This is a round-up of the SRA Accounts Rules audits we performed for the 2024 calendar year. There is a six-month filing deadline for Accountant’s Reports, so reports for the year ended 31 December 2024 had to be filed by 30 June 2025.
As a team, we sign off around 150 Accountant’s Reports each year. Some clients do not require an audit annually, depending on the amount of client funds held in any given year. We also have a number of clients who fall under the CLC Accounts Code. While the rules differ slightly, they are largely similar and have therefore been included within the overall results outlined below.
Over 90% of the reports were unqualified, and 23% had no breaches at all – which is encouraging! The most common reason for needing to qualify reports was residual balances, which will come as no surprise. Only two of the firms we audited had more than one qualifying breach.
Residual balances represented breaches in two-thirds of our audits. These were significant enough in 7% of firms to result in their reports being qualified. These instances typically arise where there has been no notable improvement on previous years, or where the firm has no clear plan to deal with the balances. Firms that remove the responsibility of clearing residual balances (particularly the older ones, rather than ongoing) from fee earners tend to fare better. It seems to be a persistent challenge to get fee earners to dedicate time to resolving residual balances, regardless of how significant the issue may be.
Breaches of Rule 2.5 also include the improper use of suspense ledgers, where historic balances have not been cleared, and firms that use charity ledgers to transfer small balances before donation but fail to donate regularly, or at all.
As a brief reminder:
- Suspense ledgers should only contain current balances. If six months have passed and you haven’t been able to identify the owner, it is unlikely you will. Return the funds to the original source.
- Charity ledger balances should be donated at least annually – preferably before your SRA Accounts Rules audit!
We also had to qualify reports where the audits were not completed within the six-month deadline. This usually occurs due to changes in staff or systems, which cause delays. Other serious issues relate to clear control or systems weaknesses that we believe put client money at risk, for example, miscellaneous ledgers being used for multiple clients, providing banking facilities, and significant issues around office ledger credit balances.
We then categorise breaches as significant but not reportable. These are breaches we do not consider necessary to include on an Accountant’s Report, but if they are not rectified, become systemic, or reoccur the following year, we may need to report them.
These included the following:
- Incorrect withdrawals (19%)
Most often, this relates to funds transferred from the client to the office account either in excess of the balance due or the balance held – causing overdrawn client ledgers or office ledger credit balances. It may also include duplicated payments or payments made from the incorrect matter. These instances become more serious depending on the number of occurrences, amounts involved and how long it takes for them to be identified and corrected. - Office ledger credit balances (20%)
12% arose due to receipts directly into the office account. For example, clients paying directly into the office account in excess of the balance due, refunds received for disbursements already paid from the client account, or credit notes raised internally and not reissued, or reissued for a lower amount than the original invoice. In a further 8% of audits, credit balances resulted from funds transferred from the client to the office account in excess of the balance due — often in anticipation of disbursements, when funds should only be transferred once disbursements have been incurred or paid. - Bank reconciliation breaches (17%)
These included reconciliations not being reviewed and signed off by the COFA or another manager before the next reconciliation date (i.e. within one month) not completed correctly, (i.e. where the balance per the list of client balances did not agree with the reconciled balance) or differences not investigated or corrected. - Potentially acting as a bank (11%)
Common issues included:
a. Transferring funds between matters for an individual and their business, where there is no underlying legal transaction.
b. Retaining commercial lease deposits.
c. Holding funds at a client’s request for future instructions, without an active matter ongoing. - Overdrawn client ledgers (7%)
This means funds were paid from the client account in excess of the balance held for that individual. While this sounds serious, if the case is isolated and remedied quickly, we may not deem it necessary to include on an Accountant’s Report. - Client’s own accounts not correctly accounted for (7%)
Many firms still fail to ensure the accounts team is aware of all client’s own accounts operated by lawyers within the firm, making compliance with Rule 10 difficult. - Miscellaneous ledgers (4%)
These contained transactions for multiple clients. All clients must have a matter in their own name with an appropriate description, regardless of how small the piece of work. - Client accounts without “client” in the title (3%)
These typically relate to foreign currency accounts, but the same rules apply to all client accounts. - Record retention and procedural issues
There were isolated instances of firms not retaining records (usually signed copies of bank reconciliations). This has become less common as most records are produced and retained electronically. Other issues included bills not sent in advance of transferring funds for costs, and delayed or backdated postings. - Incorrect postings (9%)
This rule captures everything that doesn’t fall under other specific rules — such as postings with the wrong date, to the wrong matter, or for an incorrect amount.
We actively work with our clients to help improve controls and procedures, and to remedy breaches. As a result, we expect our client base to experience fewer breaches, and certainly fewer qualifying breaches, than the general population.
It’s also important to remember that one of the key issues highlighted by the Axiom Ince debacle was that their accountants only performed one SRA Accounts Rules audit per year. We often take on new clients who have never had qualified Accountant’s Reports, only to discover numerous potential residual client balances.
If you have any concerns about client money compliance, please do get in touch.
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