Bank reconciliations, you either love them or you hate them. Some people would rather stick pins in their eyes, but some, myself included, love the challenge of a bank reconciliation and the feeling of achievement when it balances.

For all businesses, bank reconciliations are an important part of their financial records, giving a clear picture on their performance and cashflow. For Solicitors they also form key evidence to show they are keeping their client’s money safe.

Timing

Under SRA accounts rules, bank reconciliations must be completed at least every 5 weeks. Most firms comply with this by reconciling their client accounts as part of their month end process. By completing the reconciliation, you can highlight if there are any breaches, such as bank charges being deducted from client account (rule 5.1 b) and any unknown funds received that could not be applied to a client ledger.

Although most firms have the processes in place for the reconciliations, they sometimes miss the step of having these signed off by the COFA, required under rule 8.3. The COFA must review all the reconciliations, and by signing this, it becomes the evidence of this review. 

Having a monthly record of the client account balances is also useful when it comes to renewing your Practising certificate as you will need to show the smallest, largest and average balance held over 12 months. This enables the SRA to assess the level of risk your firm has regarding client cash and will also determine if your firm is required to have an annual SRA audit.

Elements

During bank reconciliations, you are comparing bank transactions to your cashbook produced in your case management system, to ensure everything has been recorded accurately. For Solicitors, there is an additional report and this is one that I find is missing most of the time. This is called the triangulation report. 

So what is a Triangulation report?

This report shows all the client balances that make up the balance of the client account. Unfortunately, many case management systems do not include this report as part of the bank reconciliation process, but this is a key aspect of the reconciliation. There may be other reports within your system (‘Trial Balance Report’ or ‘Matter Balance Report’) which are essentially the same thing and can be used as your Triangulation report.

The total amount shown in this report should match the total of your cashbook at any given period. This enables the COFA to see exactly which clients have funds sitting in your client account and for how long the cash has been there. Funds held for long periods of time must be reviewed to ensure that the firm is not acting as a banking facility (rule 3.3) and should be returned to the client when the matter is closed.

Unknown or residual funds should be dealt with promptly by following your firm’s policy on residual balances. If you need guidance on what to do with residual balances, please see my article published in Dec 2019 which deals with this process.

Some firms may have designated client accounts that should be reconciled within the same timescale. The only activity on these accounts may be interest earned, but they still need to be posted to keep accurate records on your case management system.

Over the years there have been a lot of developments with the bank reconciliation software, which makes them more effective and efficient to complete. However, I would recommend checking your balances regularly to ensure that there are no differences to your actual bank balances, as sometimes the link can be disrupted and lead to items being missed from your ledgers.

Summary

In summary, I recommend that you look at the following:

1. Ensure you have a triangulation report to put with your bank reconciliations.
2. If you cannot locate the report then speak with your software provider to find the report that gives you all the client balances you hold with a date range filter, so you can run this when completing your reconciliation.
3. Make sure a monthly review of the Triangulation report is completed by your COFA/Finance team to ensure all old balances are assessed and cleared.
4. Check your bank feeds regularly to ensure the system’s bank balance is correct.

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JJ+H is an accounting firm specialising in legal accounting. I can help with assessing your firm’s current position and implementing policies and procedures to make your firm more robust. Also, with prior experience as a COFA, I appreciate the challenges SRA regulations present and would love to help take the pressure away from COFA’s so they can focus on their core tasks.