How to clear Residual Client Account Balances
In March 2008 the SRA approved the Solicitors Accounts (Residual Client Account Balances) Amendment Rule 2008.
These rules impacted on the following areas: –
– Returning surplus client money
– Reporting to clients on retained funds at the end of a matter
– Withdrawal of left over client balances
Here is a practical approach to clear residual client account balances: –
Where to start?
Obtain a list of client balances which are closed and have had no movements for at least a year and keep a copy on file. It is important to note that Rule 14.3 only applies to matters closing on or after 14 July 2008, although I would recommend that procedures are put in place for all surplus client money, as old residual balances will still need to be cleared.
There is an obligation to return client money once there is no longer any proper reason to retain the funds. In most cases this will be at the end of the matter.
Rule 14.3 requires the funds to be returned to the client ‘promptly’. ‘Promptly’ has not been defined by the SRA, but they state in their notes, “should be given its natural meaning in the particular circumstances…will often fall naturally at the end of a matter”.
Withdrawal of left over client balances < £50
For very small client balances (less than £4, say) you can send the client the value of the amount owed to them in the form of postage stamps, as stamps are legal tender. This is providing you know the current address of the client.
If a client cannot be traced easily, with balances less than £50, it is up to you what steps should be taken. In some circumstances it may be reasonable to investigate the client’s whereabouts before paying the money to charity.
You can self certify amounts of £50 or less providing you have followed Rule 20.2. Once you have made sure that all attempts to locate the client have been conducted you may pay the funds to charity without prior SRA approval. The charity should be registered with the Charities Commission and the SRA may require you to ask for an indemnity from the charity should your client make a legitimate claim for those monies in the future.
You must keep a central register of all monies paid to charity maintaining the following details – client name, the amount, the name of the charity and date of payment.
Withdrawal of left over client balances > £50
You have to make more attempts to contact your client in cases where you hold more than £50. In addition to writing or telephoning your client at their last contact details, you may need to consider reviewing the file for alternate addresses; contact via family member or bank or employer; looking at the telephone directory and electoral roll; conducting an internet search; using the letter forwarding service at the DWP; newspaper advertising; or instructing enquiry agents.
For the withdrawal of balances in excess of £50 per client you must always seek SRA approval. You will need to write to the SRA and include the following information:
– the client balances involved
– the length of time that the money has been held
– what attempts have been made to contact the client
– evidence that reasonable costs of locating the client are excessive in relation to the money held
The SRA have, in some cases, asked that your accountant provide a letter of verification of these balances.
The same points apply regarding making donations to a registered charity, and keeping centralised records. The records will, of course, be more detailed in these circumstances as they will contain notes of attempts to contact your clients.
You may find it beneficial to update your systems for file close down. Following a checklist or list of prompts, that includes a review of any surplus balance on client account, will minimise the risk of being left with surplus client balances.
At the latest, a final review of the client ledger prior to file archiving should be done to ensure funds are not remaining.
Do not forget that unpresented cheques on your bank reconciliation may run out of date for the bank to present. This may then generate the position of you having to put funds back into client account and reissuing the cheque. There may be the possibility that you have lost contact with your client in the interim, if they have changed address. You may then have another unpresented cheque ongoing or an actual residual balance.
Make sure that you keep your unpresented cheques under review for ones still on the list after two months, say, and consider chasing your client to present that cheque.
Reporting to clients on funds retained at the end of a matter
Rule 14.4 requires the solicitor to inform the client, in writing, promptly of the amount and reason for holding any funds at the end of a matter, or the substantial conclusion of that matter.
The solicitor must also report to the client, giving an explanation in writing for the continued retention of funds, at least on an annual basis.
You must therefore ensure that there is some sort of diary reminder system set up to prompt this annual communication.