Financial Compliance: The Key to a Thriving Law Firm Business
Law firms have faced many challenges over the last couple of years, not only from the impact of Covid but also the new legislative requirements that have been enacted and financial compliance requirements. These include the Fidelity Fund Suspense Account obligations, POPIA and FICA amongst others.
RELATED ARTICLE: Business Development for Legal Practitioners
With most firms nearing their year end period, they face the additional burden of Legal Practice Council financial compliance in preparation for the trust audit later in the year and the preparation of financial statements for tax purposes. It, therefore, has become even more important for accounting records to be up to date and complete. This means the following:
- All fees and disbursements for the year should be captured,
- Bank reconciliations finalised,
- Supplier accounts should be checked for accuracy, and any corrections required should be attended to.
Collection of Funds
The collection of funds owed to the firm should be an ongoing process during the year. This ensures the firm has the funding required to support its ongoing operations. The debtors accounts should at year end be reviewed and possibility of recover considered. Any irrecoverable debts should be written off to ensure the profit of the firm for the year is not overstated increasing the tax burden.
Trust and Investment Account Handling
Legal bookkeepers need to ensure that their handling of Trust and Investment accounts comply with the Legal Practice Act 28 of 2014 Sections 86 and 87. At Legal Interact we have always seen that legal bookkeepers who keep their bank reconciliations up to date daily, rarely experience any issues during the year end process. Keeping the accounting records up to date, ensures that any errors are identified and rectified as quickly as possible.
The Trust Audit
In preparation for the trust audit, it is important to ensure you have the necessary reports and other information available. Legal Interact’s Practice Manger Pro allows you to generate any reports for earlier periods when they are required. If your system does not, then electronic or paper copies will need to be kept.
The reports required will include:
- Client Trial Balance – This is a list of Trust & Business balances on each client.
- Client Transaction listing – Showing all transactions against clients’ accounts.
- Trust Surplus Report – Compares trust funds against trust liabilities and validates that no deficit exists.
- Bank Reconciliations
- List of Trust reversals and Trust to Business transfers
The firm’s budgeting process for the next financial year should also be finalised before the new financial year starts. Regular review of expenses incurred against budgets will provide good insight into how the firm is performing throughout the year. It will enable strategic decision making to support profitability and financial stability going forward.
If you are not ready, start today or consult Legal Interact about our professional accounting services to assist and Practice Manager Pro which provides seamless accounting software solutions with best practices at its core. Simply call us on +27 11 719 2000, mail us on firstname.lastname@example.org or use this link to book time at a convenient time for you.