SRA 2011 Accounts Rules Changes – How to deal with cheques that do not pass through your client account

On 6 October 2011 the Solicitors Accounts Rules 1998 were replaced with the SRA Accounts Rules 2011. New rules were implemented and the old rule numbers changed. Dealing with cheques received by your firm has been emphasised within two of the rules as included in our summary below, to which we have made recommendations:
1. Use of a client account… Rule 14.2 (e)

“Only client money may be paid into or held in a client account, except a cheque in respect of damages and costs, made payable to the client, which is paid into the client account pursuant to the Society’s Conditional Fee Agreement, the sum becomes client money on payment into the account”

If you maintain a ‘Cheques Received Register’, cheques made payable to the client in respect of damages and paid into the client account should be recorded in the same way as all other client cheques, however, in these cases noting the purpose of the transaction. This is because as soon as these cheques are paid in to the client account the sum becomes client money and your normal accounting procedures come in to force.
2. Accounting records for client accounts… Rule 29.5

“A cheque or draft received on behalf of a client and endorsed over (to the client or third party), not passing through a client account, must be recorded in the books of account as a receipt and payment on behalf of the client. The same applies for cash received and not deposited in a client account but paid out to, or on behalf of, the client.”

We strongly recommend that a cheque made payable to your firm is never endorsed over to a client. This is because the rule specifically states that a cheque, not passing through the client account must be recorded in the books. If the cheque is paid in to the client account it will naturally be recorded on the system. If it is not, there is more scope for the cheque to be omitted from your records, thus causing a breach of the rules.
3. Cheques payable to your client

It is also important to remember that cheques received which are made payable to your client and not your firm, and forwarded to that client, should also be recorded.The SRA have issued a guidance note as follows:
Accounting records for client accounts (SRA Guidance note iii)
“A cheque made payable to a client, which is forwarded to the client by you, is not client money and falls outside the rules, although it is advisable to record the action date.”

In cases such as these, we would recommend that you record incoming cheques on a daily basis, as part of your ‘Cheque Received Register’ and instead of recording the banking date, recording the date the cheque was forwarded to the client. This will be the minimum required to comply with best practice.
4. Cheques Received Register
It now seems relevant to consider the importance of a ‘Cheques Received Register’. The SRA requires your firm to implement procedures for identifying client money when received by the firm, and for promptly recording each receipt either in the books of account or a ‘Register’ for later posting. We therefore regard a ‘Cheques Received Register’ as an excellent internal control and we strongly recommend your firm should implement one.
It also acts as a primary record to ensure that cheques are banked without delay. By reconciling your register against amounts banked on a daily basis, it would quickly become clear that bankings are short of missing cheques, and which Fee Earner is likely to have them!
If you require any advice regarding dealing with cheques received by your firm or would like help implementing a ‘Cheques Received Register’ please contact us and we will be happy to help.