Authorised withdrawals from client account, or not…!

Over the past year, I am seeing more and more withdrawals from client accounts that were not authorised, not properly required, have no funds actually available or are not recorded correctly on ledgers, and in some instances, all four!

 

These failings could imply poor understanding of the Rules and suggest a weakness in internal control or ignoring standard procedures.

 

A withdrawal from a client account can only be made after a specific authority has been signed by an ‘appropriate person’, and should be in line with the firm’s procedures for signing on a client account. Reviews have been revealing that requests have either not been signed, or done after the transmission, and in some cases signed by a secretary or cashier, neither being actually authorised to do so.

 

An ‘appropriate person’ does not have to be a partner or director, nor do all managers have to be able to sign on a client account. But it is strongly recommended that they cannot raise, authorise and process withdrawal on the same transaction, so that there is some secondary review taking place. Segregation of duties is an important internal control and safeguard of client and office monies, especially where transfers out of client account can be achieved by PIN, telephone or online. No person should ever use another’s password, PIN or terminal or allow it to be known to another. And importantly they must also have an understanding of the Rules.

 

E-chits are becoming more popular, particularly with firms wanting to go paperless, but a strict procedure should be in place to ensure the method adopted is fully compliant and not open to abuse. Email is not considered an appropriate method, even if the sender is authorised. This is because emails are not considered secure and can be easily hacked, or used by another member of the firm.

 

Before any request for a withdrawal is made, a check should always be made to ensure there are funds available. Having a balance on client account is not enough. You should ensure that those funds are not be earmarked for another purpose, because using them would constitute a technically overdrawn client account.

 

It is very important to record a withdrawal accurately on the matter ledger and cash book. The wrong date is often shown on matter ledgers, and should be the date written on the face of the cheque or the date the money was physically transferred from the client bank account for online withdrawals.

 

But most important of all, is it a valid withdrawal? Often I see credit balances on office account, due mainly to funds being transferred for costs before the date on the bill or reimbursement of a disbursement not yet paid by the firm, and on occasion, for an amount greater than required because the fee earner has miscalculated.

 

Before an authoriser signs a request for a withdrawal, all supporting documentation should be presented for review to ensure that no inappropriate or invalid withdrawals are made from the firm’s client and office accounts.

 

Strong procedures and controls should be in force in all firms, no matter their size, and it is recommended that the firm’s COFA does spot checks on their effectiveness throughout the year.

 

If you would like further information on this topic, please contact Sylvan Tait on 01772 821021.