Solicitor’s Accounts – A Brief Advice

We are all too familiar with the expectant feeling that we get when the post arrives each morning and sifting through the envelopes looking for one that resembles the contents of a cheque.

Our solicitor clients are no different and many share the similar cash flow constraints many of us accountants are experiencing at present with clients taking longer and longer to settle their outstanding fees. So when the fee cheque does eventually arrive, the temptation is to lodge it immediately to the office bank account. However, before such a lodgement decision can be made a solicitor must ask himself the following questions;

1. What is this cheque paying?
2. If it is for professional fees, has a fee invoice been issued and furnished to the client?
3. Is this cheque solely for fees or does it include payment of outlay?
4. Has this outlay already been disbursed?
5. From which bank account was it paid out of?
6. Was it the office bank account?

It is only if the solicitor can satisfy the above questions that he can lodge the cheque to the office bank account. Otherwise it must be lodged to the client bank account. Once the cheque has cleared the bank account, which can now take up to 5 working days, and the above questions are satisfied, the solicitor can transfer the professional fees to the office bank account.

With this in mind, reporting accountants need to be extra vigilant went reviewing solicitor’s accounts and particular attention should be given to payments into the office bank accounts.

With the increasing number of practising solicitors being disciplined or struck off the roll of solicitors, it is only a matter of time before we will see the Reporting Accountant being brought to book for failing to report breaches made by these solicitors.

So what are the tell-tale signs that we should we be looking out for when examining solicitor’s accounts?

In addition to testing a sample of office bank account lodgements, some of the questions we should be asking ourselves would include the following:

1. Is the level of fee income in the year in line with discussions with the solicitor? If the fees are greater than expected this may indicate that early payment of fees were taken without giving prior notice to the client, which is in breach of the regulations.
2. Is the Outlay expense account in the profit and loss account in credit? This would indicate the possibility of client outlay being incorrectly lodged to the office bank account.
3. Are there any credit balances in the Office client ledger? Non-offsetable credit balances in the office account client ledger can arise in the following instances:

• Professional fees lodged to the office bank account where prior notice was not given to the client;
• Professional fees lodged to the office bank account where prior notice was given to the client, but the invoice was not recorded at the time it was raised;
• Outlay which was not already paid out of the office bank account was inappropriately lodged to this account.

Where the above breaches have occurred in the period covered by the report, the reporting accountant should immediately bring it to the solicitor’s attention and ascertain whether the breaches have been rectified? If so, were they rectified without delay once discovered?

Then, when completing the report to the Law Society, these breaches should be reported in Appendix 5 and where material, should also be reported in Appendix 2, stating whether or not the breach was remedied and if it was, whether it was done without delay upon discovery.

By reporting all breaches discovered as outlined, this helps the reporting accountant fulfil their obligations and in turn minimises the risk of being held accountable if things go wrong.

Sharon O’Donovan A.C.A. is the founder of Donovan Keogh Chartered Accountants and for further information can be contacted by emailing sharon.odonovan@charteredaccountancy.ie or by calling (01) 8399911.

Sharon will be speaking on our Audit of Regulated Clients & Audit of Charities seminar. This event can be attended as a full day to gain 8 Hours CPD or for 4 Hours you can attend the morning or the afternoon. This event is being run in 4 locations:-

Dublin     21/09/2010
Cork       22/09/2010
Limerick  28/09/2010 
Kilkenny  29/09/2010

For Further information and a detailed description please follow this link Audit of Regulated Clients & Audit of Charities  

For further information on all our CPD Courses please view our Website - CPD for Accountants