A Comprehensive Guide to SRA Audits & FAQs
Hayvenhursts Chartered Accountants are considered by many Solicitors and people working in the legal industry as experts regarding SRA Audits. Below, we lay out the most frequently asked questions regarding client money audits for the Solicitors Regulation Authority (SRA), as well as information about compliance with SRA regulations, the role of conducting audits, waivers and exceptions in audit reports, and risk management strategies.
The Solicitors Regulation Authority (SRA) client money standards and regulations only cover a small part of what our SRA audit experts can help you with. To provide your customers with confidence that their money is safe, our expert and qualified accountant auditors at Hayvenhursts can challenge the robustness of your client money processes and help you develop strategic client money processes to mitigate risks associated with the process.
We consider our role and audit process 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 to ensure a smooth audit process with minimum disruption to your business activities. We also aim to reduce your current SRA Audit costs and report in advance removing the stress and mistakes that can often happen if an audit is not completed in a timely way.
For more information on Hayvenhursts SRA Audit services or, if you would like a free consultation with one of our partners at your business at your convenience to discuss your SRA audit call us on 02920 777 756 or use our contact form here.
An Overview of SRA Audits
SRA Audits are examinations conducted to ensure solicitors in England and Wales comply with the regulations set by the Solicitors Regulation Authority (SRA). These audits are crucial as they verify that legal professionals handle client money and accounts ethically following SRA Accounts Rules. By assessing systems, controls, and records, our SRA Audits play a vital role in upholding transparency and accountability within the legal sector within a relevant accounting period and financial statements. Solicitors must undergo these audits to demonstrate their adherence to regulatory standards and maintain the trust of their clients and the public.
Hayvenhursts Chartered Accountants specialise in supporting solicitors through SRA Audits, emphasising the importance of accurate reporting, prompt deposit of client money, and proper withdrawal procedures. Timely completion of SRA Audits not only ensures compliance but also enhances the reputation and credibility of legal practitioners within the industry.
Understanding SRA Accounts Rules
The SRA Accounts Rules outline specific requirements that solicitors and law firms must follow when handling client money. These rules mandate the maintenance of separate client accounts to prevent the mixing of funds and ensure that separate client money bank accounts are in place, and client money is promptly paid into these designated accounts. Accurate record-keeping and reconciliations are also essential to track the movement of client funds and detect any discrepancies promptly. By adhering to these guidelines, legal professionals can mitigate the risks associated with improper handling of client money and client money bank accounts to uphold the integrity of their financial practices.
As an example, failure to maintain separate client accounts or delayed reconciliation processes can lead to severe consequences during SRA Audits, potentially resulting in penalties or breaches of regulatory standards. Therefore, solicitors must prioritise compliance with the SRA Accounts Rules to safeguard client funds and maintain trust within the legal community.
What is our Role in SRA Audits?
Our chartered accountants ay Hayvenhursts play a critical role in conducting SRA Audits for solicitors, ensuring that financial systems and controls comply with the SRA regulations. Our professionals have the expertise required to assess the intricacies of accounting practices within legal settings and provide valuable insights into enhancing compliance measures. By thoroughly examining records, conducting audits, and preparing comprehensive reports for submission to the SRA, our chartered accountant auditors help solicitors navigate the complexities of regulatory requirements and demonstrate their commitment to ethical financial practices.
Our SRA Auditing approach involves meticulous planning, remote audits, and on-site fieldwork to ensure timely completion of audits with minimal disruption to daily operations. By engaging our skilled chartered accountants for SRA Audits, solicitors can streamline the audit process, mitigate risks, and strengthen their compliance efforts.
What are the Benefits of Timely Completion of SRA Audits?
Timely completion of SRA Audits offers huge advantages for solicitors. By promptly fulfilling audit requirements, legal practitioners can minimise the risks associated with non-compliance with SRA regulations and further action that could be taken. This proactive approach not only helps maintain a positive reputation within the legal industry but also reinforces credibility among clients and regulatory bodies. Timely completion of SRA Audits enables solicitors to address any potential issues promptly, ensuring transparency and adherence to best practices in financial management.
What are the Waivers and Exceptions in SRA Audit Reports?
Firms may be eligible to apply for waivers of accountant’s reports as outlined by the Solicitors Regulation Authority (SRA). To qualify for waivers, firms must meet specific criteria and provide supporting documentation to substantiate their waiver applications. The review process for waivers involves a thorough assessment of the firm’s compliance with regulatory objectives and may result in approvals or rejections based on the provided evidence. Understanding the requirements and procedures for waivers in SRA Audit reports is essential for solicitors seeking exemptions from certain reporting obligations. Hayvenhursts can help you navigate the waivers and exception rules when it comes to your SRA audit.
What are Risk Management Strategies in SRA Audits?
Effective risk management is crucial in SRA Audits to mitigate potential threats related to client money handling. Common risks identified during audits include overdrawn client ledgers, improper withdrawals from client accounts, and failure to promptly return client funds. By implementing robust risk management strategies, solicitors can safeguard against these risks and ensure compliance with SRA regulations. Proactive measures such as regular audits, internal controls, and relevant staff training can help prevent financial discrepancies and uphold the integrity of client files and money-handling practices within legal firms.
Are SRA Audits Necessary?
Yes, an SRA client money audit is required of all solicitors 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 annual 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 if 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 accounting period to which it relates.
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, this needs to be delivered to the SRA and 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 to 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 its 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. 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 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, concerning bills for work that 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 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’s 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?
- Under 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 ensure 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 ensure 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 us at 02920 777 756. One of our qualified auditors will meet with you to discuss how our experienced team can supply you with a qualified report. Our commitment is to provide you with advice, guidance and recommendations for implementing robust client money processes which will support your business under the SRA (authorised body) rules and regulations.