Manitoba lawyers, paralegals and administrative staff need to be cognizant of the inevitable possibility of getting audited in the near future and one of the best ways to do this is to tune in to what auditors are actually looking at.
Whether your firm is old or new, large or established, regulators will be unhappy to see corners being cut when it comes to financial management. Manitoba Law Society auditors are, however, more likely to target new firms to ensure compliance in later years.
Recent data obtained from Manitoba regulators indicates a total of 96 law firms were audited in the province during the 2016/2017 fiscal year. A number of firms targeted for auditing were deemed to be “priority” due to prior indication of financial mismanagement in previous years.
Spot audits aren’t a trivial procedure. From the law society of Manitoba: “a spot audit may evolve into a full investigation due to the initial audit uncovering serious deficiencies or conduct issues.”
The entire process is supposed to work on a “‘surprise’ basis so that the auditor can observe the law firm’s records in their usual state,” says a 2017 annual report on the Society's website.
Clearly, the financial health of your firm should be well established long before auditors start knocking on your door.
Since we’re a legal accounting and practice management software company focusing on automating many redundant forms associated with court procedures, bookkeeping and branding, we have to keep tabs on practice and financial management guidelines in each province. As a result, we build our software to be completely compliant with the Law Society of Manitoba’s Self Report guidelines, which were recently updated June 2017.
And when it comes to the slightly more complex Form-D required to be completed by some law firms, uLaw's compliance coding team recently implemented a feature which ended up saving a lawyer $13,000. You can read about that by clicking here.
Practitioners in Manitoba should consider the three major areas auditors are focusing on when they perform a financial review: general, trust, and procedural accounting. These three components are the core of what auditors are inspecting once your financial practices are put under the microscope to see if you should keep your license.
A firm's general account should have a fee book, a general ledger, and an expense book to go along with it. These are three separate records.
Each month, firms should be reconciling its general account. This process could take up to 3 hours if you’re doing it manually, but recent advances in automation has dramatically lowered this process to less than 10 minutes.
A firm’s client trust listing should match the exact balance of funds inside a trust account. Basic arithmetic should then dictate a balance of 0 once the money is accounted for.
Client trust ledgers and trust receipts are also highly important for practitioners to stay on top of, in addition to a well maintained client trust listing.
Numbers 11 and 12 of the Law Society of Manitoba’s Self-Report audit checklist indicates the necessity of these records to be created and kept up to date.
Auditors routinely investigate and determine if firms are reconciling trust accounts on a monthly basis. While reconciliation might cause for additional headaches and strife if required to do manually, software (which we create) actually makes this process nearly instantaneous, and it’s something our clients are doing every week because it provides valuable and helpful information.
In Manitoba there are currently slightly more than 2,000 practicing lawyers who are mostly only required to submit an annual Self-Report questionnaire in addition to month-end trust reconciliation and supporting documents.
For the unlucky bunch of practitioners who are required to do more than this, there is also Form-D which is required to be submitted. According to the Law Society, there’s a very clear and obvious reason for more paperwork from these firms: “due to past poor audit results and/or a history of discipline.” Form D is also known as an "annual trust account report with accountant's review."
It isn’t easy, profitable or enjoyable to prepare and produce myriad forms and paper trails five days before an audit. Thankfully firms can surrender these obligations and let automation and algorithms piece together a strong, digital audit-proof foundation for your firm.
Our legal accounting software is built to digitally satisfy everything a Manitoban legal auditor wants to see.