All SRA-regulated law firms must appoint a Compliance Officer for Finance and Administration ("COFA"). In larger firms, this suits a qualified accountant, but in smaller firms, non-accountants often take on the role, finding the requirements unfamiliar and onerous.

While there is a wealth of theoretical guidance available - such as on the SRA’s website - clients often tell us they prefer practical, actionable advice. So, we’ve decided to share some of our key insights with you:

1. Identify weaknesses in your firm’s systems

Your firm should have systems in place to ensure that only authorised people can make payments from the client account and to guarantee that accounting records are accurate. These systems should be documented in enough detail to enable you to objectively determine whether they provide an effective safeguard against human error or against an unauthorised person being able to gain access. A good question to ask your finance manager/team is where the weak points are in your procedures and then test whether it’s possible to circumvent the controls you have in place. A client of ours discovered that their two-step approval process (the finance manager plus a partner) could be easily circumvented in instances where a partner was unavailable and that on a number of occasions, payments had been made from the client account before the partner had authorised them. The weakness in the system was discovered when money was paid out of the wrong account.

2. Check for client ledger “red flags”

These include any overdrawn balances in the “client” column of your list of client matters, which could indicate a potentially reportable breach of the SRA Accounts Rules. It’s also a very good idea to request a list of all client ledgers where there has been no movement for more than six months, to see whether the firm is holding a residual balance that should have been returned to the client. Some accounting software packages can produce an automated list, but, if your software cannot, you can instead test-check a selection of matters.

3. Understand the bank reconciliations

A client once shared their experience of a routine SRA inspection during which the SRA officer asked to see – and to be talked through – the client account bank reconciliations. It became immediately evident that the COFA had been signing them off without really understanding what they were looking at. There are three points to be clear about when reviewing a bank reconciliation: