Solicitors Accounts Rules: Residual balances

This month we draw attention to SRA Accounts Rule 2.5, which requires firms to return client money as soon as there is no proper reason to hold it.

It’s common to have small amounts left at the end of a transaction, i.e. because of late estate realisations that arise after a distribution, or in a transactional matter the precise completion date was uncertain and the firm (properly) wished to ensure that there was adequate money to complete.

It’s particularly acute where, for example, service charges (or in a business sale, employee compensation) are apportioned on a daily basis.

Surplus balances are time-consuming, and possibly irksome to deal with, but they must be addressed.

Stale balances on client ledgers will usually attract a qualified audit report: and this is what happened to a Bradford firm, Simpson Duxbury. It is perhaps an egregious case when balances of nearly £600k are held, with individual ledgers remaining unresolved for nearly 30 years. Further, following an initial qualified audit report the firm did nothing about the issue. The SRA report does not comment on what happened to the (no doubt considerable) interest received.

There are lots of reasons why it might be difficult to return money to clients or to those lawfully entitled; often it’s because of pressure of other matters, sometimes because the firm has lost contact with the client concerned.

The firm’s COFA should make it a regular discipline to review aged client ledgers and to take firm steps to return excess funds, engaging the assistance of, for example, the DWP’s letter forwarding service or a tracing agent if necessary.

The Rules (5.1(c)) provide for prescribed guidance in which money can be paid to charity – that guidance is here. It suggests using social media to help trace a client – however, we consider that to be inappropriate given the risks to confidentiality and the possibility of unwittingly inviting fraudulent claims.