EXTERNAL EXAMINER'S CHECKLIST - Law Society of New South Wales

EXTERNAL EXAMINER'S CHECKLIST

Legal Profession Uniform Law (NSW) and Legal Profession Uniform General Rules 2015

for the period

to

1.

External Examiner's Checklist for:

Insert name of law practice

Completed on: Completed by:

Insert date Insert name of External Examiner

Signature of External Examiner:

Index Division 1

Division 2 Division 3 Division 4 Division 5 Division 6 Division 7 Division 8 Division 9 Division 10 Division 11 Division 12 Division 13 Division 14

Content Trust Money This Division requires the External Examiner to address questions on the Rules which are common to trust money and trust records. General Trust Account Controlled Money Transit Money Trust Money Subject to Specific Power Trust Money Subject to Written Direction Register of Powers and Estates in Relation to Trust Money Investment of Trust Money Register of Investments Matter Files and Registers Mortgage Money Borrowing Money from Clients or Former Clients Statutory Deposit General Overview of Matter Files and Trust Records

Page Yes N/A

4

8 18 22 23 24 24 25 25 26 29 30 30 31

Note: Divisions 1 to 13 each includes a question which allows the person completing the checklist to indicate the whole division is not applicable. It is not required to tick each "not applicable" box in the Division. If, for example, the law practice has not received, disbursed or held controlled money then a tick will be placed in "Not Applicable" and move to the next Division.

2.

The review period is 1 April to 31 March. The applicable legislation (unless otherwise indicated) is

the Legal Profession Uniform Law (NSW) ("LPUL") and the Legal Profession Uniform General

Rules 2015 ("LPUGR"), both of which commenced on 1 July 2015.

Examiners will note that the checklist records some breaches with "-" at the end of the breach followed by a number. This has been introduced for Rules with more than one requirement for the record. It now allows the Examiner to report only that piece of information that is not recorded in the required record.

3.

The External Examiner's Report is required to be completed by a person who is registered as a

designated person with the designated local regulatory authority.

External Examiner's Checklist Page 1 of 32

4.

Upon being appointed as an Examiner by a law practice, the Examiner should remind the law

practice of its obligation to notify the designated local regulatory authority in writing of such

appointment if they have not already done so. A notification form ? Notification of Appointment or

Cessation of External Examiner is available on the website of the designated local regulatory

authority.

5.

The Checklist has been prepared to guide the law practice and Examiners through the examination

of the various forms of trust records maintained by the law practice and to assist in the assessment

of compliance with the legislation. The use of the Checklist is not mandatory.

6.

A completed copy of the Checklist together with other review documentation should be retained

by the Examiner as part of his/her work papers.

7.

The Examiner should apply professional judgement together with the various standards prescribed

by the professional bodies which cover the individual circumstances of each examination.

8.

The objective of the Checklist is to assist the Examiner to form an opinion, amongst other things,

as to whether:

(a) any information recorded in the law practice's Law Practice Confirmation and Statement of

Trust Money is not true;

(b) any overdrawing of trust money was restored, and appropriate action promptly taken;

(c) the trust records for the various types of trust money have been properly kept in accordance

with the provisions of the LPUL and the LPUGR;

(d) all necessary trust records were produced to the Examiner as requested for the purpose of

the examination and that the records were kept in a way that enables the records to be

conveniently and properly externally examined; and

(e) the trust records have been kept in a way that at all times discloses the true position in

relation to trust money received by the law practice.

9.

It is necessary to conduct appropriate examination, sampling techniques and enquiries to form an

opinion as to whether the accounting records have been maintained in accordance with the LPUL

and the LPUGR. Examiners must use their own judgement, from the examination of the trust

records, to form an opinion. The designated local regulatory authorities will not offer advice as to

whether an issue in the records warrants a breach of the LPUL or the LPUGR or a qualified report.

10. Breaches of the LPUL and the LPUGR are to be recorded on Schedule 1 of the External Examiner's Report with suitable comments as to the dates and particulars of the recorded breach if applicable.

11. The name of the law practice should be accurately recorded in the Law Practice Confirmation Part A and the Statement of Trust Money - Law Practice - Part B. Any change to the name of the law practice during the relevant period may require a separate External Examiner's Report to be prepared. If further information is required, please contact the Law Society's Trust Accounts Department.

12. All authorised signatories to the general trust account at any time during the examination period should be listed in paragraph 5 of the Statement of Trust Money - Law Practice - Part B.

13. All general trust accounts operated during the examination period must be included in the Statement of Trust Money - Law Practice - Part B in the table at paragraph 1 headed 'General Trust Account', as well as the balance of each from the Authorised ADI Statement and the Reconciled Authorised ADI Balance as at 31 March. The table must also include any accounts that were opened or closed during the examination period, including any accounts which had a change in BSB number due to the change or closure of the relevant branch of the authorised ADI.

14. A listing of authorised ADI's is available on the designated local regulatory authority's website -for New South Wales:

External Examiner's Checklist Page 2 of 32

15. Ascertain all general trust accounts, controlled money accounts, accounts subject to a power, written directions to deal with trust money, and details of any investment of trust money disclosed by the accounting records which will be subject to the Checklist. Details should be summarised in the Statement of Trust Money - Law Practice - Part B.

16. Transit Money (Division 4) - There is no particular accounting records or register required by the LPUL to be maintained for transit money. It should be noted that Section 143(1) of the LPUL requires transit money received in the form of cash to be deposited in the first instance to the general trust account. Section 155(4) of the LPUL provides that if the only trust money received or held by a law practice during a financial year is transit money, the practice's trust records in respect of that year are not required to be externally examined. In addition to transit money, a law practice is not required to have its trust records externally examined if it has only received or held trust money subject to a specific power pursuant to an electronic lodgement network operator's settlement scheme (such as PEXA) and/or trust money subject to a written direction.

17. Trust Money Subject to a Power ? Paragraph 3 of the Statement of Trust Money - Law Practice Part B requires the recording of the total value of trust money subject to a specific power as at31 March. If a precise figure cannot be determined, then an approximation should be recorded, or otherwise record "0.00".

18. The decision as to whether paid cheques need to be sighted, or other transactions be verified, or the balance of the authorised ADI account be verified is left to the discretion of the Examiner. The method and number of transactions selected for review is determined by each Examiner. If the Examiner is satisfied that the source records substantiate the payment transactions, then the Examiner may determine that the sighting of paid cheques is not required.

19. In relation to the calculation of the statutory deposit, the designated local authority in New South Wales does not require the External Examiner to check the calculation but to confirm that a calculation has been made in the relevant applicable period(s) and the amount held on statutory deposit is supported by an authorised ADI document.

The External Examiner's Report must be lodged with the designated local regulatory authority - the Law Society Council by 31 May to ensure processing and that any matters arising may be addressed within the financial year. If 31 May falls on a Saturday or Sunday or a public holiday, the External Examiner's Report may then be lodged on the next business day. If the External Examiner's Report is delayed as a result of an authorised ADI's delay in providing information, Examiners are requested to lodge the External Examiner's Report with a note in paragraph 7 of the Report advising that the Examiner is awaiting information from the authorised ADI. After the receipt of the information from the authorised ADI, if the Examiner is of the opinion that it needs to be drawn to the attention of the designated local regulatory authority, the Examiner should notify the information to the Chief Trust Account Investigator, Law Society of New South Wales, 170 Phillip Street Sydney NSW 2000 or by email to tad@.au. The Examiner is required to submit the External Examiner's Report via the online lodgement system. A copy should be provided to the law practice.

External Examiner's Checklist Page 3 of 32

DIVISION 1 (TRUST MONEY)

SECTION

1. KEEPING OF TRUST RECORDS

OBJECTIVE: To ensure the law practice has maintained records in accordance with the requirements of the Legal Profession Uniform Law (NSW) (LPUL) and the Legal Profession Uniform General Rules 2015 (LPUGR).

OBJECTIVE: To ensure that the law practice is keeping trust records as defined in permanent form and that they have been made readily available to the Examiner.

Section S147(2)(c)

S147(2)(d)

Item 1.1

1.2

Are trust records kept in a way that enables them to be conveniently and properly investigated or externally examined? (Note: This includes excessive delays in the provision of some or all of the records by the law practice. If applicable, please provide details in paragraph 7 and/or Schedule 1 of the External Examiner's Report, which clearly explain that this has been included as a breach)

Are trust records retained for seven years?

Yes No N/A

Comments

SECTION OBJECTIVE: Rule 38(1)

2. COMPUTERISED ACCOUNTING SYSTEMS To ensure that the law practice's computerised accounting system complies with the requirements of the Rules. Item

2.1 Are trust records maintained by means of a computerised accounting system?

38(2)(a) 38(2)(b) 38(2)(c) 38(2)(d)

38(3)(a) 38(3)(b)

38(4) 38(5)

39(2)(a) 39(2)(b) 39(2)(c) 39(2)(d) 39(2)(e)

2.2 Does the law practice maintain and keep, in printed form or in readable and printable form, the following copies of trust records:

2.2.1 a copy of the trust account receipts and payments cash books as at the end of each named month?

2.2.2 2.2.3

2.2.4

2.3 2.3.1

2.3.2

2.4

2.5

2.6 2.6.1 2.6.2 2.6.3 2.6.4 2.6.5

a copy of the reconciliation statements as at the end of each named month?

a copy of lists of trust account ledgers and their balances (i.e. trial balance statements) as at the end of each named month?

a copy of lists of controlled money accounts and their balances (i.e. controlled money listings) as at the end of each named month? Does the law practice:

print a paper copy of trust ledger accounts, the register of controlled money and the trust account transfer journal before they are deleted from the system? provide to an investigator (which includes an external examiner) carrying out a function described in Section 368 of the LPUL), on request, a printed copy of trust ledger account and controlled money account details? Are the copies of trust records as at the end of each named month referred to under Subrule 38(2) prepared within 15 working days after the named month?

Does the law practice ensure that copies of trust records prepared under Subrule 38(2) cannot be modified afterwards (except as provided by Rule 40 ? refer to Rule 40 in this Section of the Checklist)? Does the computerised accounting system maintain all changes (by creation, amendment or deletion) to: client name? client address? matter reference? matter description? ledger account number or other descriptor (if different from matter reference)?

Yes No N/A

Comments

If response is "No", go to Division 1, Section 3.

External Examiner's Checklist Page 4 of 32

SECTION Rule 39(2) 40(2)(a)

40(2)(b)(i)-1 40(2)(b)(i)-2 40(2)(b)(ii) 40(2)(c)

40(2)(d)-1 40(2)(d)-2 40(2)(e)

40(2)(f) 41(2)(a) 41(2)(b) 41(2)(c)

2. Item

2.7 2.8

COMPUTERISED ACCOUNTING SYSTEMS

Are the record of changes (to Rule 39(2)(a) to (e)) kept by the law practice? Does the system accept an entry of a transaction resulting in a debit balance to any ledger account only if a contemporaneous record of these debit balance transactions is made in a manner that enables the production, on demand, of a separate chronological report of all occurrences of that kind?

2.9 2.9.1 2.9.2

2.10 2.11 2.12 2.12.1 2.12.2 2.13

2.14 2.15 2.16 2.17

Is the system not capable of deleting a trust ledger account unless: the balance on the trust ledger is zero? and all outstanding cheques (that relate to the trust ledger) have been presented?

Are copies of deleted ledgers retained in permanent form? Do the entries in records produced in a permanent form appear in chronological sequence? Is each page of each printed or printable record: numbered sequentially? or printed or printable in such a way that no page can be extracted?

Is the system not capable of amending the particulars of a transaction already recorded otherwise than by a transaction separately recorded that makes the amendment? Are fields requiring input compulsory? Is a back-up copy of all computerised records made at least once each month? Is each back-up copy kept by the law practice? Is a complete set of back-up copies kept in a separate location so that any incident that may adversely affect the records would not also affect the back-up copy?

Yes No N/A

Comments

SECTION 3. TRUST ACCOUNT STATEMENTS -TRUST MONEY

OBJECTIVE: To ensure that trust account statements are given for all trust money (other than transit money and written direction money) held or controlled. Note: The provisions of Rule 52 relating to the giving of trust account statements do not apply to a commercial or government client to the extent to which the client directs the law practice not to provide trust account statements ? see Rule 53.

Rule

Item

Yes No N/A

Comments

3.1 Are trust account statements given as soon as practicable after:

52(4)(a)

3.1.1 completion of each matter?

52(4)(b)

3.1.2 a reasonable request from the person on whose behalf the money is held or controlled?

52(4)(c)

3.2 Were trust account statements given as soon as practicable after 30 June in the relevant year for accounts not subject to the exception referred to in 3.2.1 below?

52(5)

3.2.1 If statements were not given for certain ledger accounts, as at 30 June was the balance of each ledger account zero and no transaction affecting the account has taken place within the previous 12 months?

3.3 Do trust account statements disclose:

52(3)(a) 52(3)(b)

3.3.1 the same detail as required by Rule 47 for general trust money, by Rule 55 for trust money subject to a power to deal with trust money, or by Rule 64 for controlled money?

3.3.2 the remaining balance (if any) of the money?

52(7)

3.4 Are copies of trust account statements retained by the law practice?

External Examiner's Checklist Page 5 of 32

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