Solicitors Regulation Authority (SRA) Audits
About Hayvenhursts Chartered Accountants SRA Services
The Solicitors Regulation Authority (SRA) require that any solicitor or law firm that holds client money has their client accounts audited by an external accountant to ensure compliance with the Solicitors’ Accounts Rules.
We are specialists in the field of the Solicitors Regulation Authority (SRA) Audits and have been for many years, and we have a large number of Solicitors and Law Firms on our books that are highly satisfied with our services and the competitive fees we charge.
Our detailed knowledge and understanding ensure we can offer you proactive guidance on how the SRA rules should be applied and how to ensure that your systems and procedures are fit for purpose.
The Solicitors Regulation Authority (SRA) rules and regulations are often changing so we understand that having an expert who can take care of this for you is imperative if you hold any client money as part of any of your services.
For more information on our services in regard to SRA audits please telephone on 02920 777 756
SRA Audits
Solicitors Regulation Authority SRA audits are specific to the legal industry and firms that are SRA registered, which is most of them. If any solicitor, law firm or manager of a solicitors or lawyers firm in England or Wales holds client money as part of any of their services then an SRA audit is required.
Examples of this are; business’s doing conveyancing and probate work as they hold client’s money as the house buying and selling chain completes and whilst probate is completed and finalised. There are some exemptions and limits to the SRA rules and guidelines but essentially, if a business holds a client’s money at any time during their service they will be audited.
Some firms only specialise in certain areas, as an example; immigration and visa’s and they are paid by their clients on a set fee or a time cost basis, therefore the only money they are paid is the fee for the service they have provided, therefore SRA audit regulations do not apply.
When a house is brought and sold the house funds are passed through the conveyancing solicitor or solicitor firm’s bank account. There will be a period of time that they will hold their client’s money as the buying and selling chain proceeds. This means there is an amount of time that they are holding a client’s money which isn’t theirs. Quite often a solicitor’s conveyancing fees will be taken out of this money and so the rules and regulations are very stringent to ensure customers money is protected at all times.
The Solicitors Regulation Authority (SRA) audits check that everything is as it should be and on an annual basis at audit time samples are taken to trace through client money transactions thoroughly. Solicitor’s and Solicitor firms must have separate client bank accounts and follow strict procedures to regularly and stringently reconcile the account.
After an SRA audit has been completed the Solicitors Regulation Authority will send a report which confirms everything is adequate and the correct processes are in place, or it will highlight any problems that have been discovered. The penalties issued by the SRA for problems found and processes not been followed can be very high. Non-compliance is taken very seriously so it is vitality important that solicitors and solicitor firms obtain a clear audit report each year and this is a service that Hayvenhursts can help you with.
A positive SRA Audit Report gives confidence to customers that their money will be protected for anyone who may be considering their service.
Solicitors Regulation Authority (SRA) FAQ’s
What does SRA stand for?
SRA Stands for Solicitors Regulation Authority.
Who is the SRA?
The SRA is the Solicitors Regulation Authority (SRA), regulating:
- solicitors of England and Wales
- law firms of England and Wales
- non-lawyers, who can be either managers or employees of firms that we regulate; and
- other types of lawyer, such as registered foreign lawyers (RFLs) and registered European lawyers (RELs)
They are not the only regulatory body within the legal profession, as there are different types of legal professionals regulated by other regulatory bodies.
What is an SRA Audit?
An SRA Audit is an annual audit of solicitors who are required to report the money that passes through their client accounts.
Annually solicitors are required to report to the Solicitors Regulation Authority (SRA) about monies passing through their client accounts. The guidance from the SRA surrounding the reporting rules was changed in October 2011 and now all solicitors are required to:
- Provide proof that any client money is kept safe
- Provide reassurance that they are set up to safeguard client money
- Provide reassurance to clients and the general public that monies are held appropriately
- Provide the SRA with any issues/information relevant to the protection of client money
What does the SRA do?
The Solicitors Regulation Authority or SRA is one of many regulatory bodies within the legal profession. The SRA regulate solicitors and law firms in England and Wales as well as non-lawyers who are employees or managers of the firms that are regulated.
For more detail, the following information has been sourced here: https://www.sra.org.uk/consumers/who-we-are/what-sra-about/
The (Solicitors Regulation Authority) SRA
We set the Principles and a Code of Conduct that those regulated by us have to abide by in order to provide legal services. We make sure the individuals and firms we regulate operate independently and with integrity in the interests of their clients and in the wider public interest.
We supervise firms and individuals who are regulated by us and can take enforcement action against those caught breaching our Principles. We have a range of legal powers that enable us to take a variety of different actions according to the severity of the breach and the risk posed to the public and the profession. For example, we can
- issue a warning about future conduct
- impose a disciplinary sanction, such as a fine
- control how a firm or individual practise’s
- refer a firm or individual’s conduct to the Solicitors Disciplinary Tribunal
- revoke recognition of a firm or refuse to renew recognition of a firm
- close a firm with immediate effect (we call this “intervention”).
We may publish our regulatory decisions.
Where a firm has closed it is possible for clients to apply to us for money they have already paid to the firm. We can also return documents to clients; however, we do not reduce or refund legal fees. Please see information on what we do not do, below.
We also make sure that those we regulate are qualified and insured to provide legal services, by:
- setting qualification standards in England and Wales
- monitoring the performance of training organisations providing qualifications
- mentoring students who are training to become solicitors
- assessing the character and suitability of individuals we regulate
- administering the Roll of solicitors, and
- making sure that lawyers from overseas (RELs and RFLs) meet our standards of training, suitability, and English language requirements before they can register with us to practise as solicitors within England and Wales.
What we don’t do
We cannot give legal advice, or tell you which solicitors or lawyers to use, because we are independent. We do, however, have guidance on:
- how to find a solicitor or firm
- how to get the best from legal services, and
- what to expect from a solicitor.
We don’t take complaints about solicitors providing poor service; we deal mainly with cases of fraud, misconduct and dishonesty. The Legal Ombudsman is the organisation that handles complaints about poor service. We cannot refund or reduce legal fees. See our information on how to report a solicitor or firm to find out more about the best way to resolve a problem with your solicitor.
The regulation of firms
The SRA and the Council for Licensed Conveyancers (CLC) have powers to regulate the firms within which different types of lawyer work. The CLC has the power to regulate firms providing conveyancing and probate services. The SRA is able to regulate all types of legal work a firm may deliver, including conveyancing and probate services.
Lawyers are allowed to set up law firms with other lawyers and non-lawyers. This means that, while individuals are regulated by their own approved regulator, the firm for which they work are regulated by either the SRA or the CLC.
Firms are primarily responsible for ensuring compliance with regulators. But individuals within those firms are responsible for their own conduct.
What is an SRA number?
An SRA number is a number that is given to solicitors to show they are regulated by the Solicitors Regulation Authority (SRA). There are more than 120,000 solicitors registered across both England and Wales.
How does the SRA investigate?
Most investigations by the Solicitors Regulation Authority will begin if they have received a complaint or a report about a potential breach of the SRA Standards and Regulations. The SRA will assess all complaints and reports and decide if an investigation is required under rule 1.1 of the Regulatory and Disciplinary Procedure Rules.
About SRA Investigations
How does an SRA investigation start?
A Solicitors Regulation Authority (SRA) investigation usually starts with a letter from the SRA to the manager of a firm or business giving them notice that they intend to commence an inspection at the business’s main office on a specific date.
The business is normally given a date for the investigation which is 7-14 days from the date of the initiation letter. The letter includes all of the information and documents that the manager needs to produce to enable the investigation to start which normally always includes accounting records. There are cases when advance notice is not given and a letter is handed to the business’s manager on the first day of the inspection requesting that they produce the information and documents there and then.
The initial letter from the SRA normally includes a brief statement giving the reason for the investigation, however, they are able to withhold this information if they consider providing the information is a risk and a breach of confidentiality or interference with any evidence they need to review. The SRA’s complete investigation is not limited within the scope of the explanation in the initial letter issued.
Questionnaires are normally provided for completion by the managing partner and senior manager before the investigation starts and the SRA’s investigation officer begins the onsite investigation. During the initial interview, the investigating officer will check the information which has been provided in the completed questionnaires and will ask further questions to obtain any additional information they need on the firm’s practice and compliance procedures, its management and ownership structure.
After the initial interview, the investigating officer will normally then inspect the firms main accounting records and documents, including management and compliance structures and arrangements with any third parties, as well as anti-money laundering procedures.
They will look at client files and this may concentrate on specific areas of work where copies of documents and files will need to be explained if they have any questions.
How long does an SRA investigation take?
It really depends on the case; some investigations are completed within a day and others can last for months if they are complicated. If nothing of concern is found, then a firm can be told on the last day of their inspection and they will then receive a letter from the SRA confirming that the investigation has concluded.
If there are matters of concern found at any time during the investigation, they are likely to interview one or more of the partners and managers to obtain their comments and feedback on what has been found. When interviews are held it is common practice for them to be recorded as evidence. The person within the firm can be asked to comment on any irregularities found during the investigation and may be asked to acknowledge that there have been breaches of professional conduct. The SRA can use the responses as evidence in any future disciplinary proceedings.
If during an SRA investigation you are asked to attend an interview you should ask an SRA specialist solicitor to attend with you as they will be experienced in these circumstances and will ensure the SRA doesn’t ask any unfair or irrelevant questions.
After many interviews and investigations have been completed the SRA produces a forensic investigation report which documents evidence of the breaches of the professional rules and this is used as the basis for any disciplinary or regulatory action.
This is why having an experienced and expert SRA Accountant like Hayvenhursts is vitally important for your business on an ongoing basis as we will support your business to ensure SRA compliance and the likelihood of investigations happening.
What powers does the SRA have?
The Solicitors Regulation Authority is able to regulate all types of legal work a firm delivers if client’s money is held by them for any period of time.
Are all solicitors regulated by the SRA?
The Solicitors Regulation Authority (SRA) regulates solicitors and practices, including ABSs. It also regulates Registered European Lawyers (RELs) and Registered Foreign Lawyers (RFLs). All solicitors must follow professional Principles and a Code of Conduct.
About Hayvenhursts Chartered Accountants
Whether you are a solicitor looking for SRA services, a new ‘start-up’ business looking for an accountant for the first time, or an established business looking for more from your accountant we believe we can provide you with the best and most rounded services in the UK.
We believe in developing an understanding of your business, its needs and goals so we can offer you our personal services which have the infrastructure, knowledge and expertise you are looking for.
Hayvenhursts accountants will give you advice and trustworthy information about your business’s financial records and statuses. We can be involved in financial reporting, taxation, auditing, forensic accounting, corporate finance, business recovery and insolvency. We can support you with accounting systems and processes and will work alongside you to drive your business forward, bringing our skills of strategic forecasting along with expertise in finance, accountancy, auditing and taxation which is essential to every business in today’s climate, whether new or existing.
Our services are available whenever you need them, and you can call us whenever you need help and advice without being charged every time.
Our range of services is extensive and will help you establish your business plan and everything else that goes with starting up a new business. We will spend time with you to learn and understand your business and adapt our services to suit you. Our services include:
- Solicitors Regulation Authority (SRA) Services
- Accounts Preparation
- Audits
- Bank Accounts
- Book-keeping
- Book-keeping Health Check
- Business Growth
- Business Health Check
- Business Plans
- Business Valuations
- Commercial Property
- Company Formation
- Company Secretarial
- Contractors and IR35
- Inheritance Tax Planning
- Management Accounts & Information
- Management Systems
- PAYE Health check
- Payroll & PAYE Returns
- Personal Tax
- Property Tax
- Raising Finance
- Reduce your SRA Audit Costs
- Registered Office
- Strategic Planning
- Tax Disputes
- Tax Enquiries & investigations
- Tax Planning
- Tax Returns & Self-Assessment
- Trusts
- VAT Health check
- VAT Planning & Disputes
- VAT Registration
- VAT Returns
Contact us today on 02920 777 756 and we will answer any questions you may have on Solicitors Regulation Authority SRA Audits, or we will arrange for one of our expert and knowledgeable accountants to call you or come out and see you at a time convenient to you.
SRA Audits FAQ
Are SRA Audits Necessary?
An SRA client money audit is required of all solicitors and law firms in England and Wales who hold client money as part of their services.
THE SRA Define this as a firm that “If during an accounting period, firms have met the following criteria, they may be exempted from the requirement to obtain an accountant’s report:
- small amounts of client money are held (an average of less than or equal to £10,000 as well as a maximum of less than or equal to £250,000) at each reconciliation date; or,
- the holding or receipt of money only from the Legal Aid Agency.”
SRA Client Money Audits: What Are They?
The Solicitors Accounts Rules are outlined by the Solicitors Regulation Authority (SRA) in their standards and regulations. These rules cover requirements to obtain and deliver accountant’s reports that confirm the need for an annual audit of the firm’s client money.
Accountants who are members of chartered accountancy bodies and who are registered auditors, or work for registered auditors, are required to report to the firm in compliance with the Accounts Rules. An SRA-approved format of the Report is provided to a representative of the firm.
Reports by a Chartered accountant should include the following:
An organisation should have adequate systems, controls, and records, and should reconcile them regularly.
Money received from clients is promptly deposited into a separate client account.
Once there is no longer a valid reason to hold the funds, the client’s money is promptly returned.
Clients’ funds can only be withdrawn for the purpose for which they are being held, with appropriate authorisation, and in the event that the account has sufficient funds for the withdrawal.
When a breach of the rules is discovered, the firm takes immediate action to correct it. For example, insignificant technical violations of the rules, such as one-off errors, do not need to be included in any report to the SRA if they are corrected promptly upon discovery and client money is not at risk.
What is the deadline for submitting the report to the SRA?
A firm must obtain the Accountants’ Report within 6 months of the end of the period to which it relates.
Only if the Accountant’s Report shows a failure to comply with the rules, resulting in the risk of money belonging to clients or third parties, needs to be delivered to the SRA. This should be done at the earliest opportunity.
What and who should we appoint as COFA?
The Compliance Officer for Finance and Administration, or COFA, is an important role in the SRA process. Although the person need not be a lawyer or have a legal background, they MUST be a paid employee. The COFA can also be the Compliance Officer for Legal Practice (COLPs).
The compliance officer should have clear and stated lines of communication and escalation and hold a senior role within the firm to allow them effectively carry out the role, including implementing changes or introducing new procedures to ensure compliance and good risk management.
The role of the COFA is to ensure that the firm, its managers and employees comply with any obligations imposed upon them under the ‘Accounts Rules’ and ensure that a prompt report is made to the SRA of any serious breach of the Accounts Rules which apply to them. Clearly, the COFA must have a deep understanding of the Solicitor Account Rules, the financial systems utilised at the firm and finances and accounts in general.
In large organisations, the role of COFA and COLP could each be a full-time paid position within the firm. It is the responsibility of the management of the firm to review the effectiveness of its COLP or COFA and make necessary adjustments. Regardless of the size of the practice, this review must be undertaken. This means if you are a Sole Practioner, you will be the COFA and the COLP in your ‘firm’ and will need to review your effectiveness in the roles.
What are the key risks that Hayvenhursts are looking out for?
The SRA does not consider it appropriate to strictly define when a report must be qualified. They rely on the accountant’s professional judgement to assess the firm’s compliance with the Accounts Rules and whether money belonging to clients or third parties, is, has been or may be placed at risk. They would expect an assessment to be based on an understanding of the seriousness of all the risks posed in the context of the firm’s size and complexity, areas of work, systems and controls, compliance history and the likely impact on the firm and its clients if money were to be misused or not accounted for.
Below we list, for illustrative purposes only, and not intended to be exhaustive, a list of key risk areas that we would be expected to look out for. If the reporting accountant identifies a matter that they consider should be drawn to the attention of the SRA, the report should be qualified and submitted to the SRA. Firms should not seek to prevent a reporting accountant from qualifying a report on the basis that the qualification does not fall into the factors set out below:
Taking money for costs not incurred
Can we see any evidence of the firm systematically billing for costs (fees and disbursements) that have not been incurred? Are firms placing money into the business account in response to a bill for costs not incurred, for example, disbursements for which the client is liable, which gives you concerns about whether a client’s money is safeguarded?
Client money in the client account
Have we seen any evidence of the placing of client money in any account or location other than a client bank account, or have we seen a delay in the placing of money into a client bank account, for a period of time that has resulted in a loss to a client or would otherwise give us concerns about potential fraud or loss of client money?
Have we seen any unallocated round sum transfers between the client account and the business account including for example, in respect of bills for work has not yet been done?
Is there evidence or a concern that the client account is being used as a banking facility?
Overdrawn client /credit business ledgers – shortages
Have we identified any debit balances on client ledgers, or credit balances on the business ledger, for a period of time that indicates:
the firm has used other clients’ money on client matters;
client money has not promptly been placed in a client account; or
client money being inappropriately withdrawn from the client account.
client money inappropriately held in a business account
Withdrawals from client account
Are withdrawals from the client account made only:
When a bill or notification of costs incurred has been delivered to the client?
In accordance with rule 5.1 of the rules and with appropriate authorisation and supervision procedures?
Control systems
Have we seen that the firm can demonstrate that it has effective processes (both manual and IT) that are designed to make sure integrity (i.e. working order) and security (access) over client accounting records and money?
General control environment
Have we seen any evidence where the systems have not operated effectively or where the firm has not been able to properly account to clients for client money held?
General Compliance with the rules
Have we seen evidence of management review/controls designed to make sure compliance with the rules?
Accounting records
Does the firm operate a system that makes sure accounting records are maintained in an up-to-date manner on the double-entry system, and in compliance with the rules?
Failure to account
Have we seen evidence of the firm failing to return client money promptly at the end of the matter?
Suspense ledgers
Have we seen evidence of unjustified use of a client suspense account?
Reduce the costs of your SRA Audit
These are some of the areas of risk that we ascertain to audit and sign-off. If you are not completely satisfied with your current SRA Auditing Accountants or would like to understand how we can reduce the costs of your SRA Audit please telephone 02920 777 756