8. Audit of a solicitor s trust account

Transcription

1 8. Audit of a solicitor s trust account 8. Audit of a solicitor s trust account 8:2 Audit of a solicitor s trust account: Overview 8:2 Objective 8:2 Regulations 8:2 Annual audit requirements 8:2 Audit methodology 8:2 Acceptance and continuance 8:2 Planning 8:3 Performing 8:4 Reporting 8:4 Appendices 8:5 Appendix 8A Relevant Act/legislation 8:6 Appendix 8B Sample audit programs 8:7

2 Small entities audit manual Audit of a solicitor s trust account Audit of a solicitor s trust account: Overview This chapter details the specific auditing requirements applicable to the compliance audit of a solicitor s trust account and should be read in conjunction with Chapter 5 Overview of a compliance audit. The audit must be carried out in accordance with ASAE 3000 Assurance engagements other than audits or reviews of historical financial information and ASAE 3100 Compliance engagements. Objective In a Solicitors trust account audit, the auditor must form an opinion on whether the law practice has, during the period of the examination, complied with the requirements of the relevant legislation, regulations and any legal profession rules relating to how law practice handles trust money. This involves obtaining evidence to determine whether: accounting and other records relating to trust monies have been properly kept; there is no loss or deficiency of trust monies or failure to pay or account for trust monies; and there has been no failure to comply with a provision of the Act or Regulations. The auditor must sign a report and certificate, in a form approved by the relevant state or territory, certifying the statement of trust money prepared by the law practice and submit this to the relevant authority by the specified deadline. Regulations The regulations governing the operations of a solicitor s trust account are driven by the Acts and Regulations in the relevant state/territory and therefore it is necessary to have a good understanding of the requirements of the relevant state/territory Act. Appendix 8A provides an overview of the audit requirements in each state/territory legislation. Annual audit requirements Solicitors must ensure that trust accounts are audited within the prescribed time frame each year. The cost of the audit is to be borne by the solicitor, and is to be paid from the solicitor s general account and not from the trust account. The auditor is to be allowed access to accounting records of the trust account, and also to the records and files of the solicitor s practice. This access is essential in ensuring that all transactions involving trust account money have been recorded correctly. The timing of the audit is determined by the provisions of the Act in each state and territory. Some legislation requires more than one audit visit each trust year. For example, Victoria requires an unscheduled visit during the audit year in addition to the year end visit. Audit methodology The compliance audit methodology described in Chapter 5 should be followed specific information relating to the audit of a solicitor s trust account is included in the relevant phase below. Acceptance and continuance Auditor appointment and replacement Each legislation contains relevant details of appropriately qualified persons able to act as auditors and prior to accepting any audit engagement, the auditor should confirm their eligibility. Engagement letter The audit scope should be outlined in the audit engagement letter. The engagement letter should clearly delineate the responsibilities of the solicitor, including the requirements to maintain an adequate system of internal control, to maintain proper accounting records, and to ensure that the conditions of having a trust account are complied with throughout the year. 8:2

3 8. Audit of a solicitor s trust account The letter should outline general audit procedures to be performed, including a review of internal controls over the operation of the trust account and relevant accounting information. Other information should include fees and payment requirements. Planning The auditor should plan the audit of a solicitor s trust account to take into account risks and knowledge of the client. Understanding the business The focus of the audit of a solicitor s trust account is to test compliance with the rules governing trust money; therefore, the auditor should understand the legislative requirements for handling trust money and the requirements of the relevant legislation. Audit procedures The nature, timing and extent of audit procedures will vary, depending on the following: the services provided by the solicitor and money received on trust as a result of these services the nature of the solicitor s business, i.e. whether the solicitor is a sole practitioner or a solicitor of a large practice; the volume of transactions affecting the trust account; the average size of transactions affecting the trust account; and the existence of segregation of duties. The above factors should be taken into account in the auditor s assessment of risk and documentation of the planning process. In the audit of a solicitor s trust account, it is important that the audit procedures are planned so they cover the entire period. Such procedures are designed to test compliance with all the requirements of relevant legislation and minimise the risk of non-detection of breaches including fraud. Internal control system The auditor should document and assess internal controls and procedures to establish whether reliance can be placed on them. The systems documentation and assessment should include computer procedures, whenever applicable. The solicitor has the ultimate responsibility for compliance with legislation at all times during the year. Therefore a prudent solicitor will have procedures in place to ensure that those requirements are being fulfilled. If no such procedures exist, the auditor should question the ability of the solicitor to state that all requirements have been complied with throughout the year, and issue a recommendation to the solicitor suggesting that such procedures be implemented. The strengths of internal controls over the trust account will vary, depending on the size and nature of a solicitor s practice. Where a solicitor is also a sole practitioner, there will be limited scope for adequate segregation of duties, whereas a larger practice may only rely on such segregation in order to maintain effective controls over the trust account. Ideally, the solicitor should have the following internal controls in place: segregation of authorisation of transactions, recording of transactions and custody over the client s monies; independent monthly reconciliation of trust account records to trust bank accounts; supervision by partner of the practices of the operations of the trust accounts; and adequate supporting documentation for all transactions relating to trust money (see Documentation below). Materiality Materiality is applied to the audit of a solicitor s trust account in a different way from the audit of a financial report. The auditor of a solicitor s trust account is concerned with compliance with a standard rather than purely the misstatement of the financial report. In assessing this compliance, the auditor is required to test transactions to ensure that they have been dealt with and recorded in a way that is consistent with legislation. For example, if a transaction has been recorded incorrectly then that is a breach of the legislation and therefore the dollar value of the transaction does not matter. 8:3

4 Small entities audit manual 2013 Performing Documentation The following are examples of the supporting documentation which should be available for inspection by the auditor: cheque requisition forms for all withdrawals of trust money, detailing the client name, amount required, purpose of the payment, payee name, and requiring authorisation prior to processing; cash receipts for all trust money received by the member, detailing date received, amount, name of client, and purpose of the receipt; register of items other than trust money received, such as documents of title, detailing date received, particulars of documents and client name; trust transfer journals; and bank statements, bank deposit slips, cheque butts and any other relevant documentation. Sampling Where a solicitor has relatively few clients for whom trust money is received and there are a limited number of transactions, it may be more efficient to perform testing on a 100 per cent basis. However, where there are a large number of clients, and numerous transactions, the auditor should select and test samples to obtain sufficient appropriate audit evidence in an efficient and effective manner. ASA 530 Audit sampling can be referred to for guidance, as it outlines the matters to be considered by the auditor in selecting sampling methods and sizes. These matters include the extent of reliance to be placed on internal controls, e.g. the lower the reliance, the greater the sample size in substantive testing. The auditor should also keep in mind the objective of the audit (i.e. compliance based). The main risk area for the auditor is ensuring completeness, i.e. that all transactions which should have passed through the trust account have occurred and have been correctly recorded. This risk is taken into account when deciding sample selection, and also the source of sample selection, i.e. the population. The population in this case is the files of all of the clients of the solicitor s practice, as any of these clients may have had trust money transactions during the year. If the population was the trust account records, then there would be a zero probability of selecting and testing transactions dealing with trust money which have been erroneously or deliberately recorded elsewhere. This will require access to the office records of the solicitor to ensure all client records are available. It may be appropriate to design audit procedures that look at the methods of recording new clients and matters in the solicitor s practice. All transactions relating to client s monies, whether they are trust money or not, should be recorded and the source documentation filed. Therefore, these client files are the source of the sample selection. (The method of filing may vary between members; however, the ideal method is for source documents to be filed in separate client monies files, those files relating to both trust money and other client monies). When there are receipts or other records of monies on file, and these are not designated as trust money, the auditor should plan procedures to consider the appropriateness of the classification. Reporting The lodging and format of the audit report differs between states and territories and the auditor should ensure that the report contains the most up-to-date and relevant opinion. 8:4

5 8. Audit of a solicitor s trust account Appendices Appendix 8A Relevant Acts for each State/Territory. Appendix 8B Sample audit programs. 8:5

6 Small entities audit manual 2013 Appendix 8A Relevant Act/legislation The table below shows the relevant Act/Regulations for each state in respect of the audit of the solicitor trust account. It is important to check for any amendments to these Acts and Regulations issued after the release of this document. Australian Capital Territory Relevant legislation and guidance The Legal Profession Act 2006 The Legal Professional Regulations 2007 < New South Wales Relevant legislation and guidance The Legal Profession Act 2004 The Legal Professional Regulations 2005 < Northern Territory Relevant legislation and guidance The Legal Profession Act 2006 The Legal Professional Regulations < Queensland Relevant legislation and guidance The Legal Profession Act 2007 The Legal Professional Regulations 2007 < South Australia Relevant legislation and guidance The Legal Practitioners Act 1981 The Legal Professional Regulations < Tasmania Relevant legislation and guidance The Legal Professional Act 2007 The Legal Profession (Prescribed Authorities) Regulations 208 < Victoria Relevant legislation and guidance The Legal Profession Act 2004 The Legal Profession Regulations 2005 < Western Australia Relevant legislation and guidance Legal Profession Rules 2009 Legal Profession Regulations 2009 < 8:6

7 8. Audit of a solicitor s trust account Appendix 8B Sample audit programs The following audit programs are not specific to any state/territory in Australia and auditors should ensure that they choose the appropriate tests to meet their reporting requirements under the relevant legislation listed in Appendix 8A. Surprise visit program refer to legislation for frequency and timing of surprise visits 1. At least once during the audit year, visit the solicitor s office without previous notice to him and carry out a state of records check. 2. Enquire whether there have been any investigations by a Law Institute or any other regulatory bodies since the last audit. If there have been any inspections, obtain a copy of the report of findings and consider the implication of any breaches identified. 3. Attend a mail opening at the surprise visit, listing cheques for subsequent tracing to the cash book, client ledger & bank statement. 4. Obtain a copy of the reconciliation of the trust ledger account to the cash book balance, bank reconciliation and trust ledger account control card. Agree unpresented cheques to both the cash book and to subsequent bank statements. Check all outstanding deposits to ensure that they represent money received on the last business day of the month and banked on the first business day of the following month if this is not the case, check whether the delay in banking is the result of poor administrative procedures or fraud. Check that the bank reconciliation statement records the dates of issue of outstanding cheques, cheque numbers and amounts. Check that appropriate action has been taken in respect of: a) any stale and long-outstanding cheques; b) unclaimed monies. Check all other reconciling items and investigate any which are old or unusual. 5. Ensure that the trust account trial balance contains details of the name, identifying reference, balance and short description of each matter to which each balance relates. 6. Identify any large and/or unusual transactions and follow them up to ensure their compliance with trust accounting requirements. 7. Review the ADI records (bank statements) for the year and: ensure dishonoured cheques have not led to a debit balance; check unusual items where necessary. 8:7

8 Small entities audit manual 2013 Type of practising certificate 1. Check that each principal (authorised to receive trust money) of the law practice holds a current practising certificate with authority to receive trust money. If necessary, obtain confirmation from the Legal Services Board or the relevant Law Institute of the type of practising certificate held by each principal. General trust account administration 1. Check that the trust account is established and maintained with an approved Authorised Deposit-taking Institution. 2. Check that the law practice notifies the appropriate Legal Services Board (or equivalent) of the number of the account and the name and address of the branch of the ADI at which the general account is maintained within 14 days after establishing it. 3. Check if there are any subsequent changes to the information notified to the Board. If so, did the law practice notify the Board within 14 days after becoming aware of the change? 4. Check whether there is any closure of a general trust account; if so, did the law practice notify the Board of the closure within 14 days after closing the trust account? 5. Check that the name of the general trust account includes the name of the law practice or the business name under which the law practice engages in legal practice, and the expression law practice trust account or law practice trust a/c. 6. Check that the account is of a kind that is, for the time being, approved by the Board. If considered necessary, obtain confirmation from the Board. 7. Confirm with the law practice that the disclosed trust account/s is/are the only trust account/s maintained by the practice during the audit year. 8. Statutory deposits. Check the details of the quarterly statements from the Board with the ADI records. Ensure there are no discrepancies. 8:8

9 8. Audit of a solicitor s trust account Controlled money account Controlled money means trust money received by a law practice with a written direction to deposit the money in an account (other than a general trust account) over which the practice has or will have exclusive control. 1. Check with the law practice whether there is any controlled money received by the law practice; if so, ensure that the money was deposited in a controlled money account exclusively for the person on whose behalf it was received. 2. Check that the account name of a controlled money account includes the following particulars: a) the name of the law practice concerned; b) the expression controlled money account; c) such particulars as are sufficient to identify the purpose of the account and to distinguish the account from any other account maintained by the law practice. (Regulation (1)). 3. Confirm all controlled money (100%) held at the end of the audit period to confirmations. 4. Confirm that a controlled money reconciliation has been prepared within the relevant number of days after each month. The reconciliation should contain a list of the practice s controlled money accounts showing: i. the name, number and balance of each account in the register; and ii. the name of the person on whose behalf the controlled money in each account was held; and iii. a short description of the matter to which each account relates; and iv. the date the statement was prepared. 5. Written direction i. For each deposit of controlled money and/or each controlled money account maintained, check that there is a written direction by the person on whose behalf the money was received. ii. Check that the purpose of the account agrees with the written direction. iii. Check that each written direction is kept for 7 years after finalisation of the matter to which the direction relates. 6. Confirm that a register of controlled money has been kept during the year and that the record of controlled money movements for a controlled money account records the following information: a) the name of the person on whose behalf the controlled money is held; b) the person s address; c) particulars sufficient to identify the matter; d) any changes to the information referred to in paragraphs (a) to (c). 8:9

10 Small entities audit manual 2013 Controlled money account 7. Select a judgemental sample of controlled money balances received during the audit year and for these balances, inspect the controlled money receipt relating to each item. Confirm that: a) the solicitor deposited the money in the account specified in the written direction relating as soon as practicable after receiving controlled money; b) the solicitor holds controlled money deposited in a controlled money account exclusively for the person on whose behalf it was received; c) the amounts agree to the controlled money register; d) the receipt has been made out in duplicate, where computer records are not used; e) the receipt includes the following information: the date the receipt is made out and, if different, the date of receipt of the money; the amount of money received; the form in which the money was received; the name of the person from whom the money was received; details clearly identifying the name of the person on whose behalf the money was received and the matter description and matter reference; particulars sufficient to identify the purpose for which the money was received; the name of and other details clearly identifying the controlled money account to be credited, unless the account has not been established by the time the receipt is made out; the name of the law practice, or the business name under which the law practice engages in legal practice, and the expression controlled money receipt; the name of the person who made out the receipt; the number of the receipt. 8. Select a judgemental sample of payments made from controlled money balances held during the audit year. Confirm that: a) The solicitor has only made payments after receiving written instructions from the client. b) The amounts agree to the controlled money register. c) The payments had been made under the appropriate authorisation, i.e: i. an authorised principal of the law practice; or ii. if a principal referred to in paragraph (a) is not available: an authorised legal practitioner associate; or an authorised Australian legal practitioner who holds an unrestricted practising certificate authorising the receipt of trust money; or 2 or more authorised associates jointly. 8:10

11 8. Audit of a solicitor s trust account Controlled money account d) The records of the controlled money payment include the following information: i. the date and number of the transaction; ii. the amount withdrawn; iii. in the case of a transfer made by electronic funds transfer the name and number of the account to which the amount was transferred and the relevant BSB number; iv. the name of the person to whom payment is to be made or, in the case of a payment to an ADI, the name or BSB number of the ADI and the name of the person receiving the benefit of the payment; v. details clearly identifying the name of the person on whose behalf the payment was made and the matter reference; vi. particulars sufficient to identify the purpose for which the payment was made; vii. the person or persons effecting, directing or authorising the withdrawal. Reconciliation of trust records 1. Check that the general trust account balance has been reconciled with the balance of the practice s trust account cash books at the end of each month (bank reconciliation) within the timeframe specified in the relevant Act. 2. Obtain a copy of the reconciliation at the last day of the audit period: Confirm that the balance per bank has been reconciled to balance per cash book; and balance per cash book has been reconciled to balance per total client matters. Check the additions. Agree unpresented cheques to both the cashbook and subsequent bank statements. Perform standard unpresented cheque testing (bank statement back to unpresented cheque listing). Investigate any long outstanding cheques and ensure provisions in relation to unclaimed monies are complied with. Agree unallocated receipts to direct credits in bank statement on the testing date. Investigate any unusual reconciling items. 8:11

12 Small entities audit manual 2013 Reconciliation of trust records Trust account balances 1. Check that the balance (total) of the trust ledger accounts agrees with the cash book balance at the end of each month. 2. Check that the listing of trust ledger accounts shows: the name the identifying reference the balance of each account and a short description of the matter to which each relates. 3. Ensure that overdrawn (negative) balances in any general trust account or trust ledger account are fully investigated. 4. Obtain standard bank confirmations from all banks where trust money is held. 5. Review the trust bank statements at the year and: Identify any large and/or unusual transactions and follow them up to ensure their compliance with trust accounting requirements. Examination of matter files 1. Select a sample of matter files, based on matter file rotation and selection listing and: Review matter file for transactions which have occurred for that matter and determine whether these transactions should be processed through the trust account. Obtain trust statement for selected matter and ensure all transactions identified above have been processed through the trust account. Ensure all transactions have been recorded in the trust ledger in accordance with applicable rules (i.e. rules in relation to receipts, expenses, transit money and cost to office transfers). 8:12

13 8. Audit of a solicitor s trust account Examination of matter files 2. Obtain independent confirmation from solicitors clients in relation to transactions which have occurred during the financial year by performing the following: Obtain listing of all clients who had trust matter files opened during the year subject to audit. Select a random sample of 5 clients to send confirmation and obtain a trust matter statement for the period 1 Nov 2009 to 31 Oct 2010 (details all transactions processed for that client during year). Follow up any exceptions from clients obtaining adequate explanation for disagreement. 3. Check if the matter files can be readily reconciled to the trust ledger accounts. Office bank account 1. Confirm the auditors understanding of the use of the office account in relation to receipting process, and confirm with client, whether money for bills is received in the trust account or the office account. If funds are received into the trust account and never into the office account then no further work in this area is required. If controls in the solicitor s computerised accounting software prevent bills from being receipted into the office account, confirm that this is so by re-performance of 1 sample each year. 2. If funds are received into the office account, select a sample of bills received into the office account during the year. Obtain copies of the relevant bills and confirm by inspection of the bill whether the bill contains any unpaid hard disbursements. If the bill did contain unpaid disbursements, check that one of the following two treatments is used: a) the creditor is paid within 24 hours; or b) the money for the disbursements is transferred to the trust account within 24 hours until the time when the creditor is paid. 3. Obtain a copy of the bank reconciliation of the office bank account (if prepared), review the long-outstanding cheques for disbursements and check if there are any irregularities (such as money paid from trust where the disbursements cheques have not been presented, resulting in a deficiency). 8:13

14 Small entities audit manual 2013 Receipts of trust money 1. Follow up the cheques identified at the surprise visit by tracing selected cheques to: Trust funds receipt; Bank deposit slip; Bank statement; Cash book; Client ledger. Ensure receipts have been banked as soon as practicable into the trust bank account. If a cheque was not banked in the trust account document the reason for this and confirm this is in accordance with the relevant Act. 2. Check that receipt forms, in duplicate, are used for the receipt of trust money, unless at the time the receipt is made out those particulars are recorded by computer program in the trust account receipts cash book. 3. Check that receipts are consecutively numbered and issued in consecutive sequence. 4. Check that if a receipt is cancelled or not delivered, the original receipt is retained. 5. Review all cash receipt journals for the year to identify large and/unusual transactions for audit testing. All receipts from the solicitors general account should be investigated. 6. Select a sample of receipt numbers by means of a numeric sample (determine first and last receipt issued during period) and perform the following: Obtain the duplicate receipt and ensure that the receipt was made out as soon as practicable after the trust money is received; or if received by direct deposit, as soon as practicable after the law practice receives or can access notice or confirmation (in written or electronic form) of the deposit from the ADI concerned. Inspect the receipt and the trust ledger to confirm that the following information was recorded: a) the date the receipt is made out and, if different, the date of receipt of the money; b) the amount of money received; c) the form in which the money was received; d) the name of the person from whom the money was received; e) details clearly identifying the name of the client in respect of whom the money was received and the matter description and matter reference; f) particulars sufficient to identify the purpose for which the money was received; g) the name of the law practice and the expression trust account or trust a/c ; h) the name of the person who made out the receipt; i) the number of the receipt. 8:14

15 8. Audit of a solicitor s trust account Receipts of trust money Vouch to supporting documents in client file (or other documentation as considered necessary) and ensure date recorded on receipt corresponds to supporting documentation to ensure receipts have not been predated in the trust ledger to conceal a deficiency. Vouch to cashbook and ensure receipts around receipt selected (5 prior and 5 subsequent) are in sequence. Sight originals of any cancelled receipts Trace to bank deposit slip stamped by bank, ensuring the following details have been included: a) the date of the deposit; b) the amount of the deposit; c) whether the deposit consists of cheques, notes or coins (and the amount of each); d) for each cheque: i. the name of the drawer of the cheque; ii. the name and branch (or BSB number) of the ADI on which the cheque is drawn; iii. the amount of the cheque. Payments cheque 1. Select a random sample of [xx] cheques and confirm that the cheque is: a) made payable to or to the order of a specified person or persons and not to bearer or cash; and b) crossed not negotiable ; and c) in the case of a law practice, includes: i. the name of the law practice or the business name under which the law practice engages in legal practice; and ii. the expression law practice trust account or law practice trust a/c ; d) In the case of a law practice, signed: i. by an authorised principal of the law practice; or ii. if a principal referred to in paragraph (a) is not available: a) by an authorised legal practitioner associate; or b) by an authorised Australian legal practitioner who holds an unrestricted practising certificate authorising the receipt of trust money; or c) by 2 or more authorised associates jointly. 8:15

16 Small entities audit manual 2013 Payments cheque 2. Perform the following for the cheques selected above: a) Examine the trust account payments cash book to confirm the following information is included: i. the date and number of the cheque; ii. the amount ordered to be paid by the cheque; iii. the name of the person to whom the payment is to be made or, in the case of a cheque made payable to an ADI, the name or BSB number of the ADI and the name of the person receiving the benefit of the payment; iv. details clearly identifying the name of the person on whose behalf the payment was made and the matter reference; v. details clearly identifying the ledger account to be debited; vi. particulars sufficient to identify the purpose for which the payment was made. b) Confirm that the sequence of posting of the information above is recorded in the order in which the payments were made. c) Confirm that the information above was recorded within 5 working days of the day the payment was made. d) Confirm there were sufficient funds in the trust account to cover the payment. e) Vouch to subsequent debit in bank statement ensuring date presented is subsequent to date in cashbook, otherwise may conceal a deficiency. f) Vouch to supporting documentation within the matter file (or else where if considered necessary) and ensure the details and dates recorded in the trust ledger and cashbook match the actual source documentation. 3. Review the sequence of cheques used for the year and sight all cancelled cheques. 4. Review all cash payments journals for the year to identify large and/unusual transactions and ensure transaction is in order and complies with trust account requirements. Particular attention should be paid to amounts paid to solicitors or their related companies. 8:16

17 8. Audit of a solicitor s trust account Payment by electronic funds transfer 1. Check that a payment by electronic funds transfer is effected by, under the direction of or with the authority of: a) an authorised principal of the law practice or b) if the principal is unavailable: i. an authorised legal practitioner associate; or ii. an authorised Australian legal practitioner who holds an unrestricted practising certificate authorising the receipt of trust money; or iii. 2 or more authorised associates jointly. 2. Check that a written record is maintained for each payments showing the required particulars : a) the date and number of the transaction; b) the amount transferred; c) the name and number of the account to which the amount was transferred and relevant BSB number; d) the name of the person to whom the payment was made or, in the case of a payment made payable to an ADI, the name or BSB number of the ADI and the name of the person receiving the benefit of the payment; e) details clearly identifying the name of the person on whose behalf the payment was made and the matter reference; f) details clearly identifying the ledger account to be debited; g) particulars sufficient to identify the purpose for which the payment was made. 8:17

18 Small entities audit manual 2013 Journal transfers 1. Check that trust money is only transferred by journal entry from one trust ledger account to another trust ledger account if: i. the law practice is entitled to withdraw the money and pay it to the other trust ledger account; and ii. the transfer has been authorised in writing by the authorised signatory or signatories to the general trust account. 2. Select a sample of journal transfers from the trust ledger accounts: a) Ensure the postings of the debit and credit to the trust ledger accounts are on the same date; b) Ensure the entries have been correctly authorised; i. by a person who is authorised to sign cheques drawn on the general trust account without a cosignatory; or ii. by 2 or more persons who are authorised to sign cheques drawn on the general trust account jointly; c) Confirm that the authorisations are retained. 3. Check that the following particulars are recorded in the trust account transfer journal for each of the journals selected: a) the date of the transfer; b) the trust ledger account from which the money is transferred (including its identifying reference); c) the trust ledger account to which the money is transferred (including its identifying reference); d) the amount transferred; e) particulars sufficient to identify the purpose for which the transfer is made, the matter reference and a short description of the matter. 4. Check that the journal pages or entries are consecutively numbered. 5. Investigate any unusual journals and ensure transfers between accounts are reasonable and have been made with the knowledge and authority of the client (especially transactions involving partners or associated companies). 8:18

19 8. Audit of a solicitor s trust account Trust account statement 1. Document the law practice s policies for the distribution of trust account statements, to ensure that the relevant rules are adhered to. 2. Check that a statement of account contains all the relevant information required by the Act/Regulations. 3. Check that a trust account statement is furnished in accordance with the timeframes specified in the relevant Act/Regulations. Register of investments 1. Check that any investment of trust money is recorded in a register of investments. 2. Check that the register of investments records the following information in relation to each investment: a) the name in which the investment is held; b) the name of the person on whose behalf the investment is made; c) the person s address; d) particulars sufficient to identify the investment; e) the amount invested; f) the date the investment was made; g) particulars sufficient to identify the source of the investment, including, for example i. a reference to the trust ledger account; and ii. a reference to the written authority to make the investment; and iii. the number of the cheque for the amount to be invested; h) details of any documents evidencing the investment; i) details of any interest received from the investment or credited directly to the investment; j) details of the repayment of the investment and any interest, on maturity or otherwise. 8:19

20 Small entities audit manual 2013 Register of interests 1. Ensure a register of interests has been kept detailing the following: a) The names of all companies, other than companies listed on the ASX or shelf companies which have not traded and are maintained for sale of which the legal practitioner or any member of the immediate family of the legal practitioner is a director, shareholder or in which the person has a beneficial interest; and b) Sufficient details to enable identification of any partnerships, joint ventures, trusts or other business interests in which the legal practitioner or any member of the immediate family of the legal practitioner has a joint interest with a client of the legal practitioner. Trust money subject to special powers 1. Check that a law practice or an associate of the practice when given power to deal with trust money (whether alone or jointly with another person) keeps the following records: a) a record of all dealings with the money to which the practice or associate is a party; and b) all supporting information in relation to the dealings in a manner that enables the dealings to be clearly understood. 2. If an approved clerk is given a power to deal with trust money (whether alone or jointly with another person), confirm that the clerk has kept as part of the practice s or clerk s trust records: a) a record of all dealings with the money to which the clerk is a party; and b) all supporting information in relation to the dealings in a manner that enables the dealings to be clearly understood. 8:20

21 8. Audit of a solicitor s trust account Register of powers and estates 1. Check that the register of powers and estates records: a) the name and address of the donor and date of each power; and b) the name and date of death of the deceased in respect of each estate of which c) the law practice or associate is executor or administrator. Intermixing money 1. Procedure Check that no trust money is mixed with other money, unless authorised by the Board, and in accordance with any conditions imposed by the Board in relation to the authorisation. Deeds 1. Check whether a deed register (if applicable) is appropriately maintained. 8:21

22 Small entities audit manual 2013 Accounting records and computer system 1. Confirm that the law practice keeps in permanent form trust records in relation to trust money received by the practice or clerk. These records should be kept for a period of 7 years. 2. Confirm that the following documents have been printed within the relevant timeframe at the end of each month (choose a sample of months): a) trust account cash books, unless a copy of the books as at the end of the month is retained in electronic form that is readable or reportable on demand; b) trust account bank reconciliation statements; c) trust ledger trial balances; d) lists of controlled money accounts and their balances. 3. Check that when creating, amending or deleting information about the client s name, address, matter reference and description, or the ledger account number, a record is maintained in chronological order. 4. Check that a debit balance is not created unless a contemporaneous record is made in a permanent form. 5. Ensure that the practice s system is not capable of deleting a trust ledger account unless: a) the balance of the account is zero and all outstanding cheques have been presented: b) when the account is deleted, a copy of the account is retained in a permanent form. 6. Document the back up process used by the practice, checking compliance with each part of the Regulations listed below. Inspect evidence as appropriate to support the assertions made. The law practice must ensure that: a) a back-up copy of all records is made at least once each month; and b) each back-up copy is retained by the law practice; and c) a complete set of back-up copies is kept in a separate location so that any incident that may adversely affect the records would not also affect the backup copy. 8:22

23 8. Audit of a solicitor s trust account Transit money 1. Select a random sample of [xx] transits during the financial period and perform the confirm the following information has been recorded into the trust ledger in respect of the transit money: a) on which money was received; b) Name of person from whom money received; c) Amount received; d) Identity of person to whom money was paid; e) Name of drawer; f) Brief particulars to identify the relevant transaction; g) on which the money was paid; h) Ensure that transit money has been paid or otherwise delivered as soon as practicable after it is received. Trust to firm transfers 1. Select a sample of [xx] trust to firm cost/fee transfers from the trust ledger and compare the date of the transfer and the actual amount transferred per the cash book to both the trust bank statement and the solicitors general bank statements. 2. For the sample selected, determine whether the transaction was in accordance with the relevant rules of the Act/Regulations. 3. If transfer relates to the reimbursement of costs paid by the legal practitioner on behalf of the relevant client sight supporting documentation to confirm legal practitioner had in fact incurred the expense prior to transferring the funds. 8:23

24 Professional conduct and practice rules 1. Check whether the law practice has been unreasonably slow in completing a client s work. 2. Check whether there is any evidence of any legal practitioner associates borrowing from clients. 3. Check whether there is any evidence of acting for both mortgagor and mortgagee where the mortgagor is a developer, builder or subdivider. 4. Check whether authorities are held by the law practice when acting for more than one party. 5. Check whether there is any evidence of acting for both parties without acknowledgement. 6. Check whether there is evidence of any other conflict of interest situation. 7. Check whether there is any evidence of the legal practitioner/s having settled a will, power of attorney or instrument where the legal practitioner or associates of the legal practitioner may receive a benefit in addition to reasonable costs (including conditional costs agreement). Check whether there is any evidence of the law practice operating some form of unregulated managed mortgage practice.