By Karen Edwards, Head of Professional Development at Legal Futures Associate ILFM (The Institute of Legal Finance & Management)
The recent news that the SRA has handed down a fine of 16% of a former director and compliance officer’s gross annual income may have struck terror into the hearts of COFAs (Compliance Officer for Finance & Administration) across the country.
This stark realisation that personal income may be at stake if accounting or regulatory errors are made is enough to spook even the most experienced COFA, so what can we learn from this case? Why was the fine imposed and how could it have been avoided? We take a closer look at the key issues and how COFAs can ensure compliance and reduce the risk of sanctions.
Background of the case
In July, a solicitor serving as both COFA and Compliance Officer for Legal Practice (COLP) at a regulated firm in Yorkshire was fined for failing to maintain proper financial records and carry out necessary reconciliations. The misconduct occurred over a two-and-a-half-year period, highlighting the importance of consistent and ongoing compliance efforts.
Key areas of concern
- Client Account Reconciliations: The COFA failed to carry out three-way client account reconciliations.
- Record Keeping: There was a failure to maintain records of receipts that were not client money and bills of costs on client ledgers.
How COFAs can ensure compliance
- Regular Reconciliations: Implement a system to conduct three-way client account reconciliations at least once every five weeks, as required by SRA rules.
- Comprehensive Record Keeping: Maintain detailed records of all financial transactions, including those that are not client money. Ensure client ledgers are regularly updated with all relevant information.
- Understand Regulatory Obligations: Familiarise yourself thoroughly with the SRA Accounts Rules and Principles.
- Implement Robust Accounting Systems: Establish and maintain proper accounting systems with adequate internal controls to ensure compliance with SRA rules.
- Regular Training and Updates: Stay informed about regulatory changes and participate in regular training to keep your knowledge current.
- Proactive Compliance Checks: Conduct regular internal audits to identify and address any compliance issues before they become serious problems.
- Clear Documentation: Maintain clear and accessible documentation of all compliance-related activities and decisions.
- Foster a Culture of Compliance: Work with firm leadership to create a culture where regulatory compliance is viewed as a crucial aspect of the firm’s operations.
The importance of due diligence
Remember, as a COFA, you have direct responsibility for ensuring your firm’s compliance with its regulatory obligations. Failing to give due regard to these responsibilities can lead to serious consequences, including personal financial penalties (as in this case) and damage to professional reputation.
By implementing these practices and maintaining a vigilant approach to compliance, COFAs can significantly reduce the risk of regulatory breaches and subsequent penalties.
The ILFM provides regular training for COFAs as well as offering a supportive community for sharing best practice and answering any questions that arise on day-to-day issues.
Click here to find out more: https://www.ilfm.org.uk/site/about/information-pack/
