The only guarantees in life, they say, are death and taxes. While this might be true for the barristers and solicitors of the world as well, lawyers have another guarantee to expect to endure during their long careers of handling other people's money--getting audited.
Random spot audits are expected to take place about once every 2-5 years according to data from the Law Society of Ontario. This data remains relatively consistent across all provinces.
But there are about five factors--red flags really--which virtually guarantee that you firm will be scrutinized deeply by regulators.
So let's have a look:
1. You didn't submit your Lawyer Annual Report (LAR) with the law society.
This one might be a bit obvious, but lawyers in jurisdictions across Canada often must self-report data about their firms. Not taking the time to do so is a major red flag and an open invitation that something is awry.
2. Your firm is new – When a law firm is first established it is often vulnerable to making mistakes due to sometimes haphazard approaches to legal bookeeping and practice management. Regulators understand that new lawyers and new firms may not have the proper scheduling and procedures in place to produce sound record keeping, and the result is that an audit is usually warranted in order to create a culture of compliance.
3. Your last spot audit had problems – This is a big one.
The moment an auditor makes a determination that your firm has problematic bookkeeping and handling of trust accounting, trust deposits, invoicing, and practice management—you’re put on a list.
It’s not exactly a black list, but it’s a list of ‘problem’ firms which may need extra scrutiny in order to maintain confidence in your ability to function as a professional.
4. Your annual report contained clues that your firm is doing something wrong
Sometimes a law firm manages to fulfil its obligations to the Law Society, at least when it comes to submitting their annual report. But this doesn’t mean a firm has been doing everything correctly. In fact, an improperly filled out Lawyer Annual Report can initiate further auditing, particularly if data found inside the report suggests there’s problems with your bookkeeping. Or practice management
5. Information about you and your firm were shared from one regulatory department to another
Legal regulators have many departments which specialize different components of managing a province’s lawyers. Information collected from one department can be sent to another department, and this can sometimes trigger an audit if somebody at the law society catches wind that your firm is not handling its bookkeeping correctly.
Many lawyers are confused by accounting terminology. But it’s just jargon.
Our team at uLaw offers free weekly webinars for lawyers to be taught how to prepare themselves. We produce CPD-accredited presentations through the web. And the best part is we understand accounting and practice management well enough that we can explain it easily.