Friday, December 24, 2010
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.
Sunday, December 19, 2010
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 If the matter is no longer active, the trust funds should immediately be refunded to the client.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.
Sunday, December 12, 2010
“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.
Sunday, December 5, 2010
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:
- 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.
- 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.