Solicitors’ accounts can be a minefield. Solicitors have enough on their plate without the additional stress of trying to remember and apply all the Solicitors Accounts Rules (SARS) that exist, and so for this task, they may well rely on their Legal Cashiers. In this article, we attempt to outline the top 7 tips that all solicitors should know when it comes to Legal Accounts.
1. Purchase invoices/counsel / expense receipts must be retained for VAT purposes.
It doesn’t matter what the amount is, any expenses need to be supported with a receipt. If a vat inspection took place this information needs to be produced.
2. Outstanding bills with money in client account – need a weekly report.
SARS states that monies in client accounts, relating to payment of bills need to be transferred 14 days from receipt. If these are left for more than 14 days you will be in breach of SARS. So solicitors do need to be on top of their books, to be able to ensure that the relevant postings are made in good time.
3. Balance in client account must be returned it to the client.
It is important the balance is not billed to clear all funds. Any balance must be returned to the client regardless of the amount. For small amounts for example, anything under £1.00, then it’s best to return that in the form of stamps as you often find that many people won’t cash small value cheques, and so you are left with lots of unreconciled cheques waiting to be cleared in the bank. Many solicitors have small balances going back many years. As an exercise, it might just be worth trying to contact these past clients and returning their funds to them. It will simplify matters, and who knows, they may need your services again – you could be contacting them at the right time.
4. Use the office account when you want to draw a cheque against uncleared funds.
You actually don’t have to sit and wait for funds to clear… if you get the authority from a practise partner, then you can draw a cheque against uncleared funds. On the one hand, this can save you time in your practice, but you need to be aware, because if the cheque is returned as unpaid you are in breach of SARS. Drawing funds, which ultimately turn out to not exist will result in an overdrawn client account. This is not allowed, because it means you’ve used client A’s fund to support the activity of Client B. Client B needs his own money. Overall, the best way to avoid any of the above is to have your unpaids go through the office account.
5. Have a process for sending funds back to the client.
This is similar to tip 3, but it’s slightly deeper. Despite many solicitors ‘knowing’ that they really ought to return clients funds to the client, very few actually get around to it. Failing to do this results in cumbersome books, and you don’t want this. What you need is a process for sending funds back to the client – particularly when the cheque has not been cashed. You can’t just close these accounts, if they have uncleared cheques sitting there. Nor can you just keep the money. You need to show that you have attempted to return the funds more than once. Failing this, then the solicitor needs to make an arrangement to send the funds to the Law Society. They have a Benevolent Fund, and they make the decision whether it will go to the charity or whether you can keep it. If it’s for under £50.00 then it can normally go to a charity of your choice e.g. The MS Society. But what you cannot do is send the client a bill for it. Some solicitors do it, but it is wrong.
6. Cheques drawn should be sent to the client immediately.
Large cheques drawn and not banked after two weeks should be queried. If you haven’t sent it out, it should be returned to cancel with possible interest added to the cheque. Solicitors have been known to draw cheques and sit on them while they benefit from the interest. This is wrong.
7. Documentation for yearly audit must be retained and filed in date order.
Paying in books, bank statements and bank reconciliation’s signed by partner, are items that the auditor needs to refer to, to perform the yearly audit. Ideally, archive the records, and keep them for 6-year minimum in case an Inland Revenue enquiry arises.
Lisa Newton, an award winning entrepreneur formed Boogles Ltd in 2004.
Lisa is an Ambassador for the Girls Make Your Mark Campaign – which encourages more women and young people to be more enterprising, a member of The Institute of Certified Bookkeepers (ICB) and The Association of Accounting Technicians (AAT). Lisa has a first class honours degree in Accounting with Marketing and a Masters
in Investment Management.
Boogles is primarily a bookkeeping company and is being franchised throughout the UK. It aims to help small businesses, solicitors and grant-funded organisations to keep good records. The company currently looks after a host of small businesses, charities, not for profit bodies and sole traders.