SRA Audits FAQ
Hayvenhursts Chartered Accountants are considered by many Solicitors and people working in the legal industry as experts in regard to SRA Audits. Below, we lay out the most frequently asked questions regarding client money audits for the Solicitors Regulation Authority (SRA).
Solicitors Regulation Authority (SRA) client money standards and regulations only cover a small part of what our SRA audit experts can help you with. In order to provide your customers with confidence that their money is safe, we can challenge the robustness of your client’s money systems and processes.
We consider our role as much about support and guidance as it is of an Auditor. We aim to make the process as straightforward and time-efficient as possible so as to ensure a smooth audit process with minimum disruption to their business activities. We also aim to reduce your current SRA Audit costs.
For more information on Hayvenhursts SRA Audit services or If you would like a free consultation with one of our partners at your offices at your convenience to discuss SRA audit call us on 02920 777 756.
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