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Regulation 13 of the Solicitors Accounts Regulations 2014 requires that a “a solicitor shall, at all times in the course of and arising from his or her practice as a solicitor, maintain (as part of his or her accounting records) proper books of account and such relevant supporting documents as will enable clients moneys handled and dealt with by the solicitor to be duly recorded and the entries relevant thereto in the books of account to be appropriately vouched” (emphasis added).

The Law Society wishes to stress the importance of maintaining the books of account up to date at all times and reviewing the books of account from both a practical and regulatory point of view. The optimum frequency of updating the books of account is dependent upon a number of factors, such as the size of the practice, the number of financial transactions, and so on. Ideally, the books of account should be updated on a daily basis or when a financial transaction occurs. In the case of a practice consisting of one or two solicitors, it may be more appropriate to update the books on a weekly basis. The Law Society would consider it a rare circumstance that a monthly basis would be deemed appropriate, and never a longer period than monthly.

From a practical point of view, failure to maintain the books of account up to date often results in poor financial management and a lack of awareness of the profitability and viability of the practice. Professional fees held in the client account are sometimes overlooked, in the belief that they were previously transferred to the office account, payment of overheads is made when not in sufficient funds to do so, requiring the solicitor to explain matters to their suppliers, or errors are made on both the office and client account. Suppliers may be paid twice, resulting in a delay in receiving a refund. From a client account perspective, the lack of up-to-date books of account often results in a failure to identify inactive balances, which may include land registry fees, undischarged outlays, undischarged bequests, and so on.

Errors arising in relation to the client account are often more serious. The Regulation of Practice Committee has encountered a number of issues that have arisen due to the lack of proper books of account. These issues often go unnoticed for long periods due to the lack of proper books of account, exacerbating the problem. For example:

• Overpayments made to clients, overpayments of third party outlays, and so on – these overpayments often give rise to debit balances (breach of regulation 7(2),
• Payments from/lodgements to wrong bank account (breach of regulations 5 and 7),
• Duplication of or over-transfer of fees, giving rise to debit balances on the client ledger and credit balances on the office ledger (breach of regulations 7(2) and 11(5)),
• Credit balances on the office ledger arising (breach of regulation 11(5)) arising from the failure to record the professional fees due as a debit on the office ledger (breach of regulation 11(4)) or failure to record payment of outlays subsequently recovered.

The breach of regulation 13 and/or a combination of the above breaches have given rise to various sanctions being imposed. These sanctions include the imposition of a levy, the imposition of conditions on the solicitor’s practicing certificate, and referrals to the Solicitors Disciplinary Tribunal and the High Court.

John Elliot, Registrar of Solicitors and Director of Regulation