The Law Firm Finance and Administration Handbook

The Law Firm Finance and Administration Handbook

A Practical Guide for COFAs and Finance Professionals

By Robert Mowbray and Janet Taylor, Taylor Mowbray, and Jane Jarman, Nottingham Law School

Published by:

Worldwide Legal Research

The Law Firm Finance and Administration Handbook A Practical Guide for COFAs and Finance Professionals

By Robert Mowbray and Janet Taylor, Taylor Mowbray, and Jane Jarman, Nottingham Law School

CONTENTS

Contents

1. Introduction

1

What is the COFA and who should be the COFA?

1

The relationship between the COFA and the COLP

2

The rules with which the COFA needs to be familiar

4

2. COFA Responsibilities Beyond Accounts Rules ? Management of your Business:

5

Business Continuity & Financial Stability

Creating the business plan

5

Control of budgets

9

Understanding law firm financials

9

Availability of benchmarking information

11

Setting of budgets and "buy in"

12

Quality of Management Information ? accruals, provisions?

14

Evidence of review and action

16

Cash flow forecasts

16

How far ahead does a firm need to project?

16

Case Example - TLC Solicitors

16

Reviewed by who?

18

Adequate capital

18

Partnership agreements

18

Acceptable levels of debt

20

Risk management

21

What are the risks?

21

Regulatory risks

21

Operational risks

22

How are risks evaluated?

22

Controlling risks through controls

23

Reporting to the SRA

23

Training

24

Who needs training? - Fee earners and the Accounts team

24

What sort of training is required?

24

Link into PSC electives and compulsory SRA Management Course

25

3. Solicitors Regulation Authority Accounts Rules 2011

27

Introduction and Overview

27

Changes in October 2011 and January 2013

27

SRA Handbook Principles

27

The scope of the rules and responsibilities

28

Rule 3 ? Geographical scope

28

Rules 4 and 6 ? Persons governed and responsibility for compliance

28

Rule 7 ? Duty to remedy breaches

28

Key principles

28

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LAW FIRM FINANCE & ADMINISTRATION HANDBOOK 2014

CONTENTS

Rule 1 ? The overarching objectives and underlying principles

28

Main definitions

29

Rule 2 ? Interpretations

29

Rule 12 - Categories of money

29

Proper client bank accounts

30

Rule 13 ? Client accounts

30

Receipt rules and dealing with the firm's own costs

31

Rule 17(2)

32

Rule 17(3)

32

Rules governing withdrawals from client account

32

Rule 20 ? Withdrawals from a client account

32

Balances not exceeding ?50

33

Balances exceeding ?50

33

Rule 21 ? Authority for withdrawal

33

The interest provisions

33

Written interest policy

34

Can you contract out?

34

Legal Aid monies

34

Payments received from a third party

35

Record keeping requirements

35

Rule 29 - Accounting records for client matters generally

35

Special situations

36

Monitoring and investigation by the SRA

37

Accountants' reports

37

Rule 32 ? Delivery of accountants' reports

37

Rule 35 ? Reporting accountant's rights and duties

38

Rule 37 ? Place of examination

38

Rule 38 ? Provision of details of bank accounts etc.

38

Rules 39, 40 and 41 ? Test procedures and matters outside the accountant's remit

38

Rule 42 ? Privileged documents

39

Rule 43 ? Completion of checklist

39

Rule 44 ? Form of accountants' report

39

Overseas practice

39

Some key rules for licensed bodies

39

The Role of the COFA in respect of the Accounts Rules

40

Introduction

40

Establishing appropriate systems and procedures

41

Implementing the systems

44

Maintaining the breaches register and reporting to the SRA

45

Checking client account reconciliations

46

Preparing proper reconciliations

46

Common problems and breaches

47

Office reconciliations

48

Common accounts rules breaches and typical `problem areas'

48

Debit balances on client account

48

Credit balances on office account

48

LAW FIRM FINANCE & ADMINISTRATION HANDBOOK 2014iii

CONTENTS

Earmarking the firm's fees rules 17(2) and 17(3)

49

Dealing with residual balances

50

Dealing with money for unpaid professional disbursements (rule 17(1)(b)

53

Detailed client ledger requirements rules 29(2), (3) and (4)

54

4. Anti Money Laundering & Risk Management

55

AML - Risk & Compliance Toolkit

55

Introduction

55

The Act and Framework of the Legislation

55

The classical taxonomy of money laundering

55

Status of the Offences under POCA

55

First Principles: Problems of definition

56

Knowledge

57

Suspicion

57

Primary Money Laundering Offences: s327-s329 POCA

57

Defences to Offences under s327-329

58

Failure to Report in the Regulated Sector: s330

58

Defences to a Failure to Report Offence

59

Practical Aspects

59

The Money Laundering Regulations 2007 & AML Risk Profiling

59

Filling in the SOCA forms

60

Using the Law Society's Practice Note

61

FATF ? Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals

62

Conclusions: Alert & Proactive

63

5. Client Care

65

Client care requirements of SRA Code of Conduct

65

File opening

65

Money laundering, conflicts etc.

65

Credit risk of client

65

Client care letters & terms of business

65

Fee arrangements with your client

66

Matter planning, pricing & time recording

66

Client estimate and "alerts"

69

Client updates

70

File management

70

Client updates on costs and interim billing

70

Credit control and fee earner responsibility

70

Security of client assets

71

Review of complaints

71

6. Appendix - 2013 Financial Benchmarking Report

73

Foreword

73

Executive summary

74

Fees

74

Profit

74

Lock-up

74

Finance

74

Introduction

74

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LAW FIRM FINANCE & ADMINISTRATION HANDBOOK 2014

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