Johnson: SRA will allow firms to recoup the costs
Law firms must be careful not to impose policies on client account interest that set too high a de minimis threshold if they want to avoid attention from the Solicitors Regulation Authority (SRA), a senior reporting accountant has warned.
Ian Johnson also highlighted residual client balances as still the number one bugbear for reporting accountants.
Mr Johnson, a partner at accountancy firm Hazlewoods, was addressing last week’s annual conference of the Institute of Legal Finance & Management, of which he is a past chair.
While reporting accountants were not actually required to consider firms’ interest policy, they would usually look at it anyway.
“Don’t put yourself up the risk ladder in the SRA’s eyes by having a policy that’s clearly unfair,” he said. “The way that things can be most obviously unfair is on your de minimis limits, the balance above which you pay interest over to your clients.
“We see a range of these and I tend to be pretty okay if you’ve landed somewhere between £50 and £100. That’s what most firms go with.” Firms could go higher, he accepted, especially those dealing with large corporate clients.
“And of course don’t forget to actually pay the interest to your clients. It’s one thing having an interest policy – you have to stick with it as well.”
His comments come against the backdrop of the profession waiting for the government to announce whether it will skim off client account interest. Last week, research warned that losing the interest would likely lead to “the demise of notable volumes of law firms”.
Having just finished the reporting season, Mr Johnson said residual balance remained the number one breach.
“I’ve not got a problem so much with the existence of residual balances. I’m not necessarily going to qualify an accountant’s report because you’ve got some.
“I tend to get a little bit edgy when you’re not doing anything about those residual balances, when you don’t have a control in place to identify them or do something about them.”
Providing banking facilities was the second most common breach, sometimes triggered by clients asking for money to be transferred to a different client. “You shouldn’t be doing stuff for your client’s convenience,” he stressed.
“The problem with this is that potentially if you transfer that money blindly from company A to company B, they might be have the same owners, but there’s different control. You could be facilitating something a lot more serious, such as money laundering or tax evasion.
“You might feel like it’s okay 99% of the time, but why put yourself at risk? There’s no reason to be doing that. You can be active for both clients, but there’s not a specific legal reason for you to be transferring that money from client A to client B. You’ve got to question it and send it back to your clients to let them deal with it.”
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