Common Accounts Rules Breaches

It is important to remind yourself frequently about common breaches in the accounts rules. At The Cashroom we put policies and procedures in place for our clients to safe-guard them from breaching the rules, in this short piece we demonstrate the most commonly breached rules and advise on ways you and others in your firm can avoid these.

If funds are transferred between clients without the client’s written authority this is a breach, i.e. I am selling my flat and buying a house with a partner. As an individual I am selling a property, I am a singular client and must give written authority for the proceeds of my sale to be used in another matter, such as the purchase of a property jointly for my partner and me. For the purchase transaction my partner and I are dealt with as a joint client and matter. Therefore, my written authority is required to transfer the proceeds from the sale of my flat for the purchase of our house. (SRA Account Rule 20 and CLC Rule 12)

To avoid breaches-

  • Put a procedure in place to ensure confirmation that the mandate giving the client’s written authority for a transfer to another client is on file and obtain a partner/directors approval in the instruction to Cashroom to transfer the funds
  • Put a procedure in place to ensure confirmation that all bills have been issued to the clients on creation

A breach can take place when there is a withdrawal of client funds from a ledger where the current balance held for that client is lower than the actioned withdrawal. (SRA Accounts Rule 20.6 & CLC Rule 12). A client account must not be overdrawn.

To avoid breaches-

  • Ensure that before a payment is made/requested against the client account there are enough funds currently showing on the client side of the financial ledger to cover the withdrawal. If there are not sufficient funds on the client ledger you must not make the withdrawal.

There is a rule where a solicitor is not required to pay sums into the client a/c but must record such intermissions in the client ledger (SRA Account Rule 16 and CLC Rule 11).

To avoid breaches-

  • Ensure procedures are in place to log all incoming client cheques and log the outgoing details; of either by banking the cheque or endorsing the third party cheque direct to the client

Client balances held after the conclusion of a matter should be dealt with promptly. (SRA Account Rule 20 & CLC Rule 12.2.6) Any balance held after conclusion of the matter is a breach.

To avoid breaches-

  • Review all balances currently held when receiving your month end balance listings from your Cashroom; and ensure all finalised matters are checked for balances before archiving
  • Obtaining the client’s bank details upon opening a new client will avoid the need to search for clients’ in the future

Transfer of costs or disbursements from client account within 14 days of rendering the bill of costs or incurring the disbursement (SRA Account Rule 17); or within 28 days of completion (CLC Rule 12.1.4). Any funds still held in client account after 14/28 days is considered to be in breach.

To avoid breaches-

  • Your Cashroom can produce reports to highlight all matters with outstanding office balances and where funds are held in client account to identify any potential transfers
  • Ensure procedures are put in place for all transfers to be instructed to your Cashroom on payment of the bill or disbursement

The payment of billed professional disbursements should be made within 48 hours of receiving the funds in payment of your bill. If the professional disbursement has not been paid within this timeframe the funds are considered client monies and as such should be immediately transferred to the client account. (SRA Account Rule 17.1)

To avoid breaches-

  • Ensure procedures are in place to identify that when a bill has been paid by your client; instructions to make payment of all unpaid disbursements included on the bill are sent to your Cashroom.

If you would like any advice on compliance, a health check inspection carried out on your accounts or are thinking about outsourcing your cashiering function, management accounts function or payroll then please do not hesitate to contact [email protected] or visit www.thecashroom.co.uk for more information.

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