Chapter 1 Basic Record Keeping

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1 Chapter 1 Basic Record Keeping Overview of the Relevant Section of the Act or Regulations (Sections of the Act are designated with the prefix S, and regulations are designated with the prefix R ). Section Key requirements S What is trust money? Trust money means money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice, and includes (a) money received by the practice on account of legal costs in advance of providing the services; and (b) controlled money received by the practice; and (c) transit money received by the practice; and (d) money received by the practice, that is the subject of a power, exercisable by the practice or an associate of the practice, to deal with the money for another person. S.242 When is trust money received? A law practice receives money when they obtain possession or have control of it or are given the power to deal with the money on another party s behalf. S.247 Requirements to keep a trust account. A law practice that receives trust money is required to keep a general trust account in the way prescribed under a regulation. This is not applicable to controlled money and transit money received in a form other than cash. A regulation may provide that a law practice must not close a general trust account except as permitted under the regulation. 1

2 R. 59 Keeping trust records. A law firm must keep trust records in relation to trust money received by the practice in permanent form. The trust records are to be kept for a period of 7 years after : (a) For a trust record mentioned in paragraphs (a) to (m) of the definition trust records in section 237(1) or the Act the only or the last transaction entry in the trust record; or For any other trust record finalisation of the matter to which the trust record relates. R.31 Requirements for computerised accounting systems. (1) The law practice must ensure its computerised accounting system is not capable of accepting, in relation to a trust ledger account, the entry of a transaction resulting in a debit balance to the account, unless a contemporaneous record of the transaction is made in a way that enables the production in a permanent form, on demand, of a separate chronological report of all occurrences of that kind. (2) The law practice must ensure the system is not capable of deleting a trust ledger account unless (a) the balance of the account is zero and all outstanding cheques have been presented; and (b) when the account is deleted, a copy of the account is kept in a permanent form. (3) The law practice must ensure any entry in a record produced in a permanent form appears in chronological sequence. (4) The law practice must ensure each page of each printed record is numbered sequentially or is printed in a way that no page can be extracted. (5) The law practice must ensure its computerised accounting system is not capable of amending the particulars of a transaction already recorded otherwise than by a transaction separately recorded that makes the amendment. 2

3 (6) The law practice must ensure its computerised accounting system requires input in every field of a data entry screen intended to receive information required by this division to be included in trust records. S.260 Irregularities in trust record. As soon as practicable after a legal practitioner associate of a law practice becomes aware that there is an irregularity in any of the practice's trust accounts or trust ledger accounts, the associate must give written notice of the irregularity to (a) the law society; and (b) if a corresponding authority is responsible for the regulation of the accounts concerned the corresponding authority. Additional Commentary The trust bank account must include the name of the practice and the words Trust Account (Regulation 33). As a result of Regulation 31, a practice needs to invest in a specialist trust accounting software such as Elite Enterprise or Practice Manager Pro. Note that the QLS does not officially endorse or review any software packages, unlike the NSW Law Society. 3

4 Chapter 2 Withdrawing Money Overview of the Relevant Section of the Act or Regulations Section Key requirements S.250 Method for withdrawing money. Trust money can only be withdrawn through cheque and electronic funds transfers (EFT is subject to authorisation from the law society) R.46 Authorised signatories. Within 14 days after establishing a general trust account, the law practice must give notice about the legal practitioners or associates authorisation status to make withdrawals either before or within 14 days after the appointment/termination. During July of each year, the law practice must give the law society a written notice of the associates and legal practitioners who are authorised, as at 1 July of that year to sign cheques or give authority to make withdrawals from the trust account. R.37 Trust cheques. Trust money withdrawn through cheque must contain the following information: Name of Payee Not Negotiable crossing The expression law practice trust account (or a/c) Authorised signature A written record of the required particulars must be kept in chronological order for each payment. R.38 Trust EFTs. For each payment made through electronic transfers, a written record of the required particulars must be kept in the order in which transfers were affected. R.41 Cash Payments Book. All payments (cheque butts and other payment records) are recorded in the trust account payments cash book. Cancelled cheques should also be listed in the trust account payments cash book. 4

5 S.258/R.58 Legal Costs. A law practice may withdraw from the trust account / controlled money account for payment as legal costs, however after deducting the legal costs, the remaining balance must be dealt as unclaimed money under s713. S.713 Unclaimed Money. By 1 June each year, the law practice must give a return regarding the unclaimed trust money to the public trustee. In return, the public trustee will give a signed notice to the law practice requiring the trust money to be transferred within a specified period. Once the notice is given, any lien of the law practice claimed in relation to the trust money ceases. If the law practice does not comply with the notice, public practice may apply by motion to the supreme court to have the money transferred immediately. After the trust money is transferred from the law practice to the public trustee, the law practice is no longer liable for the money. The public trustee must place the money in the unclaimed moneys fund under the Public Trustee Act 1978 and deal with it as unclaimed money under the act. Additional Commentary Required particulars applicable to R.37 include: (a) the date and number of the cheque; (b) the amount ordered to be paid by the cheque; (c) the name of the person to whom the payment is to be made or, for a cheque made payable to an ADI, the name of the ADI and the name of the person receiving the benefit of the payment; (d) details clearly identifying the name of the person on whose behalf the payment was made and the matter reference; (e) details clearly identifying the ledger account to be debited; (f) particulars sufficient to identify the purpose for which the payment was made. Cheques that have been damaged or are otherwise unusable should be marked cancelled and stapled to the cheque butt. a29600e75797/pmc_trust_accounting_-_study_text.pdf 5

6 Required particulars applicable to R.38 include: (a) the date and number of the transaction; (b) the amount transferred; (c) the name and number of the account to which the amount was transferred and relevant BSB number; (d) the name of the person to whom the payment was made or, for a payment to an ADI, the name or BSB number of the ADI and the name of the person receiving the benefit of the payment; (e) details clearly identifying the name of the person on whose behalf the payment was made and the matter reference; (f) details clearly identifying the ledger account to be debited; (g) particulars sufficient to identify the purpose for which the payment was made. Authorised Signatories for making withdrawals from a trust bank account <R.37 & R.38> (a) An authorised principal of the law practice may solely sign trust account cheques drawn on the law practice general trust account; or (b) If a principal mentioned in paragraph (a) is not available (i) an authorised Australian legal practitioner (employed solicitor), irrespective of whether the employed solicitor holds an unrestricted practising certificate or a restricted practising certificate, can be authorised solely as a signatory to the law practice general trust account. (ii) an authorised Australian legal practitioner holding an unrestricted practising certificate can be authorised solely as a signatory to the law practice general trust account irrespective of whether he/she is employed by the law practice. (iii) any two (2) or more authorised associates (including non-solicitors) can be authorised jointly to sign trust account cheques drawn on the law practice general trust account (iv) the holder of a restricted practising certificate can only be authorised as a signatory to a law practice general trust account if they are employed by the law practice and cannot be appointed jointly with another person as a signatory. Interstate legal practitioners may become authorised to withdraw from local trust account. They are to notify the law society of the authorisation in writing before the end of the period of 7 days starting on the day the practitioner becomes authorised. The notice must include: (a) The interstate legal practitioner s name; (b) The jurisdiction in which the practitioner s only or most recent current Australian practising certificate was granted; (c) The practitioner s principal business address; (d) Details of the local trust account, including the following (i) The name of the law practice operating the account; (ii) The practice s principal business address; (iii) The name of the ADI with which the account is held; (iv) The names of any other signatories to the account; (e) The date on which the practitioner became authorised to withdraw money from the trust account. <R.88> 6

7 To further elaborate on R.58 Legal costs may be withdrawn by two methods: 1) Withdrawal with authority - Before affecting the withdrawal, the practice gives or sends the client a request for payment, referring to the proposed withdrawal; or a written notice of withdrawal. < R.58 (3)(b)> - In addition the conditions below must be satisfied: (i) The money is withdrawn in accordance with a costs agreement that complies with the legislation under which it is made and that authorises the withdrawal; or (ii) The money is withdrawn in accordance with instructions (in writing and kept as a permanent record) that have been received by the practice and that authorise the withdrawal; or (iii) The money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person; and 2) Withdrawal on issue of a bill of cost: - This is when the practice has given the client a bill relating to the money. <R.58 (4)(a)> - In addition the conditions below must be satisfied: (i) The person has not objected to withdrawal of the money within 7 days after being given the bill; or (ii) The person has objected within 7 days after being given the bill but has not applied for a review of the legal costs under the Act within 60 days after being given the bill; or (iii) The money otherwise becomes legally payable. In relation to legal costs, we often find that practices build into their software an automated control that prevents legal costs being released prior to 7 days after the invoice is issued. Cancelled cheques need to be retained on file. External examiners are likely to check this. The return mentioned in S.713 must: (a) be signed by a principal or legal practitioner director of the law practice; and (b) include full details of the trust money or trust property; and (c) include details of any claim or lien of the law practice in relation to the money or property, including, for example, details of all costs, charges and expenses, if any, claimed by the practice in relation to the money or property; and (d) include a statement of the reasons that the money or property is in the possession of or under the control of the practice; and (e) include other information the public trustee reasonably requires about the money or property and the person who is, or the persons who may be, entitled to it. 7

8 Chapter 3 Trust Receipts and Deposits Overview of the Relevant Section of the Act or Regulations Section Key requirements S.242 When is trust money received? A law practice is deemed to have received money when they obtain possession or have control of it or are given the power to deal with the money on another party s behalf. S.247 Barristers. A barrister is not, in the course of practising as a barrister, to receive trust money. S.248 Deposits. A law practice must deposit the trust money in a general trust account of the practice as soon as practicable after receiving it. S.255 Cash handling. General trust money received in the form of cash must be deposited in the practice s general trust account, except for Controlled Money which is deposited into a Controlled Money account. R.34 Format of receipts. Receipts containing required particulars are made out in duplicate after receiving the trust money. This can be in the form of a carbon copy or an electronic record in the computer program. R.35 Deposit records. A deposit record with required particulars must be produced to the approved ADI when the deposit is made. Additional Commentary Required particulars applicable to R.34 include: (a) the date the receipt is made out and, if different, the date of receipt of the money; (b) the amount of money received; (c) the form in which the money was received; (d) the name of the person from whom the money was received; (e) details clearly identifying the name of the client in relation to whom the money was received and the matter description and matter reference; (f) particulars sufficient to identify the purpose for which the money was received; (g) the name of the law practice, or the business name under which the law practice engages in legal practice, and the expression trust account or trust a/c ; (h) the name of the person who made out the receipt; (i) the number of the receipt. 8

9 Required particulars applicable to R.35 include (a) the date of the deposit; (b) the amount of the deposit; (c) whether the deposit consists of cheques, notes or coins, and the amount of each; (d) for each cheque (i) the name of the drawer of the cheque; and (ii) the name and branch, or BSB number, of the ADI on which the cheque is drawn; and (iii) the amount of the cheque. The deposit record must be made out in duplicate, whether by way of making a carbon copy or otherwise. The duplicate deposit record must be kept for each deposit to the general trust account and must be kept in a deposit book or be otherwise securely filed in the order in which the deposits were made. In addition to the above point in S.255: - If the law practice has written directions by an appropriate person to deal with the general trust money received in the form of cash otherwise than by first depositing it in a general trust account, the money must nevertheless be deposited before the instructions are followed through. - Controlled money received in the form of cash must be deposited in a controlled money account under section A law practice must deposit transit money received in the form of cash in a general trust account of the practice before the money is otherwise dealt with under the instructions relating to the money. - A law practice must deposit trust money that is received in the form of cash and is the subject of a power in a general trust account, or a controlled money account in the case of controlled money, of the practice before the money is otherwise dealt with under the power. To further clarify on S.248, there is no definitive guidance on what is meant by as soon as practicable but the External Examiner will likely ask about this and make a judgement call if there are any delays. 9

10 Chapter 6 Reporting to Clients Overview of the Relevant Section of the Act or Regulations Section Key requirements R.53 (1) Statements to clients. Law practice must give a trust account statement to each person for whom or on whose behalf trust money is held or controlled by the law practice R.53 (5) Content of statements. A trust account statement is to contain particulars of (a) all the information required to be kept under this division in relation to the trust money included in the relevant ledger account or record; and (b) the remaining balance (if any) of the money. R.53 (6 to 8) When statements are required. A trust account statement is to be given (a) after completion of the matter to which the ledger account or record relates; or (b) after the person for whom or on whose behalf the money is held or controlled makes a reasonable request for the statement during the course of the matter; or (c) except as provided by subsection (7), after 30 June in each year. The law practice is not required to give a trust account statement under subsection (6)(c) in relation to a ledger account or record if at 30 June (a) the ledger account or record has been open for less than 6 months; or (b) the balance of the ledger account or record is zero and no transaction affecting the account has taken place within the previous 12 months; or (c) a trust account statement has been given within the previous 12 months and there has been no subsequent transaction affecting the ledger account or record. (d) The law practice must keep a copy of a trust account statement given under this section. 10

11 R.54 Sophisticated client. If the sophisticated client directs the law practice to give trust account statements on a basis different from that prescribed by section 53, the law practice must give those statements as directed, except to the extent to which the direction is unreasonably onerous. See section 300 of the Act for the definition sophisticated client generally relates to a large organisation such as a bank or large company. Additional Commentary There is no standard format for the statement to be given to clients, so long as it meets the requirements of the regulations above In practice, it is often practical and prudent to simply issue statements to all clients for whom the practice currently holds trust money, regardless of whether an exemption may be available. 11

12 EXAMPLE Trust Account Statement Client: Joe Shabadoo Matter: Estate Adminstration Our reference: ABCDE Partner: Brendon Murray Lawyer: Austin Gibbs Trust bank account: St.George General Account Date Ref no Received from / payee Description Debit Credit Balance Opening balance $ Ray White real estate Proceeds from rent 6,500 6, Toyota Proceeds from sale of motor vehicle to dealer 2,500 9, Origin Energy Urban Utilities Payment of electricity bill Payment of water rates 500 8, ,200 Closing balance $8,200 12

13 Chapter 7 Controlled Money, Transit Money and Prescribed Accounts Overview of the Relevant Section of the Act or Regulations Section Key requirements CONTROLLED MONEY S.237 Definitions. Controlled money: Money received or held by a law practice for which the practice has a written direction to deposit the money in an account, other than a general trust account, over which the practice has or will have exclusive control. Controlled money account: An account kept by a law practice with an ADI for the holding of controlled money received by the practice. S.251 Depositing controlled money. As soon as practicable after receiving controlled money, a law practice must deposit the money in the account stated in the written direction relating to the money. This money is held exclusively for the person on whose behalf it was received. Controlled money is not to be disbursed unless written direction from or on behalf of the person on whose behalf the money was received is given. The law practice must ensure that the controlled money account is used for the deposit of controlled money received on behalf of the person it was received from and not for the deposit of controlled money received on behalf of any other person. R.51 Register of controlled money A law practice that receives controlled money must keep a register of controlled money consisting of the records of controlled money movements for the controlled money accounts of the practice. A separate record of controlled money movements must be kept for each controlled money account. 13

14 The law practice must keep as part of its trust records, all supporting information, including ADI statements and notifications of interest received, relating to controlled money. Within 15 working days after each named month, the law practice must prepare and keep as a permanent record a statement as at the end of the named month R.29 Controlled money records. Lists of controlled money accounts and their balances are to be printed monthly as at the end of each named month before they are archived or deleted from the system. Controlled money account details are to be printed on request by and provided to an Investigator. R.47 Keeping controlled money accounts. For accounts established after 1 July 2007, controlled money accounts must be kept under an account name that includes the following particulars (a) the name of the law practice concerned; (b) the expression controlled money account or the abbreviation CMA or CMA/c ; (c) other particulars that are sufficient to identify the purpose of the account and to distinguish the account from any other account kept by the law practice. R.48 Receipt of controlled money. The law practice must operate a single controlled money receipt system for the receipt of controlled money for all its controlled money accounts. After receiving the controlled money, the law practice must make out a receipt, except for controlled money received by direct deposit. For controlled money received by direct deposit, receipt is made out after the law practice receives or accesses notice or confirmation, in written or electronic form, of the deposit from the ADI concerned. The receipt, containing the required particulars, must be made out in duplicate either by means 14

15 of carbon copy or a record within the computer program. If the controlled money account to be credited has not been established by the time the receipt is made out, the name of and other details clearly identifying the account when established must be included on the duplicate receipt (if any) The original receipt is to be delivered, on request, to the person from whom the controlled money was received. Receipts must be consecutively numbered and issued in consecutive sequence. If a receipt is cancelled or not delivered, the original receipt must be kept. A receipt is not required to be made out for any interest or other income received from the investment of controlled money and credited directly to a controlled money account. S.252 / R.50 Withdrawing controlled money. Controlled money can only be withdrawn by cheque or through EFT only if the EFT has been authorised by the law society. A withdrawal of money from a controlled money account of a law practice must be authorised by an authorised principal of the law practice. A written record of the required particulars must be kept of each withdrawal If at the time the withdrawal is made the required particulars are recorded by computer program, a written record must be kept that is sufficient to enable the accuracy of the particulars recorded by the computer program to be verified. The particulars are to be recorded in the order in which the payments are recorded and are to be recorded separately for each controlled money account. S.237 Definitions. Transit money: Money received by a law practice subject to instructions to pay or deliver it to a third party, other than an associate of the practice. 15

16 TRANSIT MONEY S.253 Handling transit money. Subject to section 255, a law practice that has received transit money must pay or deliver the money as required by the instructions relating to the money within the period stated in the instructions or as soon as practicable after it is received. R.52 Information to be recorded about transit money. A law practice must, record and keep brief particulars sufficient to identify the relevant transaction and any purpose for which the transit money was received. S.255 Depositing transit money. A law practice must deposit transit money received in the form of cash in a general trust account of the practice before the money is otherwise dealt with under the instructions relating to the money. PRESCRIBED ACCOUNT S.284 Definitions. Prescribed account: an account prescribed under a regulation as an account into which a law practice must deposit moneys. R. 69 Prescribed account. An account kept by the chief executive at a financial institution at which trust accounts are kept for deposits by law practices under part 3.3, division 6, of the Act. R. 70 Amount required to be held in a prescribed account. A law practice must keep at least the minimum amount on deposit in a prescribed account. The minimum amount applying to a law practice at any time during a calendar year is the amount that is two-thirds of the law practice s lowest combined balance at any time during the previous calendar year. The minimum amount worked out under subsection is to be rounded down to the nearest $100. The amount a law practice must keep on deposit in a prescribed account to comply with this section must be deposited into a prescribed account from a trust account kept by the law practice. 16

17 However, a law practice does not have to keep at least the minimum amount on deposit in a prescribed account, if the law practice s combined balance at any time during the previous calendar year was less than $3000. DECEMBER 2016 A SIGNIFICANT CHANGE Amendments to the Legal Profession Act 2007 were passed in late 2016 that successfully removed the need to have a prescribed account. Practices that had a prescribed account were advised by QLS to move the funds back to trust. Additional Commentary Required particulars applicable to R.48 include: (a) the date the receipt is made out and, if different, the date of receipt of the money; (b) the amount of money received; (c) the form in which the money was received; (d) the name of the person from whom the money was received; (e) details clearly identifying the name of the person on whose behalf the money was received and the matter description and matter reference; (f) particulars sufficient to identify the purpose for which the money was received; (g) the name of and other details clearly identifying the controlled money account to be credited, unless the account has not been established by the time the receipt is made out; (h) the name of the law practice, or the business name under which the law practice engages in legal practice, and the expression controlled money receipt ; (i) the name of the person who made out the receipt; (j) the number of the receipt. Required particulars applicable to R.50 include: (a) the date and number of the transaction; (b) the amount withdrawn; (c) for a transfer made by electronic funds transfer the name and number of the account to which the amount was transferred and the relevant BSB number; (d) the name of the person to whom payment is to be made or, for a payment to an ADI, the name or BSB number of the ADI and the name of the person receiving the benefit of the payment; (e) details clearly identifying the name of the person on whose behalf the payment was made and the matter reference; (f) particulars sufficient to identify the purpose for which the payment was made; (g) the person or persons effecting, directing or authorising the withdrawal. Information to be included in the record of controlled money movements in R.51 include: (a) the name of the person on whose behalf the controlled money is held; (b) the person s address; (c) particulars sufficient to identify the matter; (d) any changes to the information mentioned in paragraphs (a) to (c). 17

18 Required particulars applicable to R.51 include: (a) the date the controlled money was received; (b) the number of the receipt; (c) the date the money was deposited in the controlled money account; (d) the name of and other details clearly identifying the controlled money account; (e) the amount of controlled money deposited; (f) details of the deposit sufficient to identify the deposit; (g) interest received; (h) details of any payments from the controlled money account, including the particulars required to be recorded under section 50. Records prepared for controlled accounts in R.51 must include: (a) containing a list of the practice s controlled money accounts showing (i) the name, number and balance of each account in the register; and (ii) the name of the person on whose behalf the controlled money in each account was held; and (iii) a short description of the matter to which each account relates; and (b) showing the date the statement was prepared. Note that prescribed accounts form part of trust monies. Any additions to the prescribed account were drawn from trust, and any redemption re-deposited to trust. 18

19 Chapter 8 Investing Trust Money Overview of the Relevant Section of the Act or Regulations Section Key requirements S.238 When investment money becomes trust money. R.55(2) Register of investments. R.55(3) About the register. Money that is entrusted to or held by a law practice for investment purposes, whether on its own account or as agent, is not trust money under this Act, unless (a) the money was entrusted to or held by the practice (i) in the ordinary course of legal practice; and (ii) primarily in connection with the provision of legal services to or at the direction of the client; and (b) the investment is or is to be made (i) in the ordinary course of legal practice; and (ii) for the ancillary purpose of keeping or enhancing the value of the money or property pending completion of the matter or further stages of the matter or pending payment or delivery of the money or property to or at the direction of the client. Must keep register of investments The register must record particulars such as name, address, amount invested, date invested, reference to relevant trust ledger, details of interest received from the investment and interest subsequently repaid to the client Additional Commentary Client monies are often invested in term deposits or similar when the practice knows that the matter is not likely to be settled for some time, and the amount of money involved is significant. This is so that the client doesn t miss out on the interest they would have earned had their money not been tied up in a general trust account, which does not earn interest. There needs to be a written authority from the client to make investments. 19

20 Chapter 9 Client Matter Files Overview of the Relevant Section of the Act or Regulations Section Key requirements n/a The Act and the Regulations don t specifically address Client Matter Files. However, the QLS provides guidance to External Examiners on what to look for when inspecting a sample of client matter files. The key is transparency and detailed document trails. Additional Commentary Guidance from QLS website in the External Examiner s Report : Recurring themes: *Withdrawal of legal costs in accordance with r.58 *Sight paid cheques *Prompt disbursements *Review general account for money that should have been in the trust account The Guidance addresses several common types of matters with the expectation that the content of matter files will vary depending in the type of matter. 1. Purchase Transaction The matters that should be checked are:- 1.1 In relation to search fees was the law practice entitled to receive the money into the general account because it had already paid it from the general account? 1.2 If money was not received into the trust account for stamp duty, did the practice receive the money into its general account or did the client provide a cheque payable to the Office of State Revenue? If the money was received into the general account and the practice had not already paid the stamp duty from the general account the matter should be reported. a. If the practice is an approved stamping agent and stamp duty was paid from the general account the date of payment of stamp duty can be determined by the date of presentation of the general account cheque to the approved ADI account. b. If the practice is not an approved stamping agent, the date of stamping will be stamped on the contract of sale as part of the stamping process. c. If the practice is an approved stamping agent trace the stamped document to the law practice s weekly return to the Office of State Revenue. In particular check the following and ensure that the information recorded on the document matches the information recorded in the law practice s weekly return to Office of State Revenue. i. Record the Office of State Revenue transaction number on the document. ii. Record the date the document was stamped / issued with the Office of State 20

21 Revenue transaction number. iii. Record the amount of stamp duty recorded on the stamped document. Confirm that this amount was lodged with the Office of State Revenue, either in person or in the weekly return. iv. Confirm that that Office of State Revenue transaction number recorded on the weekly return matches the transaction number stamped on the document. Record the date of the period end of the weekly return in which the Office of State Revenue number was lodged. v. Confirm that the matter name which appears on the Office of State Revenue return agrees to the transaction name. If there is a discrepancy in the information this may be evidence of fraudulent activity. Any discrepancies or evidence for the document not appearing on the Office of State Revenue weekly return should be investigate and explanations should be obtained from the law practice. 1.3 If purchase money was received into the trust account from the purchasing client, have registration fees been paid from the trust account. If they have not, check the general account records to ensure that money was not paid into the general account for registration fees before the practice paid them. If they were, the matter should be reported. 1.4 Check that any money received for an outlay that has not been expended has been refunded to the client or otherwise properly accounted to the client. 1.5 Check that professional costs have not been paid to the practice in breach of Regulation 58 of the Legal Profession Regulation a. Was a written authority held in respect to the transfer of professional costs? b. If a written authority was not held did the firm wait 7 days after the delivery of the bill prior to transferring costs from trust to general? If no, report. c. Has a bill of costs and outlays been delivered or was a request for payment or written notice of withdrawal given before the withdrawal? If no, report. 1.6 Check that the purchase money has been paid to the vendor or in accordance with the vendor s instructions and that the amounts paid are the correct amounts. It is not always possible to do this. The money can be disbursed in accordance with the vendor s verbal instructions. As solicitor for the purchaser, it is the law practice s responsibility to hand over no more than the amount due to the vendor and to receive from the vendor in exchange for that money signed transfer documents to enable the property to be transferred into the client s name. 1.7 If the client provided all the purchase money (i.e. not financed by a mortgage advance) check that the property has been transferred into the purchaser s name and remains registered in the purchaser s name and that there are no mortgages registered over the property. 1.8 Is the law practice currently charging or previously charged a surcharge/ administration fee in respect to outlays? If yes, go to question (a). a. Has the law practice made appropriate refunds to the client in accordance with LSC Guidelines for Charging Outlays and Disbursements. If no, report. Note: If the law practice has previously charged a surcharge/ administration fee in respect to outlays check whether the law practice amended its procedures after 30 June 2006 and have all client files wherein surcharges were charged, after 1 July 2004, been reviewed and the appropriate amounts have been refunded to clients. 2. Sale Transaction The matters which should be checked are:- 2.1 If sale proceeds have not been received into the trust account, the practice should hold a written client authority, or direction, to receive the costs and outlays for the sale transaction direct into the general account. 2.2 If the sale proceeds were received into the trust account, check that professional costs have not been paid to the practice in breach of Regulation

22 a. Was a written authority held? b. If a written authority was not held did the firm wait 7 days after the delivery of the bill prior to transferring costs from trust to general? If no, report. c. Has a bill of costs and outlays been delivered or was a request for payment or written notice of withdrawal given before the withdrawal? If no, report. 2.3 Is there evidence that the sale proceeds were paid to the client or dealt with in accordance with the client s instructions? If the sale proceeds were not received into the trust account, check the file to see whether there is any evidence of the sale proceeds having been received by the client or applied in accordance with the client s instructions. The client may have used the sale proceeds as part of the purchase price of another property and the sale proceeds may have been received by the law practice in the form of a financial institution cheque payable to the party selling the other property to the client. The trust account cheque/s issued to pay the sale proceeds to the client should be sighted to confirm that the sale proceeds have been properly disbursed to the clients. Particular care should be exercised if the sale proceeds are recorded as having been paid to the client by a financial institution cheque. There is no need to pay by financial institution cheque. A financial institution cheque may have been purchased to hide a fraudulent disbursement of the sale proceeds to the law practice or a third party. If the sale proceeds are recorded as having been paid to the client by a financial institution cheque the financial institution should be requested to produce the financial institution cheque, or advise in writing, the name of the payee. a. If paid trust account cheques have not been called does the file support payments to the client or at the client s instructions? 2.3 Check that sale proceeds have been promptly paid from the trust account to the client. The retention of money for no apparent reason should be questioned as it provides an opportunity for that money to be fraudulently misappropriated. 19. Deceased Estate & Power of Attorney Transaction Matters that should be checked are: Identify the assets of a deceased estate and check whether all assets have been realised and the proceeds received into the trust account to the credit of the trust ledger account for the estate Check that there is evidence that bills of costs and trust account statements have been sent to the executor/s of the Estate, or the person whose affairs are being administered Check that the details in trust account statements provided to the executor/s of the Estate, or the person whose affairs are being administered, accurately record details of all receipts and disbursements recorded in the relevant trust accounting records Check that professional costs have not been paid to the practice in breach of Regulation 58. a. Was a written authority held? b. If a written authority was not held did the firm wait 7 days after the delivery of the bill prior to transferring costs from trust to general? If no, report. c. Has a bill of costs and outlays been delivered or was a request for payment or written notice of withdrawal given before the withdrawal? If no, report Check that client money has been received into the general account for expended outlays. If outlays have not been expended prior to receipt to general report Check that Estate proceeds have been disbursed in accordance with the provisions of the Will of the deceased Sight paid cheques for payments made to estate beneficiaries and creditors, or the person whose affairs are being administered. Particular care should be exercised if funds are recorded as having been paid by financial institution cheques. There is no need to pay the money by financial institution cheque. A financial institution cheque may have been purchased to hide a fraudulent disbursement to the law practice or a third party. If funds are recorded as having been paid to a person by a financial institution cheque, the financial institution should be requested to produce the financial institution cheque, or advise in writing, the name of the payee. 22

23 a. If paid cheques have not been called does the examined file support payments to the beneficiaries and creditors? 19.8 If the amount charged for professional costs appears to be exorbitant, report the matter. Also, consider requesting the law practice to provide trust account statements, showing details of all moneys received and disbursed, signed by the executors/beneficiaries, or person whose affairs are being administered, acknowledging that the statements represent a true and correct record of the receipt and disbursement of funds for the matter If there have been four or more transfers of costs and outlays to the general account this may indicate excessive charging or fraudulent misappropriation of trust funds. Law practices generally do not transfer money from the trust account to the general account in payment of their costs and outlays more than three times in an Estate administration. Particular care should be exercised if costs and outlays have been transferred to the general account on a fortnightly, or more regular, basis Check that Estate funds have been promptly disbursed to the Estate beneficiaries. The retention of money for no reason should be questioned as it provides an opportunity for that money to be fraudulently misappropriated. 20. Personal Injury Transaction Matters that should be checked are: Check that there is evidence that bills of costs and trust account statements have been sent to the client Check that professional costs have not been paid to the practice in breach of Regulation 58. a. Was a written authority held? b. If a written authority was not held did the firm wait 7 days after the delivery of the bill prior to transferring costs from trust to general? If no, report. c. Has a bill of costs and outlays been delivered or was a request for payment or written notice of withdrawal given before the withdrawal? If no, report Check that the details in trust account statements provided to the client accurately record details of all receipts and disbursements in respect of the matter Check that any recovered party and party costs and outlays have been received into the trust account Check that money received into the general account for an outlay that has been expended from the general account Sight paid cheques for payments made to the client. Particular care should be exercised if payments are recorded as having been made to the client by financial institution cheques. There is no need to pay the money by financial institution cheque. A financial institution cheque may have been purchased to hide a fraudulent disbursement to the law practice or a third party. If funds are recorded as having been paid to a person by a financial institution cheque, the financial institution should be requested to produce the financial institution cheque, or advise in writing, the name of the payee. a. If paid cheques have not been called does the examined file support payments to the client? 20.7 If the amount charged for professional costs appears to be exorbitant, report the matter. Also, consider requesting the practitioner to provide trust account statements, showing details of all moneys received and disbursed (including recovered party and party costs and outlays), signed by the client acknowledging that the statement represents a true and correct record of the receipt and disbursement of funds. Alternatively recommend to the Trust Investigations Manager that direct contact be made with the client to confirm that funds have been dealt with in accordance with the client s instructions Check that the settlement moneys have been promptly disbursed to the client. The retention of money for no reason should be questioned as it provides an opportunity for that money to be fraudulently misappropriated In speculative actions ensure that the amount of professional costs charged to the client is not greater than : Client s entitled settlement less (refunds due by client (eg WorkCover, Legal Aid, etc) + 23

24 disbursements payable by the client regardless of how or by whom those disbursements are paid (eg barrister fees, medical reports, etc) * 0.5 Note: In accordance with the judgement made in Legal Services Commissioner v. Dempsey [2007] QSC 270 the maximum amount of professional costs charged to the client is inclusive of GST payable by the law practice If the amount the practitioner/law practice seeks to recover from the client exceeds the amount calculated using the above formula, then the practitioner/law practice may make an application to the Council of the Queensland Law Society Incorporated, in writing, seeking approval to charge and recover this greater amount. The Council of the Queensland Law Society Incorporated may, in writing, approve an amount up to the greater amount. (Section 347 Legal Profession Act 2007) 21. Property Settlement Transaction Matters that should be checked are: Check that there is evidence that bills of costs and trust account statements have been sent to the client Check that professional costs have not been paid to the practice in breach of Regulation 58. a. Was a written authority held? b. If a written authority was not held did the firm wait 7 days after the delivery of the bill prior to transferring costs from trust to general? If no, report. c. Has a bill of costs and outlays been delivered or was a request for payment or written notice of withdrawal given before the withdrawal? If no, report Check that the details in trust account statements provided to the client accurately record details of all receipts and disbursements recorded in the relevant trust accounting records Check that money received into the general account for an outlay that has been expended from the general account Sight paid cheques for payments made to the client and the client s spouse. Particular care should be exercised if the funds are recorded as having been paid to the client and/or the client s spouse by financial institution cheques. There is no need to pay the money by financial institution cheque. A financial institution cheque may have been purchased to hide a fraudulent disbursement to the law practice or a third party. If funds are recorded as having been paid to a person by a financial institution cheque, the financial institution should be requested to produce the financial institution cheque, or advise in writing, the name of the payee. a. If paid cheques have not been called does the examined file support payments to the client? 21.6 If the amount charged for professional costs appears to be exorbitant, report the matter. Also, consider requesting the practitioner to provide a trust account statement, showing details of all money received and disbursed, signed by the client acknowledging that it represents a true and correct record of the receipt and disbursement of settlement funds. Alternatively recommend to the Trust Investigations Manager that direct contact be made with the client to confirm that funds have been dealt with in accordance with the client s instructions Check that funds have been promptly disbursed to the entitled beneficiaries. The retention of money for no reason should be questioned as it provides an opportunity for that money to be fraudulently misappropriated. 22. Private Mortgage Lending Transaction 22.1 Check that the solicitor, whether as a principal, officer or employee of the law practice, in conjunction with or as part of the law practice, has not since 1 July 2007 engaged in mortgage financing (Rule 38 Legal Profession (Solicitors) Rule 2007). Mortgage financing is defined as facilitating a loan secured or intended to be secured 24

25 by mortgage by: a. Acting as an intermediary to match a prospective lender and borrower; or b. Arranging the loan; or c. Receiving or dealing with payments under the loan; but does not include: d. Providing legal advice, or preparing an instrument, for the loan; or e. Merely referring a person to a prospective lender or borrower, without contacting the prospective lender or borrower on that person s behalf; or f. Facilitating a loan between family members; or g. Facilitating a loan secured by a mortgage: ii. Of which an Australia legal practitioner is the beneficial owner; or iii. Held by an Australian legal practitioner or a corporation in his, her or its capacity as the trustee of any will or settlement, or which will be so held once executed or transferred. 25