This article covers several issues that have been the source of recent inquiries.
Monthly reconciliation documents
As discussed in LawTalk 839 page 24, a law firm operating a trust account must ensure that all trust accounts, or their equivalents, are reconciled at least monthly.
Some trust account reconciliations can be difficult for an inexperienced or unfamiliar reader to understand, let alone base any necessary corrective action thereon. This can often be the case when a lawyer’s attorney has to manage a practice under unusual circumstances.
Even for more experienced users and current Trust Account Supervisors (TAS) the effectiveness and quality of the reconciliations they are using can vary. This problem can be further compounded when less common or older trust account software is being used. All of these factors can lead to situations where even though the account appears to be reconciling, all is not strictly accurate.
Also it seems a number of law firms may not be following 7.3 of the Trust Account Guidelines, which can reduce the effectiveness of their month end reconciliation work and can mean that Law Society reviews take longer than should normally be the case.
To mitigate this risk and to ensure that the effectiveness of all reconciliation work is retained, it is suggested that the following monthly work papers are prepared and collated for each trust account or equivalent:
- the reconciliation itself;
- the supporting cashbook/control account summary for the target month;
- the end-of-month bank statement;
- an unpresented cheques listing with numbers, dates and payees;
- all adjustments for receipts not credited or lodgements in transit;
- any other adjustments for errors, either in the control account or made by the bank;
- a complete list of client balances, the net total of which should equate to the control account;
- a printout of the journal transactions for the target month;
- the target month’s transaction ledger for the firm’s float account/firm’s interest in trust/firm’s account; and
- any printouts of relevant exception reports which could include debit balances, large balances, residual and dormant balances.
Reconciliation papers for each interest-bearing deposit (IBD) or term deposit facility would include the:
- firm’s listing of all deposits by client;
- end-of-month bank statement detailing each individual balance held; and
- evidence of any total bank interest credited quarterly. A client-by-client allocation may be requested by an Inspector to ensure correct allocations are being made.
If a firm carries out lending, then together with the above information, the following listings are also required:
- all contributors or lenders;
- all borrowers; and
- any amounts of interest or principal in default.
Firms are encouraged to retain their end-of-month collated documents in a folder with monthly indices separating the reconciliations to prevent loss or misplacement and to facilitate easy reference.
A summary checklist or coversheet would further assist to act as a reminder for what documents need to be prepared and reviewed each month. This would also allow for the TAS to be advised of the reason for any missing information.
One clear purpose of completing such a collation to a high degree of detail and precision for a sole practitioner is that, should anything happen to the lawyer, any attorney operating the practice would have a definitive starting position for the trust account operation, based on the last month end. It remains the Inspectorate’s experience that while many sole practitioners’ procedures are familiar to themselves, they are often confusing to locums or attorneys.
Any lawyer reading this who is an attorney for another practitioner is advised to check that the practitioner’s trust account reconciliations and month end procedures are well presented. This might also provide the opportunity for the attorney to ask the practitioner to provide access to the latest review of the trust account by the Inspectorate to ensure all is in order.
Under Regulation 17of the Lawyers and Conveyancers Act (Trust Account) Regulations 2008, every Trust Account Supervisor must certify to the NZLS by the tenth working day of each month (or in January the 15th working day) specific monthly information concerning the firm’s trust account operations. Since February 2013 this certification has been required to be made online.
From time to time situations arise for practitioners that prevent them from being able to submit their certification on time. In all such circumstances, whether known in advance or arising at the time of filing, it is imperative that the first course of action is to contact the NZLS advising of that fact. Contact is best made through Lucy Wesley at email@example.com, phone (04) 463 2974.
Once contact has been made and the problem discussed then a course of action can be determined. Please do not ignore advising the Society. It is not permitted to allow another staff member to use the Trust Account Supervisor’s personal lawyer ID and password.
Where a pattern of late filing arises with no communication or insufficient explanation, and/or knowingly false declarations made, then the matter will be referred to a lawyers standards committee for inquiry.
If anyone has further questions or requires any assistance please contact the Law Society’s Inspectorate through the Financial Assurance Manager firstname.lastname@example.org, phone (04) 463 2936.