It’s coming up to the time of year where legal firms will be reviewing what they have achieved in the last twelve months. For firms with a December year end, it may be time to finish cleaning up their client ledgers in readiness for their SRA audit. Part of this process should include clearing any residual client balances.

Under the new SRA Standards and Regulations, residual balances are not specifically mentioned, but are alluded to in many of the principles such as:

• Principle 2 ‘acting in a way that upholds public trust and confidence’
• Principle 7 ‘acting in the best interests of each client’

The main issue with holding residual client balances is that they can highlight there are problems with the firm’s controls regarding closing client matter files.

It has been mentioned that the SRA do not expect firms to have residual balances, but in reality this is seldom the case. It may be that firms have inherited ledger balances from other firms or have had staff changes which make it difficult to identify why the balance arose in the first place.

Needless to say the issue is a tricky one, but an easy solution is to donate residual balances under £500 to a charity of your choice. So what are you waiting for?

The main benefits of clearing down old residual client balances is having a clean and accurate client ledger, which in turn will reduce your risk of having a qualified audit report for multiple non-material breaches.

Here are a few key things to remember when dealing with residual client balances:

1. You must show that you have attempted to notify the client in question.
2. You must keep a detailed list of client payments made to charity.
3. You should, ideally, choose a charity that will indemnify you should a client come back in the future requesting their funds. The SRA have given guidance to say that you should keep a record of the indemnity, so it would be wise to contact the charity prior to donation.

Creating a policy for residual client balances will help your staff understand your firm’s processes and will ensure they are dealt with in a timely compliant manner in the future.

JJ+H can help with implementing policies and procedures incorporating the new SRA Standards and Regulations, so please get in contact with me, Claire Ellis (claire@jjandh.co.uk), to discuss further.