Pursuant to s. 49.2(1) of The Law Society Act:
“The Society may conduct an audit of the financial records of a licensee or group of licensees for the purpose of determining whether the financial records comply with the requirements of the by-laws.”
The purpose of audits is to fulfill the LSUC’s mandate of protecting the public. The primary focus of the audits is therefore concentrated on your trust account. The auditor does also review your general account, to ensure payments are applied properly to client receivables.
Each year, you have about a 1 in 14 chance of being audited (about every 5 years). If you are a new practice, you will be audited about 1 year after you open. Ideally, the audit process should be viewed as an opportunity to learn what you should be doing. Auditors are usually happy to explain any problems found and what needs to be done in the future.
I have already discussed the most common spot audit problems, in the blog postings of November 2010 to January 2011. These older postings can be viewed at any time in the archived section of the blog website.
You will receive notification of the audit approximately 2 weeks before the scheduled date. You will be asked to prepare some photocopies ahead of time, for use on the audit date. If you have Private Mortgage or Power of Attorney matters, you will be asked to provide some additional information to the auditor 1 week prior to the audit date.
The balance of the documentation will be requested “on demand” during the course of the auditor’s site visit. You, or your staff/bookkeeper, must be able to immediately generate the various accounting reports from PCLaw, as/when requested. You must be able to answer any questions posed by the auditor, as to why certain bookkeeping entries were made. This is why the LSUC suggests that you may wish to have your bookkeeper attend the audit, if you are uncomfortable with bookkeeping and/or a newer PCLaw user.
You must be able to produce copies of any supporting documentation, like invoices, trust ledgers, mortgages, receipt books, cancelled cheques, bank statements, etc. You need to provide a copy of your latest filing for your LawPro transaction levies, or your exemption.
Prior to the audit, make sure your records are current, and any issues on your current bank reconciliation reports have been corrected. If you have outstanding bank errors on the report, have the bank reverse the entry or otherwise fix the error. Obtain copies of these transactions, to show the auditor the errors were fixed. Clean-up any outstanding deposits, and place stop payments/reissue any stale cheques.
As always, I invite your comments and suggestions for future post topics. Next Week – PCLaw and LSUC Audits – Next Steps.