I was recently asked by the managing partner of a mid-range law firm “what are the things that should keep me awake at night worrying”.
A very interesting question.
His concern comes from the fact that his firm has grown quite quickly so he worries about losing control. He is also worried that he will show up on the SRA radar due to a series of acquisitions and therefore wanted to know, what would a routine enquiry look like and what would a full investigation look like. Enquiries and investigations can be quite varied but also usually focus on very specific issues that have caused the firm to flag-up.
Here are some of the things we discussed with him. These are valid concerns for most law firms and some of these threats have become even more acute due to Covid-19. Many firms have re-engineered their business to allow for flexible working as we learn to trade in a pandemic world. But how are you dealing with the following risks:
- Working remotely magnifies any weaknesses in your systems, procedures and controls. Does your Accounting Policy Document accurately describe your processes and authorisations in accordance with the Accounts Rules? Is it up to date to reflect new working practices and do you need to strengthen any of these as a result of new flexible working practices?
- Corona scammers – cyber criminals have adapted their “business model” to focus on home workers as potential weak links. Do you have a home-working policy that reflects the new world and are all staff remaining diligent?
- Under 2.4 of the Code of Conduct for Firms, you have a duty to actively monitor your financial stability and business viability. How are you fulfilling this obligation, what is your corporate governance structure?
- Have you taken full advantage of all the support measures available to you from the Government? When you update your forecast for the next 6 months do you in fact need more money under CBILS or another source?
- What are the implications to you for the move from the Job Retention Scheme to the Job Support Scheme? Do you need to make any adjustments to what you have claimed, HMRC are prosecuting firms/directors who have over-claimed?
- Have you planned for paying any deferred tax bills in January particularly if you have deferred payments on Account? What about the VAT payment which will be due in March 2021, do you need to apply for extra time to pay?
- Finance firms are beginning to set conditions when providing funding for annual Professional Indemnity premiums, or litigation funding etc. Are you aware of their concerns and what are you doing to minimize your exposure to these?
- Are you using your Client Account as a banking facility for a client. We always come across Commercial Rent Deposits being held where there is no ongoing regulated legal service being provided. What are you doing to rectify these, and other breaches of SAR Rule 3.3?
- Residual Balances – the Reporting Accountants favourite subject! Under SAR Rule 2.5, you must ensure that client money is returned promptly to the client as soon as there is no longer any proper reason to hold those funds. All firms breach this rule, but what are you doing to deal with these in accordance with the SRA guidance in this area?
- On the last day of a VAT quarter, firms usually hold a substantial balance on the Office Bank Account ready to pay the quarterly VAT and monthly payroll. They sometimes have the rent money ready to pay as well. What would you do if fraudsters got access to this and it was not there when needed? Do you hold monies in an Office Reserve or Deposit Account so that it is one step away from the fraudsters? Does your Cyber insurance policy cover you?
- Is your firm involved in any leasehold transactions where you may have given advice based on fake ews1 cladding inspection forms? With the PII market continuing to harden, what impact would a major claim have on your ability to renew?
By the way, the good news is that the Managing Partner sleeps peacefully at night as we have been helping him for over 5 years now with risk management including all of the above.
If you would like to talk to us about any of the above or how we can help you with them, then please get in touch.