Happy Holidays

The holidays are upon us.  The courts and other government offices are shut down.  Whatever else is going on in our lives, this quieter period gives us time to reflect on the past year, and look forward to the new one. 

Marion and I wish you all the best this holiday season and a happy and prosperous new year.

Clyde

LSUC spot audits – Common errors - #4 of 7

Number 4 on the LSUC’s spot audit list of common errors is “Client trust ledger accounts with no activity in over one year”.

Why is this of concern for the Law Society?

Firstly, reviewing the client’s trust ledger may reveal unpaid disbursements or invoices.  Maybe funds were held back to register a document, which has never been done.  Maybe you were waiting for a disbursement invoice to arrive, which has been to posted, but the client’s invoice was never generated.  Maybe you held funds because you knew docketed time was outstanding, but again, the client’s invoice has never been generated.  All of these should be acted upon forthwith.

When a court case settles or a transaction has been completed, the paper file is set aside to be archived.  As often happens in a busy office, nobody logs-in to PCLaw to confirm that all of the trust funds have been paid out.  If the matter is no longer active, the trust funds should immediately be refunded to the client.  If the client can no longer be located, the funds should be remitted to the Law Society.

Another big issue is the complaints received by the Law Society regarding lack of communication from the lawyer handling his/her file.  Since lawyers typically bill clients for phone calls and correspondence, there should be some activity by the end of a year that can be billed to a client.  A small invoice will produce the required trust activity.  This invoice, together with a short cover letter, keeps the client informed that you are actively pursuing the matter for them.

But what if there is nothing to bill?  Well there should be.  If the file is completely inactive, should it be closed?  Write the client: “Do you still want to pursue this?”  Follow up with opposing counsel – is their client proceeding?  Call the court – has a date been set?  All of these actions will by themselves produce fees to be billed out.

This is where reviewing your monthly trust comparison reports (see #2 of 7) becomes important.  Your bookkeeper should be drawing your attention to matters with extended inactivity, so that you can take corrective action.

As always, I invite your comments and suggestions for future posts.  Next posting will be January 2, 2011 – error #5 – Unreconciled items.

Clyde

LSUC spot audits – Common errors - #3 of 7

“Overdrawn client trust ledger accounts” is third on the list of common errors found by the LSUC’s spot audit program.  These types of errors could easily happen in the old paper ledgers, but accounting software should have all but eliminated the possibility of this occurring. System Settings in PCLaw normally prevents you from entering an amount which will create a negative trust ledger balance.  However, if this feature is turned off, negative balances can and do occur.  

Why was the feature turned off?  A person may wish to correct or make adjustments to previous entries, and may need to pause this feature in order to do so.  The problems will occur when the person forgets to turn the protection back on when their task has been completed. 

Voiding a client’s NSF cheque that was deposited into trust can cause the client’s ledger to have a negative trust balance. Perhaps you have already paid for some disbursements.  If the client’s ledger is in a negative balance, you must transfer funds from general to make up for the shortfall. 

If your current trust comparison report shows a client with a negative balance, the first step is to review the client’s ledger, and confirm the entries are correct.  If the client does indeed owe you money, you need to immediately deposit funds into your trust account to make up for the shortfall.  In PCLaw, you need to make the appropriate entries to transfer the funds owing from the trust bank ledger to accounts receivable, and then proceed to recover the funds from your client. Then confirm that negative trust protection is set in System Settings, to ensure that this will not happen again in the future.

As always, I invite your comments and suggestions for future posts.  Next week – error #4 - Client trust ledger accounts with no activity in over one year.

Clyde

LSUC spot audits – Common errors - #2 of 7

Second on the LSUC’s list of common errors is “Trust reconciliations and trust comparisons in arrears”.  Most law firms already do reconcile both the general and trust bank accounts on a monthly basis.  It is the failure to complete a trust comparison report that is often lacking. 

If you have never done one, you may be asking “What is a trust comparison report?” 

PCLaw has a bank reconciliation feature, which will produce a report on your trust bank account activity for the month.  PClaw also allows you to print a report of all the trust funds held at close of business on the last day of your banking month.  At a bare minimum, you should have already been comparing these two reports to make sure the totals match.  

However, the purpose of creating a new, combined, report is twofold:

1. The mere act of completing the comparison report forces you to look at the individual entries, not just the totals on the PCLaw reports.  This affords you an opportunity to find errors that might otherwise be missed.
2. The comparison report provides you with documented proof that you have fulfilled your LSUC obligations.

By-law 9, sec. 18, (8), mandates that the trust comparison reports be completed, and the LSUC expects them to be completed by the 25th day after your trust month end.

Your bookkeeper should be preparing these reports for you, and should highlight any areas of concern.  In the upcoming post #4 of 7, I will discuss the related error of trust inactivity.

Please take some time each month to review the Trust Comparison Reports yourself.  Anything highlighted should be seen as a call to action on your part.

As always, I invite your comments and suggestions for future posts.  Next week – error #3 - Overdrawn client trust ledger accounts.

Clyde

LSUC spot audits – Common errors - #1 of 7

Often times the spot audit program found the “accounting records in arrears” one month or more in entering and posting. The Society expects accounting records to be entered and posted currently at all times as set out in By-law 9, sec. 18.  In this posting I will discuss why it happens and a practical solution.  In a later post, I will illustrate, with some examples, why maintaining current records is so important.

In most small law practices, the secretary has many duties.  While not meant to be exhaustive, the wide ranging roles that they must juggle on a daily basis include:

1. first and foremost the secretary/law clerk, responsible for preparing correspondence and pleadings;
2. the receptionist, answering the telephone, greeting clients, scheduling appointments and court dates:
3. the office manager, supervising junior staff, ordering office supplies, opening the mail, and ensuring the smooth operation of the office;
4. the bookkeeper, preparing invoices going out to clients, recording payments received, entering expense receipts, and preparing cheques for signing.

From the partial list above, it is easy to see why a secretary can become overwhelmed.  Too often, the urge to produce a greater volume of work to maximize income dominates the situation.  Other things tend to get pushed aside, to be done at a later date.  And this is only the regular day-to-day work.  Add to this monthly bank reconciliations, trust comparisons, payroll and HST remittances.

PCLaw can greatly reduce the workload, and the time it takes to enter your bookkeeping records.  One entry can post an invoice to the payables journal, expense the cost, recover the expense to the client ledger, and cut a cheque.  Likewise, you can invoice the client, record the account receivable, and transfer a payment from trust.

Ultimately, the cause of this LSUC spot audit error is usually a staffing issue.  Your staff simply do not have the time to keep your bookkeeping current.  Hiring another full-time employee can put a strain on your finances; a part-time employee may not be committed to the job and could leave you stranded in order to pursue full-time employment elsewhere.

The solution most firms use is to outsource the work to a self-employed bookkeeper, on a monthly or weekly basis, to resolve any outstanding issues.  Being as they are in business for themselves, they are motivated to do good work and their cost is less due to no payroll taxes.

The only things I would add as personal advice – make sure the bookkeeper you retain knows about law practices and trust funds, and that they are fully trained in all aspects of PCLaw bookkeeping.  Mistakes happen, and your bookkeeper must be able to detect the errors and re-enter the information correctly.

As always, I invite your comments and suggestions for future posts.  Next week – error #2 - Trust reconciliations and trust comparisons in arrears.

Clyde

Introduction, Future posts, Benefits to you

Welcome to Ontario PCLaw Bookkeeping.

My motivation for writing this blog was to fill the gap between the knowledge provided by PCLaw’s help (how to use the program) and the bookkeeping standards demanded by the Law Society of Upper Canada (Bylaws 8 and 9).  In simplified terms, a practical guide on how you can use the functions of PCLaw to meet your LSUC obligations.

For the next seven weeks of posts, I will be dealing with the “Seven Common Problems with Financial Records” as found by the LSUC’s spot audit program.  I will discuss what the problems are, how you can fix them, and how you can avoid repeating them in the future.

I hope my posts will be of interest to both lawyers and their bookkeepers.  Lawyers especially should have a firm understanding of bookkeeping issues; after all, it is their licence to practice that is at stake.  

However, for you, as a reader, to get the most benefit from this blog, I need to know what concerns you have in your practice.  Please post your comments or email me directly with your questions.  I will try to address your concerns in future posts.  If I receive more than one request for a particular topic, I will respond with postings on the basis of need.  Otherwise, I will respond in order of receipt.  I would also be happy to correspond with you, off-post and in confidence, to answer any questions or concerns you may have.

Clyde