Running a law practice as either sole practitioners or in a small firm is challenging. There are a number of tasks on the list for lawyers to tackle from building/training the support team to handling spot audit from law society. Having helped many lawyers to overcome the pre-audit anxiety, I quite often found out many of them were overwhelmed by the spot audits. Many of them spent valuable hours to dig in various invoices, forms, etc.in order for a clean opinion from auditors. Is it productive? Definitely not, pulling the hair on un-reconciled trust funding accounting has no fun for lawyers.
Here are some recommendations for lawyers when dealing with spot audits.
According, to Law Society By-Law 9 section 18, production of all financial records is required for spot audit. That includes many things like Trust reconciliations, bank statements trust listings, List of Private Mortgage files where you acted for lender, List of Estate/POA files, etc. Getting all the required documents organized is not easy unless you have regular ( monthly or quarterly ) exercise including reviewing those documents.
Many lawyers/paralegals always see spot audit as just a compliance requirement. As a result, all required documents only are organized a few days before the spot audit. After one year of practice, client matters, payments, forms, documents are piled up. Going back to the piles and figuring how it should be organized are challenging. Therefore, my first recommendation is to arrange a time with your accountants or bookkeepers, formalize monthly small exercise like reviewing trust account, review of records to support reporting on private mortgages, estates and POAs. The errors can be surprisingly dealt with at ease. The other benefit is the review also helps improve your practice’s bottom line.
Another recommendation is that reviewing the workflow in practice. There is always room to improve areas that have deficiencies in controls/unproductivity. If the support team has been trained to work from the standardized task lists, then you only face the question why has not been done and who should hold accountable. Another aspect is about efficiency. For example, I have seen bookkeeping is still manually done. The lawyer still believed that was what it’s supposed to be Nowadays, various electronic formats (e.g. excel/csv) from your financial institutions as well as cloud-based software are available to make this process a lot more efficient. Furthermore, more law firms are transitioning to a paperless office , which allows to access client records from any location.
Trust accounting is another critical part of spot audit as client’s interest should be protected. So, for lawyers, you probably don’t need to handle the paperwork to a granular level but it is always a good idea to understand how the trust account is reconciled. The reconciled Trust account can be achieved only when
● Individual trust account ledger is reconciled to Trust ledger
● Trust ledger is reconciled to Trust account bank statement
● Each transaction should have an audit trail, receipts should be backed by bank deposit, E-transfer instruction, etc; disbursements/withdrawals should be supported by invoices, Form 9A, etc.
● Discrepancy/reconciling items should be explained.
Last recommendation is the storage of books and records. The following records should be retained for the last ten years and the current year.
● Trust account receipts and disbursements journals
● client trust ledger
● monthly trust account reconciliations and client trust listings
● bank statements, including deposit slips and cancelled cheques
● signed requisitions for electronic transfers of trust funds (Form 9A)
● signed printed confirmations of electronic transfers of trust funds
Having a clear objective and routines on reviewing key items in the practice will save you many productive hours, which can be converted to the improvement of your law practice bottom line. If you have concerns over your books and records at the pre-audit stage, leave the hassle and stress to us and focus on your law practice. Give Alex a call at 416-358-9251 for a free consultation. He will make sure that your spot audit goes smoothly and help address post-audit issues raised by auditors.
Recent Comments