How can solicitors keep client money secure?

As the Solicitors Regulation Authority (SRA) collates the results of its ‘A Question of Trust’ campaign and consultation on standards, one thing that is unlikely to change is the primary purpose of the SRA Accounts Rules: to protect people with money held in a client account. 

There may be ‘do’s and don’ts’, and guidelines recommending best practice principles, but ultimately these can be overridden should a solicitor abuse the trust placed in them by deliberately or accidentally misusing the client account. 

In addition, cyber fraud and identity thefts that target client accounts pose a significant risk. 

Strong controls

Misuse of client money, however inadvertent, can be severely damaging to a firm’s reputation. It is therefore essential to ask what can be done to ensure that money is safely and securely held.

The answer is actually rather simple – comply with the SRA Accounts Rules at all times, use common sense, and do not undertake risks that may compromise the security ?of client money.

Strong controls within ?the accounts department ?are essential. Partners and managers should oversee the accounting function and take ultimate responsibility for the actions of their accounts staff. There should also be a clear ?and effective division of duties between the firm’s cashiers to ensure that opportunities for mistakes or misappropriation are eliminated. 

Accounting records, including cashbooks, matter balances, and client ledgers, must be kept up to date so that the current position is always readily available. 

The production of three-?way bank reconciliations on a regular basis will ensure that ?all funds allocated to specific clients are present and accounted for, within both the bank accounts and the client records. These reconciliations should be reviewed in detail by a partner, or someone other than the preparer of the reports, and any differences must be investigated immediately to avoid discrepancies. 

Accurate recording

Procedures must be in ?place to ensure that client ?money received is dealt with promptly and appropriately. ?This reduces the risk of loss or misappropriation, not least by giving a clear record of where the money is held. Money within the client account is also protected, should the firm become insolvent.

There must also be measures to distinguish office money from client money. Client money can end up in an office account accidentally, and so strong controls are needed to ensure that any client money is transferred to where it should ?be immediately. 

Any money held outside of client accounts may not be recorded accurately within the accounting records. It could also be easier to misappropriate and is unprotected against the insolvency of the firm. 

Receipts that cannot be allocated to a specific client ?must be recorded in a suspense account so that they are included within the accounting records. Failure to do this greatly increases the risk of loss or misreporting. Suspense accounts should only be used temporarily, and processes should be in place to review balances regularly to ensure that the owners of the funds are eventually identified. 

Most importantly, it is the controls over withdrawals from client account that a solicitor must pay the most attention to. These must ensure payments from client account are only ever made after proper authorisation. Checks must confirm a legitimate reason for every withdrawal (including internal transfers ?from one client to another).

Finally, a client has the right ?to expect their money to be returned to them quickly. Matter listings should be reviewed regularly and procedures put in place to identify money due to the client. The longer residual balances are held, the harder they are to return, not least because contact details change. 

These steps taken ?together will ensure that the SRA Accounts Rules are easily followed. This, in turn, allows clients to trust that deposits ?will be looked after, all of ?which strengthens client relationships. SJ

Samantha Mason is a chartered accountant in the business services department at Kreston Reeves @KrestonReeves www.krestonreeves.com