented, robust accounting controls, which are not just ‘assumed’ to be happening, but are checked by an internal audit function, go a long way towards compliance. From reconciling bank accounts at least every five weeks, to scrutinising unidentified transactions, ensure you perform the right steps at the right time in the right way. It begins by understanding the SRA Accounts Rules thoroughly and introducing better processes for assured regulatory compliance. To achieve this goal, training of ALL staff, not just cashiers, is absolutely essential.
Tip #2: Assign roles, responsibilities and authorities
Trickier for smaller-sized law firms with fewer staff, if you’re able, designate specific cashiering-related duties to different people – for example, someone entering accounts data, another processing payments, another reconciling your bank accounts etc. On top of this, set up controls in the form of authorisation levels. Systems permissions are a great way to create boundaries and prevent corruption.
These combined best-practice methodologies, cross-referencing checks and layers of approval act as a deterrent or, at the very least, allow you to notice anomalies before it’s too late.
Tip #3: Run an accounting health check
Comprehensive health checks reveal vital business intelligence and compliance insights. Many of the problems referenced above would be identified and headed off at the pass with this type of measure.
Recognising you may not possess these skills in-house, it’s worth knowing consultancies such as Jayva perform health checks day in, day out. Thanks to our health check’s thorough financial review, detailed compliance analysis, reassuring reconciliation verification, helpful audit preparation and easy-to-implement actionable report, your accounts will be shipshape in no time. Activate your health check between now and March – and any oddities will be fixed before your year-end audit.
Tip #4: Report breaches accurately and promptly
While minor compliance failures only need to be recorded in-house by your COLP or COFA, serious breaches must always be reported to the SRA. The SRA’s Code of Conduct dictates whether a breach is considered reportable or not and you’ll need to apply your professional judgement too. Remember to strike the correct balance between reporting trivial oversights unnecessarily and withholding information about grave matters. The latter scenario will cause the SRA to come down much harder on the law firms and individuals concerned.
Tip #5: Carry out a best-practice study
Combining #1 to #4, tap into the expertise of external legal-specialist consultants and trainers like Jayva to take a close look at your existing processes, and recommend improvements to and restructuring of day-to-day, month-end and year-end procedures – for optimum outcomes and guaranteed compliance.
These best-practice advisory services are not simply about showing which buttons to press in your legal accounting and case management software. It’s a consultative approach to making crucial changes to your internal operations – so you can run a first-rate accounting function that industry regulators will approve of.
The power of Jayva
When we’re engaged with clients on software rollout projects, some of these consulting exercises happen automatically as part of our software implementation, configuration and training services – albeit on a limited basis as it’s not what we’re engaged to do at that point in time. If, during the course of technology projects, we spot something’s missing – either in relation to data or processes – we raise these concerns, document in reports and propose modifications.
To benefit fully from our highly experienced legal accounting consultants and trainers, including Chartered Management Accountant and CEO Nicola Moore-Miller, enlist our support on a professional advisory basis. Believe us when we claim the results will be transformative.
The final words
In conclusion, there may be occasions when you know your accounts are in a muddle. This can genuinely come about for a number of valid reasons, whether it’s change of staff, merger or acquisition, change of system, staff illness, whatever – all of which impact a law firm’s operations and that’s when risks increase.
We’d love to say instances of fraud are rare and one-off events – but, sadly, they’re growing in volume. The majority of law firms have only good intent at heart but breaches of the rules can and do happen. We’re human and we make mistakes. As we’ve explained, the key is identifying, resolving and reporting.
There’s huge variance in the stances taken by law firms regarding financial management and SRA Accounts Rules compliance. We’re here to assist law firms with standardising and strengthening techniques for safer bookkeeping in line with rules and regulations.
Get in touch about our advisory services by emailing info@jayvaglobal.com, calling 0333 20 20 995 or visiting www.jayvaglobal.com/legal-accounting-consultancy-services.
