Sunday, January 16, 2011

LSUC spot audits – Common errors - #7 of 7

The final item on the LSUC’s spot audit list of common errors is “Pre-taking fees”. Essentially, all unearned client funds should be on deposit in the trust account, and if the funds are not in trust, they have been pre-taken into the general account.
Whenever you receive money that is entirely:
  1. payment for completed legal services for which you have sent the client a bill;
  2. reimbursement for proper expenses you have made on behalf of a client;
  3. your or your firm’s money; or
  4. a general monetary retainer;
these funds may be deposited into your general account. 

General retainers are extremely rare.  When clients give you money, they usually expect something in return.  Until you actually perform this task, the funds are “deemed trust”.
Any other funds you receive from a client are also “deemed trust”, and must be deposited into your trust account.

A cheque that is partly paying your accounts receivable and partly an additional retainer must be deposited into trust, as it does not meet the “entirely” provision set out above.  Deposit the cheque into trust, and then immediately transfer the accounts receivable portion to general.

You cannot anticipate a billing to a client. You cannot transfer funds from your trust account and then issue an invoice. You may very well have completed all of the work, but you are not permitted to take your money until an invoice is actually sent to the client. Nor is it permissible to deposit funds into your general account one day and issue an invoice the following day.  

According to By-law 9, s. 8. (2) 2., there are two exceptions. You can receive funds into general if:
  1. the entire amount is in reimbursement of the client’s disbursements; or
  2. you will immediately issue an invoice (i.e. the same day)
As always, I invite your comments and suggestions for future posts. Next week – Third-party review of your books.