Monday, October 22, 2012

Bank Errors and PCLaw – Part 2

On April 1st, 2012, we discussed the uses of the PCLaw Bank Error feature when doing the monthly bank reconciliations. This feature should only be used for actual bank/teller errors, but it is often misused to record bookkeeping mistakes.

I recently had a rather lengthy discussion with a LSUC auditor over this very subject. In this case, my client had mistakenly taken more trust funds than were on deposit for a particular matter (prior to PCLaw being used). Therefore, the funds needed to be paid back, requiring a General to Trust transfer. The auditor was of the opinion that the entry was self corrected by the deposit of new trust funds by my client’s client the following month.

That may be true as far as the LSUC (or this individual auditor) is concerned, but it has there are other things to consider. For example:
  • Revenue Canada considers deposits from clients into your general account as income. If, in the above example, you do not record the General to Trust transfer as a disbursement, and amend your billing, CRA will consider the whole deposit as fees, and assess you income taxes the whole amount. 
  • LSUC – if you leave the client’s trust ledger in an overdrawn state for more than a month, you will have to report this on your Lawyer Annual Report. Instead, you can just have an outstanding receipt for the General to Trust Transfer.

As always, I invite your comments and suggestions for future post topics. Next Posting – PCLaw and Conveyancer – Part 2.


Tuesday, October 9, 2012

PCLaw and Fraud Prevention

The following is not meant to be an exhaustive list, but rather a starting point, which you should adapt to the specific needs of your own law practice.

First and foremost, prepare (or have prepared for you) a monthly trust comparison report. These reports should be completed by the 25th day of the following month. Take some time to thoroughly review the report, and ask your bookkeeper questions if you find things do not appear to be as you believe they should be.

Office Practices:
  • ensure each incoming cheque is stamped with a “deposit only” endorsement
  • issue pre-numbered receipts to clients for cash or cheques received
  • clients should be asked to sign cash receipts, to avoid later disputes over amount received
  • ensure cash/cheques are deposited by the end of the next banking day
  • if deposits are not made immediately, are they are locked in a safe location?
Staff – separation of duties
  • one person opens the mail and a separate person deposits funds
  • one person deposits the cash/cheques, another person enters the receipts in the accounting records
  • ensure deposit slips match accounting records
  • verify sequence of numbered receipts – ensure they match accounting records
  • scrutinize your trust and general bank account statements, looking for:
    • returned cheques
    • any unusual transactions
    • compare trust bank account balance(s) with client trust listing
  • review the monthly bank reconciliations, looking for:
    • outstanding items and follow up on them
    • stale-dated cheques over six months old
    • review the client trust listing for overdrawn and inactive accounts

Cheque Preparation Policies

Many times, staff prepare cheques for signing by the lawyer
  • stamp original copies of invoices "paid" to prevent being paid more than once
  • only original invoices, and not photocopies, required when signing cheques
  • confirm the service was indeed provided, or the disbursement is proper
  • trust account cheques clearly marked “trust”
  • general account cheques clearly marked “general”
  • trust cheques and general cheques different colours to avoid confusion

Trust cheques
  • review reasonableness:
    • Minister of Finance – trust cheque trust should accompany the claim/defense/motion/ etc. to be filed
    • other disbursements should have the original invoice
    • payable to your firm, should have your own invoice prepared
  • confirm client has adequate trust funds


The data in accounting programs can be changed, to cover up / hide fraudulent activities.  PCLaw can be used for fraud prevention by reviewing audit trail reports – Reports - Audit trail reports. You primary interest would be the general and trust bank journals, and the general journal – deselect the others. You will want to include corrected entries. Review the corrections, to see if any attempts are being made to deliberately manipulate the data.

As always, I invite your comments and suggestions for future post topics. Next Posting – Bank Errors and PCLaw - Part 2.