( ', TRUST ACCOUNTING (,. (, \ ' Thesa materiais were prepa~ed,by jo~n Allen. GAl Audltor."for the Law'Socety of Saskatchewan. Regina, Saska~chewan for ~he Saskatchewa-n Legal Education Society Inc. seminar, Essential Skills for... New 'LaWyer_ &:A R,ef~esher for the ~est.of Usl, June ~005.
Total # Issues LAW SOCIETY OF SASKATCHEWAN ACCOUNTING ISSUES ANALYSIS 2003 743 1640 % Decrease from 2002 to 2003 55% By Member % of Issues - 5 and Under Members 46% of Members 81% 83% - 6 to 15 Members 21 % of Members 12% 12% - 15 or More Members 33% of Members 7% 5% - Sole Practitioners 15% of Members Average # of IssueslMember ~ 41% 100% 42% Regina and Saskatoon Others.59 1.29 1.35 2.56 By Firm % of Issues - 5 and Under Members 88% of Firms - 6 to 15 Members 8% of Firms - 15 or More Members 3% of Firms 81% 12% 83% 12% Sole Practitioners 53% of firms (see next page - Accounting Issues Analysis - Parameters/Assumptions
LAW OFFICE MANAGEMENT ACCOUNTING ISSUES ANALYSIS PARAMETERS/ASSUMPTIONS Issues per TA~3rrA-5 review process. All issues have same level of importance. Constant # of firms assumed for each year. Branch offices consolidated to head office location. Like issues between branch and head offices not eliminated (duplication, SK Legal Aid Offices not included.
COMMON ISSUES/CONCERNS I.' Accounting records not - May indicate other issues contrary to Rules. - in good form - up to date. 2.' Trust balances not paid out upon - Ethical issues. completion of matter. File remains open. Old - Clients not treated fairly. trust balances not followed up. - Costly practice wind up. 3.* Fees paid from trust - Ethical issues. - without an invoice - Contrary to Rule 941. - without client receiving copy of - Misappropriation. invoice - before invoice is prepared. 4.* yet. Billing for work not done or not done - Misappropriation. i 5.* Billing excessive amounts - Misappropriation. - in excess of tariff - keeping file open to "milk the account" 6.' Fees not paid from trust when earned - Contrary to Rules. and/or invoiced - Weakens Law Society argument to keep - protection from creditors (i.e. era. trust account immune from garnishee by CRA. 7. Stale-dated cheques not followed up. - Unfair to client. 8. Accounts receivable system not maintained. - Contrary to Rule 963. 9.' Canadian Deposit Insurance Corporation - Contrary to Rule 911 reporting requirements not met. - Exposure for Law Society 10. * Trust deposits made directly to Separate - Contrary to Rules Interest Bearing Accounts (SmA's.
II. Name of client not shown "in trust for" - Contrary to Rule 912. on SIBA's. 12.' SIBA's not listed on the monthly client - Reconciliations incomplete contrary to Rule trust listing and/or included as part of the trust 970. reconciliation process. 13. Monies "transferred" from the pooled - Withdrawals must be made by cheque. trust account to the SIBA. 14.* Client trust account in overdraft.. - Contrary to Rules. - Depends on reason. 15.* Client trust overdraft in excess of - Contrary to Rule 971. $100.00 not reported to Law Society immediately. 16. Trust cheques payable to "cash" or - Contrary to Rule 942. "bearer". 17. Trust withdrawals by bank draft or - Withdrawals required to be by cheque. money order. - Contrary to Rule 942. 18.* Reference to client or file number not - Incomplete accounting records. included on source documents (receipts. cheques, deposit slips. 19. Trust monies not deposited "forthwith". - Deposit required on day of receipt or next 20. Financial records not kept at place of - Can be indicative of other issues. business. day. 21.* Files, particularly closed files, not - Confidentiality issues. safely/securely stored. - Retention issue. 22.* Computerized information not printed - Guidelines available. routinely. 23.* Computerized information not routinely - Risk issue for practitioner. backed up and/or stored off site. 24. Bank or credit union not returning - Contrary to Rule 962 and 963. I
original cashed cheques. - May have to_change banks. 25. Trust bank statements not entitled "in - Request bank to change account name. trust" by bank. 26.' Office bank account used for personal - Not good practice and causes excessive transactions or personal account used for office accounting. transactions.
TRUST RECONCILIATION EXAMPLE Bank Reconciliation - Regular Trust Balance per bank statement @ Dec. 31102 Add: Outstanding Deposit Dec. 31102 Less: Outstanding Cheques Dec. 15/02 Dec. 30102 AddlDeduct Adjustments: Add: Bank Service Charge (Dec. 31/02 Separate Interest Bearing Trust Account (SIBA Smith 10,300 #100 #122 1354687-15 Mrs. Green ABC Co. Black & Black 1,100.00 650.00 10,500.00 40,000.00 1,100.00 (11,150.00 50.00 30,000.00 3,000.00 Beginning Balance (Nov. 30/02 Add: Current Month Receipts (Dec.102 Less: Current (Doo.l02 50,000.00 121,000.00 Regular Trust Patty White Joe Green Jim Black Separate Interest Bearing Trust Account (SIBA Jane Smith 10,123 10,305 10,315 10,300 (500.00 13,000.00 17,500.00 30,000.00 3,000.00 ~ 1=2=3
Law Society of Saskatchewan CANADA DEPOSIT INSURANCE CORPORATION Annual Reporting Requirements Although annual reporting of client trust amounts has been a requirement of CDIC and the Law Society of Saskatchewan and other provinces for many years, many firms have not been meeting this requirement. Accordingly. some bank branches are not familiar with the requirements. A brief summary of these requirements along with a suggested sample reporting letter and fonnat follows. Please keep ir:t mind that the reporting format is the responsibility of each bank so that the format shown below should only be used after checking with your bank to detennine if they have specific formatting requirements. CANADA DEPOSIT INSURANCE CORPORA TlON (CDle cole provides insurance to depositors in the event that a member financial institution is unable to meet its debt obligations, The depositor is generally covered for up to $60,000,00, Although all financial institutions may not be cole insured, major banks are covered whereas credit unions have their own guarantee mechanism. Deposits with credit unions are 100% guaranteed by Credit Union Deposit Guarantee Corporation. Law firms holding trust funds on behalf of clients must remit an annual client listing to the financial institution (except for credit unions - no report required. This is to ensure that each client is eligible for the $60,000,00 insurance coverage. If a listing is not provided, the $60,000.00 coverage must be shared amongst,the clients within the trust bank account. The listing must be prepared as of April 30 and sent by the law firm to the financial institution by May 30 each year. In the event that a law firm conunences practice after April 30, the law firm should send the listing to the financial institution after the first trust reconciliation has been completed, Some points to remember when preparing the client listing for eole coverage purposes: 1. The client listing must be as of April 30, and must he remitted within 30 days of that date (by May 30. 2. The client listing should include a client number and a dollar amount. The client name is not required to he disclosed under The CDIC Act and as such cannot be disclosed under the Code of Professional Conduct. 3. The onus is on the law firm to remit the client listing to the financial institution. 4. The client listing is to be sent to the financial institution not the COIC. 5. Separate interest-bearing accounts (SIBA should also be included in the listing submitted to the financial institution as the client may be eligible for additional coverage. If the client has funds in the mixed trust bank account and in a SIBA, hoth deposits could qualify for the $60,000.00 coverage. To he eligible, the law firm must demonstrate that more than one "distinct trust
2 arrangement" exists. Otherwise, the trust funds for the client will be aggregated and coverage limited to $60,000.00. 6. SIBA deposits with a maturity of greater than five years are not eligible for coverage under the cole Act. 7. U.S. dollar and all other foreign currency accounts are not eligible for coverage under the CDIC Act. May 15,20 BankOf=-o=~~=c== Anywhere, Saskatchewan Dear Sirs: Re: Annual cole Report In accordance with CDle reporting requirements and as set out In the Rules of the Law Society of Saskatchewan (Rule 991, I am ahachlng a listing of client trust amounts on deposit with your branch as at April 3D, 20. II any further Information Is required, please contact me. Signed,---.==:- Member LAW FIRM Client Trust Listing April 30, 20 Client #603 #894 #897 #901 #902 #903 #904 Balance Mixed Trust Account - April 30, 20_ Separate Interest Bearing Accounts (SIBA's #894 #903 Total - April 30, 20_ Amount in Trust $ 500.00 1,000.00 800.00 200.00 600.00 400.00 500.00 $ 4,000.00 $ 50,000.00 46,000.00 $100.000.00 Date: Slgned:--:cc-:- Member
Common Questions 1. How many trust accounts may I open? 2. When may I share a trust account with another lawyer? 3. Can I give a non-lawyer signing authority over my trust account? 4. Is it permissible for me to sign blank trust cheques when I am going to be away? 5. What do I do if my bank informs me that a client's cheque has been returned "NSF"? 6, Can I use automated bank machines in operating my trust account? 7. Can I use my bank's PC banking software to transfer funds from my trust account? 8. Can clients pay trust monies to the lawyer using credit cards (i.e. VISA, MasterCard. etc.? 9. May I use my personal bank account for non-trust transactions? 10. What are the record keeping requirements if I have control of estate assets Of I exercise a Power of Attorney? 11. May I leave earned money in the trust account after I have sent bills to clients? 12. My bank will not issue certified cheques, only bank drafts. Does this meet the record keeping requirements in Rule 9427 13. Can I store my financial records on computer without printing paper records?
Earned (i.e. Payments on Account Trust Monies Payments (Office expenses, + office salaries, client disbursements General Bank Account(s Earned Fees1Dlsbursemenfs (Invoice Mixed (Pooled Trust Bank Account(s Payments to clients ----+- or third parties on behalf of clients (mortgage payout. Ear ings (i.e. alary Member's Personal Bank Account Separate Interest Bearing Trust Account
REQUIRED PRINTOUTS FOR A COMPUTERIZED SYSTEM Trust Journal Monthly Separate journal or shannon file. Trust Ledger Cards Before File Closing One copy in file. One ~opy in closed ledger card binder. Trust Transfer Journal Monthly Separate journal or shannon file. General Journal Monthly S,eparate journal or shannon file. Billing Journal Monthly Separate journal or shannon file. Accounts Receivable Monthly Separate journal or shannon file. Trust Reconciliations Monthly Separate file for each bank account.
SAMPLE ACCOUNT Fees for Professional Services: To preparation of Notice of Address - 2.0 hours To preparation of Notice of Directors - 1.0 hours Fees for Professional Services: Other Fees (or Other Charges Photocopies (30 pages @ 25 per page Faxes (10 pages @ 25 per page 450.00 7.50 2.50 Disbursements: Courier Registration Fee 26.25 100.00 Total Fees and Disbursements: GST PST 586.25 32.20 32.20,
TIPS ~ Create Check Lists WeeklylMonthly. Create a Monthly Reconciliation Package: Bank Reconciliation. Trust Listing. Copies of Bank Statement and GIC's. Organize Bank Statements and Reconciliations by Bank Account. Keep Cheques and Bank Statements Together. Colour Code Cheques (General v. Trust. Retain Voided Cheques. Maintain One Ledger Card per Matter. Maintain Separate Ledger Cards for Client Interest-Bearing Accounts. Review Ledger Card Before Disbursing Funds to Ensure Sufficient Funds are On Hand. No Treasury Bills (Not CDIC Insured. Maintain GIC Statements in a Separate Folder rather than in Client File (Copy in File. Keep two accounts for GST: Collections. Paid on Purchase.
THEMES FOR SUCCESS GET ORGANIZED COMPLETE FILES -100% DON'T PROCRASTINATE (!