Client Account Shortages

The Solicitors Regulation Authority (SRA) have published a new warning notice dealing with the duty of solicitors to replace client account shortages immediately.

Whilst not referencing the Axiom Ince case, the warning notice must be seen as a response to the £64 million reported to be missing from the Axiom Ince client account and may also be seen as a further shot across the bows in the SRA’s latest plan to get rid of solicitors’ client accounts.  Indeed, the “stating the obvious” tone of the warning notice implies that firms may be likely to not know what is normally patently clear and that missing client money is a regular occurence.

Normally, warning notices are issued in response to a rising trend in particular unacceptable or unsafe behaviours by solicitors.  In this case, no such trend appears to have been identified.

In addition to references to case law and the regulations, the warning notice spells out the implications of shortages on client account and sets out a number of behaviours that it would expect firms to observe including:

• having appropriate accounting procedures for your business
• maintaining accurate and contemporaneous accounting records in compliance with the Accounts Rules. This includes undertaking reconciliations every five weeks, keeping ledgers and the cashbook up to date and obtaining an accountant’s report every 12 months.
• having clear reporting lines to encourage appropriate reporting by all members of staff
• ensuring that your systems only allow appropriate individuals to authorise payments from client account and that there are appropriate supervision arrangements and controls in place to ensure any payments are properly monitored.
• immediately investigating and taking action against any member of staff who may have acted dishonestly or committed any financial impropriety whether in relation to client account or not
• taking regular steps to monitor, review and manage risks.

The warning notice also stresses that firms closing down should also replace any shortages before doing so.

The warning notice, entitled “Money missing from client account” can be found on the SRA website.