Alison Gorringe, chief executive of the Institute of Legal Cashiers & Administrators, looks at some of the issues around the Solicitors Accounts Rules, such as what to do with small balances left over on a file.
When thinking about how best to frame this article, I recalled an article in the Law Society Gazette back in March 2007 entitled ‘In safe hands’.
The article made reference to the Solicitors Regulation Authority (SRA) comment that almost 20% of misconduct allegations made against lawyers/fee-earners relate to breaches of the Solicitors Accounts Rules (SAR). It appeared to infer that solicitors have hands-on experience of recording their day-to-day transactions in the books of accounts.
I was rather dismayed to find that there was no mention in the article at all about legal cashiers, bookkeepers, account clerks (whatever their title), who usually deal with the daily postings of transactions relating to the office and client accounts. The SAR clearly state that the buck stops with the partners, but the accounts department and its staff are a focal point of any firm, whatever its size.
Having recently taken up my newly created post as the chief executive officer of the Institute of Legal Cashiers & Administrators, working in the office in Sidcup has given me a fresh insight into the telephone queries that we regularly receive from our members. It does appear that some partners/fee-earners are not as well versed in the SAR as they should be, for example when dealing with those small balances that are left over on a file.
Out of balance
One such recent query from a member of an accounts team concerned a fee-earner who had completed a transaction and requested the file be archived and the matter removed from their monthly client report listing, although there was a small client balance left over on the account. The fee-earner, when advised of this situation, suggested that the balance be transferred to a suspense/general ledger because, as far as they were concerned, the matter was finished.
Obviously, somewhere in the life of the transaction the fee-earner must have miscalculated the figures and, it appeared, was reluctant or indifferent to investigate how the imbalance had arisen. Surely if the fee-earner was performing their duties correctly, they should have known the correct rules and procedures?
Fortunately, on this occasion our member was experienced enough to know that what the fee-earner had requested was incorrect. However, had the cashier not been so knowledgeable about the SAR, the outcome could have been very different, with possible audit problems ensuing.
The point I am trying to make is that all staff, whether accounting or fee-earning, need to be aware of the rules and how to apply them. There is only one course of action which will resolve this query and that is to pay the money over to a charity. The answer given to our member regarding the above scenario is reproduced below and we also suggested that for future reference a copy of the appropriate rules should be given to the fee-earner.
“The use of general ledgers to hold client monies would be likely to result in breaches of SAR and possibly give rise to a money laundering issue. The use of general (or suspense) client ledgers would be a breach of rule 32, which requires that all client transactions must be recorded on the client side of a separate client ledger account for each client (32(2b)). The only exception to this is the use of temporary suspense client ledgers where monies are received and a small amount of time is needed to identify the nature of the payment and/or the client on whose behalf the monies have been received.
“Transferring client’s money to a general (nominal) ledger would result in multiple breaches of SAR. Client monies can only be withdrawn from a client account in the specific circumstances listed in rule 22 – which does not include transfer out to a general (nominal) ledger in these circumstances. Further breaches would arise as clients’ money would then be held outside of the client bank account and accounting for any further sums in lieu of interest may prove more difficult.
“On a practical level, transferring the balances to a general ledger (whether a client ledger or nominal ledger) could result in a confusing audit trail in the event that authority to withdraw the funds for one or more of the requested balances is withheld.”
This article first appeared in the Legal Executive Journal