Rule 32 Solicitors Accounts Rules

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Rule 32 Solicitors Accounts Rules
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2009-12-16 13:26:24
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Solicitor Account rules 32
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Rule 32 on accounting systems and records
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  1. A solicitor must at all times keep accounting records properly written up to show the solicitor's dealings with whom? (2 categories)
    1. Client money. Including client money received, held or paid by the solicitor; including client money held outside a client account under rule 16(1)(a) or rule 17(ca) - Rule 32(1)(a))

    2. Office money relating to any client or trust matter - Rule 32(1)(c))
  2. How must client money be recorded?

    What other entries can be made on these records?
    • (a) in a client cash account or in a record of sums transferred from one client ledger account to another; and
    • (b) on the client side of a separate client ledger account for each client (or other person, or trust).

    No other entries may be made on these records.

    Rule 32(2)
  3. What accounts must be kept if separate designated client accounts are used?
    • (a) a combined cash account must be kept in order to show the total amount held in separate designated client accounts; and
    • (b) a record of the amount held for each client (or other person, or trust)
    • must be made either in a deposit column of a client ledger account, or
    • on the client side of a client ledger account kept specifically for a separate designated client account, for each client (or other person, or trust).

    Rule 32(3))
  4. How must dealings with office money relating to a client or trust matter be recorded?
    Must be appropriately recorded in an office cash account and on the office side of the appropriate client ledger account.

    Rule 32(4)
  5. What must always be shown/ascertainable on each client ledger account for client money/designated client accounts?
    The current balance - Rule 32(5)
  6. When acting for both lender and borrower on a mortgage advance do you need to open up separate client ledger accounts for both clients?

    What does clearly identifiable mean?

    Who does the mortgage advance credited to that account belong to?
    • No. As long as:
    • (a) the funds belonging to each client are clearly identifiable; and
    • (b) the lender is an institutional lender which provides mortgages on standard terms in the normal course of its activities.

    Rule 32(6)

    Clearly identifiable menas that by looking at the ledger account the nature and owner of the mortgage advance are unambiguously stated.

    • For example, if a mortgage advance of £100,000 is received from the ABC Building Society, the
    • entry should be recorded as "£100,000, mortgage advance, ABC Building Society". It is not enough to state that the money was received from the ABC Building Society without specifying the nature of the payment, or vice versa. Rule 32 note vii.

    The mortgage advance belongs to the lender until completion takes place. Improper removal of these mortgage funds from a client account would be a breach of rule 22. Rule 32 note viii
  7. What 3 things must the solicitor do ever 5 weeks (or every 14 weeks in the case of money held by solicitor-trustees in passbook-operated separate designated client accounts)?

    When should reconciliations be carried out?
    a) Compare the balance on the client cash account(s) with the balances shown on the statements and passbooks (after allowing for all unpresented items) of all general client accounts and separate designated client accounts, and of any account which is not a client account but in which the solicitor holds client money under rule 16(1)(a) or rule 17(ca), and any client money held by the solicitor in cash. AND

    b) As at the same date prepare a listing of all the balances shown by the client ledger accounts of the liabilities to clients (and other persons, and trusts) and compare the total of those balances with the balance on the client cash account. AND

    • c) Prepare a reconciliation statement; this statement must show the cause of the difference, if any, shown by each
    • of the above comparisons.

    Rule 32(7)

    Reconciliations should be carried out as they fall due - Rule 32 note ix
  8. What must the solicitor must keep readily accessible a central record or file of copies of?

    What must be distinguished?
    • a) Bills given or sent by the solicitor AND
    • b)All other written notifications of costs given or sent by the solicitor

    Fees, disbursements not yet paid at the date of the bill, and paid disbursements.

    Rule 32(8)
  9. What must be recorded if the solicitor makes a withdrawal under rule 22(1)(ga)?
    A record of the steps taken in accordance with rule 22(2A)(a)-(c), together with all relevant documentation (including receipts from the charity).

    Rule 32(8A)
  10. What must the solicitor retain for at least six years from the date of the last entry?

    9 things
    1. All documents or other records required by paragraphs (1) to (8A) of Rule 32. Rule 32(9)(a)

    AND

    • All statements and passbooks, as printed and issued by the bank, building society or other financial institution, and/or all duplicate statements and copies of passbook entries permitted in lieu of the originals by rule 10(3) or (4), for:
    • 2. Any general client account or separate designated client account. Rule 32(9)(b)(i)
    • 3. Any joint account held under rule 10. Rule 32(9)(b)(ii)
    • 4. Any account which is not a client account but in which the solicitor holds client money under rule 16(1)(a) or rule 17(ca). Rule 32(9)(b)(iii)
    • 5. Any office account maintained in relation to the practice. Rule 32(9)(b)(v).

    • AND
    • 6. Any records kept under rule 9 (liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes) including, as printed or otherwise issued, any statements, passbooks and other accounting records originating outside the solicitor’s office. Rule 32(9)(c).

    AND

    7. Any written instructions to withhold client money from a client account (or a copy of the solicitor’s confirmation of oral instructions) in accordance with rule 16. Rule 32(9)(d)

    AND

    8. any central registers kept under paragraphs (11) to (13A) of Rule 32. Rule 32(9)(e)

    AND

    9. Any copy letters kept centrally under rule 31(2) (dividend cheques endorsed over by nominee company). Rule 32(9)(f)
  11. What must the solicitor retain for at least 2 years?

    2 things.
    1. Originals or copies of all authorities, other than cheques, for the withdrawal of money from a client account. Rule 32(10)(a).

    • AND
    • 2. All original paid cheques (or digital images of the front and back of all original paid cheques), unless
    • there is a written arrangement with the bank, building society or other financial institution that:

    • (i) it will retain the original cheques on the solicitor’s behalf for that period
    • OR
    • (ii) in the event of destruction of any original cheques, it will retain digital images of the front and back
    • of those cheques on the solicitor’s behalf for that period and will, on demand by the solicitor, the solicitor’s reporting accountant or the SRA, produce copies of the digital images accompanied, when requested, by a certificate of verification signed by an authorised officer.

    Rule 32(10)(b)
  12. About which 5 things must records to be kept together centrally/must a central register be kept about?
    1. Statements and passbooks for client money held outside a client account under rule 16(1)(a) or rule 17(ca) - Rule 32(11).

    2. Any records kept under rule 9 (liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes) - Rule 32(12).

    3. The statements, passbooks, duplicate statements and copies of passbook entries relating to any joint account held under rule 10 - Rule 32(13)

    4. A register of all withdrawals made under rule 22(1)(ga) must be kept, detailing the name of the client, other person or trust on whose behalf the money is held (if known), the amount, the name of the recipient charity and the date of the payment - Rule 32(13A).

    • 5. If a nominee company follows the option in rule 31(2)
    • (keeping instruction letters for dividend payments), a central book
    • must be kept of all instruction letters to the share-owner's bank or building society, etc. - Rule 32(14)
  13. Which records required under Rule 32 can be kept on a computer?

    Is a hard copy also required?

    What if there is no hard copy?
    • All records except:
    • - original statements and passbooks retained under paragraph (9)(b) of Rule 32
    • - original statements, passbooks and other accounting records retained under paragraph (9)(c) of Rule 32
    • - original cheques and copy authorities retained under paragraph (10) of Rule 32

    These must be retained as printed or otherwise.

    No hard copy is required

    If no hard copy is kept, the information recorded must be capable of being reproduced reasonably quickly in printed form for at least six years, or for at least two years in the case of digital images of paid cheques retained under paragraph (10) of Rule 32

    Rule 32(15)
  14. How often should accounts be written up?
    Weekly (smaller firms) or daily (larger firms) - Rule 32 note i
  15. When a cheque or draft is received on behalf of a client and is endorsed over, not passing through a client account how should it be recorded?

    E.g. A cheque in the name of the clinet is sent to you.

    What else does this apply to?

    What does this not technically apply to?
    It must be recorded in the books of account as a receipt and payment on behalf of the client (but does not actually have to be put into the account).

    The same applies to cash received and not deposited in a client account but paid out to or on behalf of a client.

    A cheque made payable to a client, which is forwarded to the client by the solicitor, is not client money and falls outside the rules, although it is advisable to record the action taken.
  16. Is money which has been paid into a client account under rule 19(1)(c) (receipt of costs), or under rule 20(2)(b) (mixed money), and for the time being remains in a client account to be regarded as client money or office money for the purposes of Rule 32?
    Client money - it should be recorded on the client side of the client ledger account, but must be appropriately identified

    Rule 32 note iv
  17. For the purpose of rule 32, is money which has been paid into an office account under rule 19(1)(b) (receipt of costs), rule 21(1)(a) (advance payments from the Legal Services Commission), or under rule 21(1)(b) (payment of costs from the Legal Services Commission), and for the time being remains in an office account without breaching the rules, office money or client money?
    Office money.

    All these payments should be recorded on the office side of the client ledger account (for the individual client or for the Legal Services Commission), and must be appropriately identified.

    Rule 32 note v
  18. If the accounting system does not retain a record of past daily balances, is the solicitor in breach of the rule 32(5)?
    No.

    Rule 32 note vi
  19. In making the comparisons under rule 32(7)(a) and (b), some solicitors use credits of one client against debits of another when checking total client liabilities. Is this ok?
    Not really. This is improper because it fails to show up the shortage. Rule 32 note x
  20. What is the effect of rule 32(9)(b)? Why?
    Solicitors must require that the bank issues hard copy statements. Statements sent from the bank to its solicitor customer by means of electronic mail, even if capable of being printed off as hard copies, will not suffice.

    Rule 32 note xi
  21. What if a solicitor holds client money in a currency other than sterling?
    That money should be held in a separate account for the appropriate currency.

    Rule 32 note xiii
  22. Are microfilmed copies of cheques acceptable for Rule 32(10)(b)?
    No.

    Rule 32 - note xvi
  23. Under rule 32(10)(b) does the requirement to keep paid cheques under rule 32(10)(b) extends to all cheques drawn on a client account, or on an account in which client money is held outside a client account under rule 16(1)(a) or rule 17(ca)?
    Yes. Rule 32 - note xiv
  24. Can solicitors enter into an arrangement whereby the bank keeps digital images of paid cheques in place of the originals?
    Yes.

    The bank should take an electronic image of the front and back of each cheque in black and white and agree to hold such images, and to make printed copies available on request, for at least two years. Alternatively, solicitors may take and keep their own digital images of paid cheques.

    Rule 32 note xv

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