Operating a law practice trust account can be onerous. There are very specific rules around what you can and can’t do and monetary penalties for breaking these rules can be severe.
To help law practices benefit from our insights each year we look through our reports to see whether similar findings appear and highlight these, so that you can avoid these errors during your next external examination.
So, what were the top 5 non-compliance for law practice trust accounts during 2022.
1. Bank Reconciliations
Common issues are completing the trust account bank reconciliation too early or too late and/or not maintaining in a printable form.
Law practices must reconcile the trust records as at the last day of each calendar month by preparing:
A statement reconciling the trust account balance as shown in the ADI records with the balance of the trust account cashbooks; and
A statement reconciling the trust ledger accounts with the balance of the trust account cashbooks.
Section 44 Legal Profession Regulation 2017.
In addition, Law Firms must
Complete this within fifteen business days after the end of the month.
The above trust records can either be printed to paper i.e. hard-copy records or saved electronically i.e. PDF that is capable of being produced in demand.
Section 44 and 29(1) Legal Profession Regulation 2017.
2. Changes to Trust Accounts
If a law practice changes banks during the audit period than the Queensland Law Society should be notified of the change within 14 days.
Section 46(1) Legal Profession Regulation 2017
If the law practice changes business or trading name during the period the trust account name should be updated to reflect the change (with the ADI). The name of the account must include the name of the law practice or the business name which the law practice engages in legal practice
Section 33(3)(c)(i) Legal Profession Regulation 2017
3. EFT (Electronic Funds Transfer) Payments
Common issues include not obtaining authorisation to make EFT Payments, EFT requisition forms not completed and/or not utilising a third means of identification (i.e., security token or SMS message with a unique code)
A law practice is required to obtain authority from the Law Society to withdraw money by way of EFT.
Section 250(1) Legal Profession Act 2007
The law practice must ensure that a written record recording the particulars of the electronic funds transfer is kept for each payment. The written records relating to payments by electronic funds transfer, including transfer requisitions, must be kept in the order in which the transfers were effected.
Sections 38(3) and s38(6) Legal Profession Regulation 2017
The requisition form must include the following details:
the date of payment;
the EFT reference number, generated by the law practice;
the bank transaction identification number;
the amount to be transferred/paid;
payee details i.e., the name of the account, account BSB and account number;
trust ledger account details/controlled money account details i.e. client name, matter number and matter description;
the reason/purpose for the payment;
the name and signature of the person/s who authorised the EFT instruction (authorised associate/s/principal).
An EFT requisition form be completed for each EFT instruction. The requisition form must have a bank screen print of the EFT instruction attached to it. This is required for all EFT payments made. “Appendix B” of the EFT Guidelines provides a sample requisition called “QLS EFT Requisition Form”.
Law practices are required to enter into arrangements with their financial institution that a third means of identification is to be satisfied before the financial institution will transfer funds from the law practice’s trust account pursuant to an EFT instruction. The third means of identification is generally in the form of a security token (like a USB stick). It generates a unique code that must be entered before the payment can be authorised. Another third means of security is receiving a SMS message with a unique code, that must be entered before the payment can be authorised. A security token can only be held by an authorised associate (trust account signatory).
4. Withdrawal of Legal Costs
Where withdrawal of legal costs was on issue of bill the law practice did not wait 7 days after the bill was issued prior to withdrawing trust monies; or where payments were made with a trust account authority in place, a request for payment/notice of withdrawal was not completed prior to withdrawal of legal costs.
If legal costs are withdrawn on issue of bill than monies should not be disbursed from the trust account until 7 days after the bill being given (provided there were no objections to the bill). If legal costs are withdrawn with authority, a payment/notice of withdrawal must be provided to the person prior to the withdrawal of funds.
Section 58 Legal Profession Regulation
5. Trust Account Statements
Examination trust account statements were not furnished to clients in accordance with the Regulations.
Trust account statement should be furnished either a) as soon as practicable after the completion of the matter; or b) as soon as practicable after 30 June during the review period. The Regulation does not define the term “as soon as practicable”, however we recommend as best practice that the trust account statement is sent with the final letter.