Regulatory and Compliance Training & Consultancy

SRA Accounts Rules: Why Proper Supervision Matters

May 2018

Two cases brought to the Solicitors Disciplinary Tribunal (SDT) by the Solicitors Regulation Authority (SRA) in recent months highlight the importance of appropriate supervision by both the Compliance Officer for Finance and Administration (COFA) and the Compliance Office for Legal Practice (COLP) with regard to SRA Accounts Rules 2011 compliance.

The first case relates to the former firm of GPB Solicitors LLP (previously known as Geoffrey Parker Bourne Limited). The firm employed Mr Daniel Clarke, initially as a Legal Cashier, and then as Head Legal Cashier before appointing him as the Finance Co-ordinator in September 2010. On 13 May 2013, the firm received notification from the SRA that a Forensic Investigation was to be carried out. A few days later, Mr Clarke submitted his resignation. His resignation letter stated, “In order to keep the firm running, I have gone above and beyond the remit of my role and have consistently utilised client‘s monies to pay bills, wages and anything else that kept the firm going. I have acted on my own in the above and ensured that no one else knew of my actions.”. The SRA’s subsequent forensic investigation report revealed that a shortfall of £1.68m existed on the firm's client bank account as at 30 April 2013.

There was no suggestion that any of the directors of Geoffrey Parker Bourne Limited nor, subsequently, the members of GPB Solicitors LLP had any involvement in the misuse of client funds and were unaware of the same until after Mr Clarke's resignation letter had been submitted. This was a case that hinged around the suitability of the control systems that existed within the organisation and the level of supervision that was exercised over the finance function. Ultimately, both the internal accounting control systems and the supervision of the finance team were found to be lacking in the eyes of the SRA and Solicitors Disciplinary Tribunal.

For those that are interested to learn the outcome in the case, Mr Clarke‘s dishonesty and the existence of accounts rules breaches resulted in the SRA intervening into the firm in October 2013. In January 2018, the SDT’s finding in this matter was published. They upheld the Agreed Outcome between the Respondents and the SRA. The five Respondents were fined a total of £45,000 between them and ordered to pay the SRA's costs, fixed in the sum of £53,000.

The second case, again, highlights the importance of proper supervision, even when the person who has misused client funds is a fellow partner and the firm's COFA!

Prior to its closure by the SRA in March 2017, MKM Solicitors was a two-partner firm. Ms Marziano was a partner and the Compliance Officer for Legal Practice (COLP). Ms Marziano‘s partner, Mr Mak, was the firm’s COFA. Between July 2011 and May 2016, Mr Mak instigated no less than two hundred and four improper transfers between client and office bank account totalling just over £500k which, the tribunal heard, was to fund his gambling addiction.

Central to the SRA's case against Ms Marziano, was that she had abrogated any responsibility for the financial management of the firm to Mr Mak, had failed to ensure proper accounting records were maintained and failed to ensure proper systems and controls existed.

Ms Marziano was find £20,000 by the SDT and ordered to pay the SRA's, costs fixed in the sum of £14,000. Additionally, the tribunal ordered that Ms Marziano must not act as a manager or owner of any authorised body, nor as either a COLP or a COFA.

Conclusion

Both of the cases mentioned highlight different aspects of proper supervision. The unfortunate experience of GPB Solicitors LLP reminds us of the importance of the COFA's role within a firm. In our view, it is not enough for the COFA within a firm to take only a passive interest in ensuring compliance with the SRA Accounts Rules 2011. To be effective as a COFA and, critically, to be able to demonstrate to the SRA that the COFA has taken their responsibilities seriously, they must, on a regular basis, actively test the operation of systems and client accounting controls to ensure they are effective and that breaches of the SRA Accounts Rules 2011 are not arising. A fleeting glance of the monthly reconciliation statement is not sufficient supervision and yet, in many firms, that is pretty much what the role of the COFA is seen to be.

MKM Solicitors demonstrates that there is an expectation that the COLP, whist not having primary responsibility for ensuring compliance with the SRA Accounts Rules 2011, will take sufficient interest in the financial management of the business and ensure that, at the very least, proper accounting records are being maintained and appropriate accounting systems and controls are operating.

How we can help?

An SRA Accounts Rules Compliance Health Check visit will enable us to establish quickly the level of SRA Accounts Rules compliance within a firm and assess the appropriateness of the firm's accounting systems and internal controls. Any weaknesses or areas of concern will be covered in a written report, with recommendations for improvements to ensure that the firm is compliant following the Health Check visit. For more information, please contact Richard Lane by calling us on 0330 223 5346 or e-mail us at info@lfpro.co.uk.

If you are a COLP or a COFA, our COLP - The Role and Responsibilities Explained and our COFA Masterclass training courses will really help you to understand your obligations from a supervision perspective and explain the SRA's expectations in this regard.

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