“Caring” solicitor undone by accounting system

Accounts: Solicitor let down by software

A “passionate, caring and in many respects competent” solicitor, whose firm got into a financial mess in part because of the accounting software she used, has escaped removal from practice.

The Solicitors Disciplinary Tribunal (SDT) imposed a 12-month suspension on Sarah Lesley Watson, but suspended it for two years, subject to her submitting six-monthly unqualified accountant’s reports during that time.

She also has either to outsource management of her client account to a third-party managed account provider or employ a qualified legal cashier.

The tribunal accepted that many of the mistakes made arose from the operation of the accounts software.

Whilst she realised “fairly quickly” that the system was not doing the task she required of it, the SDT said, “she had spent many thousands of pounds in its purchase and ‘soldiered on’ with it in an attempt to make it work for her”.

But “it had ultimately let her down”, the tribunal found. “The complexity of the system and the number of mispostings were clear reasons why errors had occurred.”

While this meant Ms Watson failed in her regulatory obligation to have to have books in compliance with the accounts rules, it did not follow that she failed to run her business effectively.

“The period of 15 months in which [she] had persevered with the software had not been an unreasonable time frame to do so before taking the decision to change to a new and easier-to-use system.”

The solicitor, born in 1984 and admitted in 2009, was sole director of Watson Legal in Chelmsford, Essex from 2013.

The SRA began an investigation in February 2019, after a series of qualified accountants’ reports on the law firm from 2015 onwards.

An intervention report was prepared in May 2019, but Ms Watson persuaded the Solicitors Regulation Authority (SRA) not to shut down her firm, arguing that the software had led to “honest mistakes”.

There was a further investigation, but by December 2019, Ms Watson said she had secured a £15,000 loan to clear the majority of the remaining client account deficit.

Ms Watson had made 71 transfers from client to office account between January 2017 that were improper because she did so before raising bills.

Though this was a rule breach, it did not show a lack of integrity nor was it dishonest, the SDT decided. No client had lost money or complained, and the bills subsequently rendered accorded with the sums transferred.

More serious, however, was Ms Watson’s failure to pay disbursements in five matters as they should have been and instead using the £4,250 received for them to help run her firm. This did display a lack of integrity.

As a result of all this and other issues that the SDT accepted as genuine mistakes – paying wages of £1,000 to a staff member from client account and £14,000 to HMRC when not in funds – there were at various points shortages on client account of up to £27,000.

The SDT said the various problems and mistakes did not explain why the solicitor took so long to remedy them.

“The tribunal agreed with the contention that a delay of three months was unacceptable and a delay of eight months even more so.

“A solicitor of integrity would have replaced the money immediately, or if that was not financially possible would have severely restricted drawings to leave money in the firm to remedy the situation.”

This too showed a lack of integrity.

Ms Watson was also found to have failed to inform the SRA that her firm was in financial difficulty, even though two county court judgments were made against her and payment plans were agreed with HMRC for almost £28,000 of unpaid tax.

In addition, 98 direct debits from office account were returned due to insufficient funds and Ms Watson had rent arrears of £4,000.

The SDT said she had convinced herself that, with the help of loans from her husband’s family and by ‘trading through’, the firm had avoided being in serious financial difficulty and there had been no obligation upon her to report her financial situation.

It found, however, that “on any objective analysis of the evidence” the firm had been in serious financial difficulty, which would have been obvious to Ms Watson “had she sincerely applied her mind to it” – as she had admitted in hindsight.

Whilst she had systems and controls for monitoring the financial stability of the firm, “she had chosen to override those systems in order to keep her business going and thereby had placed clients’ money and assets at risk”.

In mitigation, Ms Watson said she had put “everything” into making her firm work and “this had been at the expense of her marriage and health”.

The tribunal said she had “learned lessons from this experience”, but the findings of lack of integrity with respect to client money “made this a matter of high seriousness”.

It accepted that Ms Watson was “a passionate, caring and in many respects a competent solicitor, and one with a hitherto unblemished record.”

It considered she was unlikely to make these mistakes again, and so the question was the protection of the reputation of the profession, rather than protection of the public.

A suspension was appropriate but, “in the particular circumstances”, suspending this for two years and imposing the requirements on her sufficed.

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