Solicitors and SAR audits – common problems

As another season of Solicitors Accounts Rules (SAR) audits draws to a close, we have observed some trends and key problem areas that keep cropping up. We discuss how to avoid or overcome these common problems.

Residual balances

The problem

Unsurprisingly, residual client balances continue to be a problem area for many solicitors. Sometimes there’s a genuine reason to hold funds after a matter has concluded, for example, a retainer clause in a new tenancy agreement, or tracing a beneficiary of a will. In such instances, solicitors must notify their clients of the reason for continuing to hold the funds, and at least every 12 months thereafter (rule 14.4); but this often doesn’t take place.

In other situations, there simply isn’t a good reason to retain money after an engagement (rule 14.3), and the residual amount has either been overlooked (for example, by an error in the calculation on a Completion Statement), or just forgotten about.

The solution

To keep on top of this, fee earners should diarise time to send letters to their clients when they know that money will be retained. They should also regularly review client ledger balances and ‘last movement’ dates to identify any overdue matters and then take prompt action.

Banking facilities

The problem

Of greater concern is the provision of banking facilities through the client account. This is a key area of concern to the Solicitors Regulation Authority, and a breach of the banking facilities rule (rule 14.5) is likely to lead to a qualified accountant’s report. The danger is that banking facilities sometimes extend beyond making payments and receiving money on a client’s instructions, to retaining funds on the client’s request without an underlying legal reason.

There are two main issues:

• It can be difficult to determine whether or not there’s a real legal transaction underpinning the retention of funds in the client account.
• Solicitors may feel pressure to offer banking facilities when a client asks the solicitor to retain money (for example, because it’s convenient for them).

These two issues can easily lead to a breach of rule 14.5.

The solution

Our advice to any solicitor who thinks they might be falling foul of the rule is to get in touch with us. We can provide expert advice concerning the proper provision of banking facilities and can recommend practical solutions (particularly in instances where clients want the solicitor to have some control over their money).

Need help?

Speak to us if you have any concerns or questions about residual balances in your client account or the provision of banking facilities. Call 0330 024 0888.