Sunday, January 9, 2011

LSUC spot audits – Common errors – # 6 of 7

Number 6 on the LSUC’s spot audit list of common errors is “Earned fees in trust”.
Money that a member becomes entitled to should be billed and transferred from the trust account generally within a month of the fee having been earned – s.14(7) of Regulation 708. 

PCLaw can be set to automatically post the transfers to the general account when an invoice is prepared. Just make sure to actually transfer the funds between bank accounts. This is easy if you are using PCLaw to print your cheques at the same time as you are doing the invoice.  However, in a busy law practice, you may get distracted, and forget to do a hand-written trust cheque or an electronic transfer.

The LSUC also found that transfers from the trust account to the general account for fees were being made without first delivering an invoice to the client. These would be fees under the heading of work-in-progress. PCLaw can allow this to happen. To prevent this, remove the checkmark in Systems Settings - Data Entry – WIP. 

Another way these transfers can occur is by failing to use the “Trust to General Transfer” in PCLaw to make a payment to your firm. While you can properly use a trust cheque to pay client disbursements, PCLaw simply cannot recognize that the payee is your firm. Therefore, PCLaw will allow you to write an ordinary trust cheque to your firm in excess of funds owed.

To prevent the improper transfer of trust funds for unbilled items, make sure you and your staff only use the “Trust to General Transfer” feature in PCLaw, for any trust entries dealing with client invoices and receivables.  As long as WIP is unchecked, PCLaw will prevent you from transferring too much.

As always, I invite your comments and suggestions for future posts. Next week – the last in this spot audit series - error #7 – Pre-taking fees.