The only guarantees in life, they say, are death and taxes.
This might be true for lawyers and paralegals, but legal practitioners have one more guarantee to expect to endure during their careers of handling other people's money: getting audited.
Random spot audits take please once every two to five years according to Law Society estimates. This data remains relatively consistent across all provinces in Canada.
There are five factors which virtually guarantee that your firm will be scrutinized deeply by regulators.
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
New law firms are understandably more vulnerable to making mistakes due to inexperience and a lack of familiarity about the nuances of trust and general accounting, reconciliation, and numerous other accounting and bookkeeping components of running a legal firm.
Because of this, regulators understand that new lawyers and recently-opened firms may not have the proper procedures in place to produce adequate record-keeping. The result of this is that an audit is usually warranted to create a culture of compliance at the outset of a firm's operations.
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 fulfill 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.
uLaw is a nationally recognized provider of education for lawyers to learn about how to prepare their books and records.
uLaw produces CPD-accredited webinars. And the best part is we understand accounting and practice management well enough that we can explain it easily. We hope to see you soon!