Practice Management Course

Transcription

1 Practice Management Course Trust Accounting Queensland Law Society 179 Ann Street, Brisbane, Qld >> qls.com.au

2 Revision information Version 4.0 June 2015 Copyright All intellectual property in relation to this material (including any copyright notice and disclaimer) belongs to Queensland Law Society (QLS) and is protected by Australian and international copyright and other intellectual property laws. You may not do anything which interferes with or breaches those laws or the intellectual property rights in the content. The material cannot be used, reproduced by any process, electronic or otherwise, or adapted without the specific permission of QLS apart from any use permitted under the Copyright Act 1968 (Cth). QLS logo is a trademark of QLS. QLS does not grant any licence or right to use, reproduce or adapt QLS logo without express written permission of QLS. Disclaimer Care has been taken in the preparation of the material in this document, however, QLS does not warrant the accuracy, reliability or completeness or that the material is fit for any particular purpose. By using the information, you are responsible for assessing the accuracy of the material and rely on it at your own risk. To the extent permitted by law, all other representations, conditions or warranties, whether based in statute, common law (including in negligence) or otherwise are excluded. QLS does not accept any liability for any damage or loss (including loss of profits, loss of revenue, indirect and consequential loss) incurred by any person as a result of relying on the information contained in this document. The information is provided as part of an educational program and is not given in the context of any specific set of facts pertinent to individual students. The instruction is not legal advice and should not be construed as such. The information is provided on the basis that all persons accessing the information contained in this document undertake responsibility for assessing the relevance and accuracy of its content. Comments Comments and suggestions on these materials should be forwarded to the PMC team at pmc@qls.com.au.

3 Table of contents 1. Unit introduction Recognising trust and other moneys Introduction Trust money Office money Maintenance of records Completing primary records trust account Receipts Banking Payments Cheques EFT payments Understanding secondary records trust account The cash books The ledger The trust transfer journal Timing Understanding the office account and maintaining records Primary records Secondary records GST Charging fees, paying from trust, preparing statements Legal costs and disbursements Costs disclosure and agreements Bill of costs Trust account statements Trust to office transfer legal costs, disbursements and outlays Maintaining records of other trust money Categories of trust money Procedure Preparing monthly reports Balancing the cash book Reconciliation with ledger ADI reconciliation Complying with further statutory requirements Maintenance of records Annual examination of records... 24

4 9.3. Prescribed account Interest on trust accounts Indicators of inappropriate use of trust money Review: key points... 27

5 1. Unit introduction This unit is required reading as part of QLS s Practice Management Course (PMC). Trust and office accounting involves a consideration of both basic bookkeeping procedures and the responsibility of solicitors to account for money received on behalf of others. This unit provides a framework for the competent management of trust and office account records. At the end of this unit, you will be able to: describe and apply the law and practice of trust accounting to competently handle money received in the course of practice have a general understanding of the requirements of trust accounting records demonstrate some appreciation of the indicators that trust moneys are not being dealt with appropriately. In addition to this document, PMC participants are required to read QLS Trust Accounting Guide. PMC participants are invited to review additional trust accounting guidance and resources on QLS website. Glossary Reference LPA 2007 Description Legal Profession Act All references to sections are to sections of the LPA 2007, unless otherwise indicated. LPR Legal Profession Regulation 2007 QLS Queensland Law Society Queensland Law Society Practice Management Course: Trust Accounting Page 1 of 27

6 2. Recognising trust and other moneys 2.1. Introduction Every solicitor needs a basic knowledge of accounting because of the responsibility of each one to safeguard clients money. It is imperative that reliability and integrity are shown in handling those funds. Basic to trust accounting is compliance with legislation. In Queensland, a detailed knowledge of the relevant sections of the Part 3.3 of LPA 2007 and Part 3.3 of LPR is the essential foundation for an understanding of this subject. Section 240 provides that Part 3.3 applies to law practices in relation to trust money received in Queensland where the practice has an office in Queensland or the practice does not have any office at all. Part 3.3 also applies to law practices in relation to trust money received in another State where: the practice only has an office in Queensland the practice has an office in Queensland and in one or more other States, but not in the State in which the money was received (unless the money is dealt with under another State s corresponding law) Trust money Compliance with trust accounting principles requires three steps: 1. Identify what is trust money. 2. Ensure it is kept entirely separate and distinct from money of the practitioner or law practice. 3. Handle the money appropriately. Trust money is defined by section 237(1) as money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice. It includes: money received by the practice on account of legal costs in advance of providing legal services controlled money received by the practice transit money received by the practice money received by the practice subject to a power exercisable by the practice to deal with the money for another person. Chapter 7.1 of this unit deals with these types of trust money. There are a number of terms used in section 237 that are defined elsewhere in LPA Schedule 2 contains definitions of law practice, law firm and legal services. Note that section 238(3) includes certain investment money within the definition of trust money. Pursuant to section 242(1), money is received when: the practice directly obtains possession or control of the money the practice indirectly obtains possession or control of the money via its delivery to an associate of the practice ( associate is defined in section 7(1)) the practice, or an associate, is given power to deal with the money for another person (other than in a private and personal capacity). Queensland Law Society Practice Management Course: Trust Accounting Page 2 of 27

7 In order to determine whether money received is trust money and how it should be dealt with, a useful resource is the Trust Money Decision Flowchart on page11 of QLS Trust Accounting Guide, included in your reading for this unit. Within 14 days after establishing a general trust account, QLS must be notified in writing, including provision of the details of the account: LPR section 46(1) and section 46(5). Subject to certain exceptions (for example, where controlled money or transit money is received), trust money must be banked to a general trust account as soon as practicable: section 248(1). The trust money so banked must be held exclusively for the person on whose behalf it was received and only disbursed under a direction given by that person: section 249(1). Pursuant to section 260(1), written notice must be given to QLS as soon as practicable after a legal practitioner associate of a law practice becomes aware of an irregularity in the practice s trust accounts or trust ledger accounts. Additionally, written notice must be given to QLS if a legal practitioner believes on reasonable grounds that there is an irregularity relating to the receipt, recording or disbursement of any trust money received by a law practice of which the practitioner is not a legal practitioner associate: section 260(2) Office money Each practice will also have a completely separate bank account for its working capital, often referred to as office or general money. This account is used to receive payment for work done and to pay business expenses (for example wages, rent and stationery) and to make minor disbursements on behalf of clients. It is vital that trust money and office money are never intermingled. Section 257 provides that a practice must not, otherwise than as permitted and to the extent only that it is authorised by QLS, mix trust money with other money. This prohibition means that the practice must not receive trust money into its office or general account Maintenance of records Section 261(1) of LPA 2007 and section 59(1) of LPR require the keeping of trust records in permanent form in relation to trust money received. The practice must keep the records in a way that discloses the true position in relation to trust money received for any person and also enables the records to be conveniently and properly investigated or externally examined: section 262(2). Permanent form is defined in section 237 as printed or, on request, capable of being printed, in English on paper or other material. The records can be maintained manually but pencil should not be used, to avoid alterations being made. Alternatively, a computerised trust accounting system may be used. The requirements to be complied with are set out in LPR sections Trust records is defined in section 237. They are a combination of source and supporting records (primary records) and secondary records. These records are discussed in chapter three and four of this unit. Another useful resource is the table on page 17 of the Trust Accounting Guide, which summarises the trust records to be kept for various types of trust money. The records must be kept for a minimum of seven years after the last entry in the trust record or after finalisation of the matter: LPR section 59. Queensland Law Society Practice Management Course: Trust Accounting Page 3 of 27

8 3. Completing primary records trust account Particulars of every financial transaction must be kept in a suitable format to show the true position, provide an audit trail and ensure each client s money is used only as that client directs. Section 237 defines trust records. The initiating documents created for each transaction are known as source documents or primary records. For trust money, these include: receipts bank deposit forms cheques. The details recorded in the source documents are used to complete the trust account receipts and payments cash books and the trust ledger accounts, known as secondary accounting records. Secondary records are considered in chapter four of this unit Receipts Section 242 defines when trust money is received. A trust account receipt must be made out as soon as practicable after the trust money is received: section 34(2) of LPR. The receipt must be delivered, on request, to the person from whom the trust money was received: LPR section 34(6). Section 34(5) of LPR requires that trust account receipts contain: date of issue of the receipt and the date of receipt of the money, if those dates are different amount of money received form in which money was received (cash or cheque) name of person from whom the money was received details of the client in respect of whom the money was received and the matter description and matter reference purpose for which the money was received name of the law practice and the expression trust account or trust a/c name of person who issued the receipt the name is required but a signature, though desirable, is not number of the receipt. Where trust money is received to cover a number of different proposed payments/ purposes, it is preferable to record each amount received and the purpose separately on the trust account receipt, rather than record the total amount under a collective, general purpose, such as costs and outlays. There is no requirement to maintain a register of trust account receipt forms. Trust account receipts must be made out in duplicate, unless at the same time the particulars are recorded by computer program in the trust account receipts cash book: LPR section 34(4). Also, if a trust account receipt is cancelled, for example due to an error, the original cancelled receipt must be retained: LPR section 34(8). Queensland Law Society Practice Management Course: Trust Accounting Page 4 of 27

9 3.2. Banking Trust money must be banked as soon as practicable: section 248(1). It must be deposited with an authorised deposit taking institution (ADI) approved by QLS. There is a list of approved ADIs on QLS website. According to QLS, the money must be banked on the day of its receipt or, if not reasonably practicable, the next business day. A detailed deposit record must be produced to the ADI at the time of banking: LPR section 35(2). LPR section 35(3) requires that the bank deposit records include: date and amount of deposit breakdown of cheques, notes and coins and amount of each for each cheque, name of the drawer, name and branch (or BSB number) of the ADI and amount of the cheque. The deposit record must be made out in duplicate: LPR section 35(4) and be kept either in a deposit book or filed securely in the order in which the deposits were made: LPR section 35(5). The traditional butt style deposit slips do not comply with LPR section 35 as they do not record the drawer, bank, branch and the breakdown of funds received. A deposit slip is not required if funds are paid into the trust account by direct deposit Payments It is important that trust money not be paid out of the trust account on behalf of a client unless there are cleared funds available for the particular matter and purpose. If a trust account payment is made against unbanked or uncleared funds, a deficiency of trust money will occur if the funds are stolen, lost or destroyed before being banked or are ultimately dishonoured. This is an offence under section 259(1)(a). Trust money may be withdrawn for payments from the trust account by cheque or, if authorised by QLS, by Electronic Funds Transfer (EFT): section 250(1). Cash withdrawals, ATM withdrawals or transfers and telephone banking withdrawals or transfers from the trust account are prohibited: section 250(2). Payment of money from the trust account represents the most significant risk area for practitioners. Having appropriate authority from the payee of trust money (not necessarily the client) is an area practitioners have direct influence over. Equally, when signing payment authorities such as cheques, practitioners should be prepared to challenge the accuracy and appropriateness of the authority received from the payee of the trust money (or in some instances other appropriate entities, such as the court) Cheques Trust account cheques must: be made payable to order (not bearer) not be payable to cash be crossed not negotiable include the name of the law practice and the expression law practice trust account : LPR section 37(2). Queensland Law Society Practice Management Course: Trust Accounting Page 5 of 27

10 Each trust account cheque must be signed by an authorised principal of the law practice or, if they are unavailable, by: an authorised legal practitioner associate an authorised Australian legal practitioner who holds an unrestricted practising certificate authorising the receipt of trust money two or more authorised associates jointly: LPR section 37(3). A cheque butt or cheque requisition must be kept by the practice for each computer generated or manual cheque: LPR sections 37(4) and (5). LPR section 37(6) requires the cheque butt or requisition to include: date of payment number of the cheque name of the payee name of person on whose behalf the payment was made (eg client name) and the matter reference ledger account to be debited (ie matter description) purpose for which payment was made the amount. If a number of payments are to be made from the trust account to one payee, for example the Office of State Revenue or the office account, a single trust account cheque may be drawn, but full details of each transaction must be recorded on the cheque butt or requisition as required by LPR section 37(6). Cheques that have been damaged or are otherwise unusable should be marked cancelled and stapled to the cheque butt EFT payments QLS approval is required before practices can make EFT payments. Approval is sought by application to QLS; the application includes a declaration that the practice will comply with QLS s EFT Guidelines (available from QLS website at qls.com.au). EFTs must be effected by, under the direction of or with the authority of an authorised principal, or in their absence: an authorised legal practitioner associate an authorised Australian legal practitioner who holds an unrestricted practising certificate authorising the receipt of trust money two or more authorised associates jointly: LPR section 38(2). A written record of the particulars of each EFT must be kept in the order in which the transfers were made: LPR sections 38(3), (4) and (6). QLS Guidelines provide for an EFT transaction summary to be completed for each transfer meeting this requirement. Queensland Law Society Practice Management Course: Trust Accounting Page 6 of 27

11 LPR section 38(5) requires these particulars to be disclosed: Date and number of the transaction. Amount transferred. Name and number of account to which amount transferred and BSB number. Name of person to whom payment made. Name of person on whose behalf payment was made (eg client name) and matter reference. Ledger account to be debited (eg matter description). Purpose for which payment was made. Queensland Law Society Practice Management Course: Trust Accounting Page 7 of 27

12 4. Understanding secondary records trust account Stage one of each financial transaction is the completion of primary records. These records are used as the basis for secondary accounting records, so it is essential that they are completed fully and accurately. Stage two is the listing of the details of each transaction in a book of first (or prime) entry. For trust money, these are the cash books and the trust transfer journal. Stage three is recording the details in the ledger The cash books Section 39 of LPR requires details of all receipts and payments of trust money to be recorded in one of two trust account cash books. Receipts (that is, all trust receipts and trust bank deposit records) are recorded in the trust account cash receipt book: LPR section 40. The trust account receipts cash book must show: receipt number date receipt made out date received (if different) from whom on whose behalf brief description of matter and matter reference purpose for which received ledger account to be credited amount form in which received banking date. Payments (that is, all trust cheque butts and other payment records) are recorded in the trust accounts payments cash book: LPR section 41. The payments cash book must show: cheque number date paid to whom if an ADI, its name or BSB on whose behalf it was paid a brief description of matter and matter reference purpose for which paid ledger account to be debited amount if via EFT, name and number of account to which transferred and BSB number. Cancelled receipts and cheques should also be listed. Queensland Law Society Practice Management Course: Trust Accounting Page 8 of 27

13 The cash books facilitate quick calculation of the total amounts of trust money received and paid, and allow a check that each receipt and payment has been accounted for The ledger Section 42 of LPR requires that all receipts and payments of trust money are kept in one place, the ledger account. The set of all ledger accounts is called the ledger. The ledger and ledger accounts make it possible to know how much trust money is held for each matter, and overall. Trust money received is shown in the ledger account for a matter as a credit (Cr); trust money paid out as a debit (Dr). A running balance must be shown in each ledger account. With one exception, this should always be a credit or nil balance. The exception is where the practice has deposited money in a prescribed account: LPA 2007 section 285 and section 286 and LPR sections That ledger account will have a debit balance. A client trust ledger account with a debit balance indicates a breach of section 259(1)(a), as more trust moneys have been paid out than were received. For a manual accounting system, QLS encourages the use of loose-leaf ledger sheets kept in alphabetical order in a binder. The ledger account must show on whose behalf and for which transaction, including a brief description, the ledger is kept. Each entry must then show: date moneys are paid and received from or to whom if an ADI, the name or BSB number brief description of matter purpose of receipt/payment amount receipt/cheque/journal folio number balance of account The trust transfer journal Occasionally, you may need to transfer money from one trust ledger account to another. For example, when acting on a sale, you may pay the sale proceeds into your trust account and subsequently be instructed to hold the money for use in a new matter. You may transfer the money from the ledger account for the sale to a ledger account for the new matter without using a cheque, if you first record the transfer in the trust transfer journal: section 43 LPR. The amount will then be shown in the sale ledger account as a debit and in the new matter ledger account as a credit. If money is being deposited into or paid out of the trust bank account, the cash book is the book of first entry. If there is a transfer of funds within the trust account, from one matter to another, with no change in how much is held in the account, the trust transfer journal is the book of first entry used. In that case, the client s authority to transfer can be treated as the initiating document. The journal pages or entries must be consecutively numbered: section 43(5) of LPR and each entry signed: section 43(2) LPR. When posting from the trust transfer journal, debit (Dr) the ledger account that the funds are being transferred from and credit (Cr) the ledger account to which the funds are being transferred. Queensland Law Society Practice Management Course: Trust Accounting Page 9 of 27

14 The trust transfer journal must show: date transferred from and to which ledger account (name/matter/identifying reference) purpose for which transfer made amount signature of authorising principal or authorised legal practitioner associate Timing Postings from the trust account receipts cash book, payments cash book and journals to the trust ledger should be made within five working days, counting from and including the day the receipt was made out, the payment was made or the transfer was effected: LPR section 42(9). The transactions must be recorded in the trust ledger in the order in which they occurred: section 42(8) LPR. QLS recommends that, as a best practice, the postings should be made on a daily basis. Queensland Law Society Practice Management Course: Trust Accounting Page 10 of 27

15 5. Understanding the office account and maintaining records Unlike trust accounts, general accounts for the practice s own money can be kept in any way that suits the practice. It is important for business management purposes that these accounts are kept in an orderly fashion. For ease of use, it is recommended that as far as practicable, a similar system is used for general accounts as for trust accounts Primary records The primary records used in the office account are the same as those used for the trust account receipts, bank deposit records, and cheques/butts. Although these records are not covered by the LPR, it is strongly recommended that as far as practicable, they are completed with as much detail as is required for trust records. Note, however, that the legislative restrictions around cheque signing and methods of payment are not applied to office cheques. Most practices will have their own policies to deal with the general account. Additional primary records for office money may include authorities for EFTs, bills of costs and petty cash vouchers Secondary records A cash book, journal and ledger are required for office money. The ledger for the office account is usually subdivided into: client ledger accounts with a separate ledger account for each matter, preferably kept alphabetically private ledger accounts for transactions not related to a matter, such as general office expenses. These ledger accounts can be allocated an account number and are best kept in numerical order. Payments by EFT are recorded in the payments cash book and in the ledger in the same way as cheques. Costs rendered and petty cash payments must each be recorded twice in the ledger once as a credit, and once as a debit. For example, when a bill of costs is prepared and sent to a client, the amount of your professional fees is recorded: as a credit in the costs rendered ledger account as a debit in the client office ledger account for that matter. Instead of immediate credits to the costs rendered and petty cash ledger accounts, books of first entry (usually called costs journal and petty cash book ), can be totalled at the end of each month with that total credited to the ledger GST A basic knowledge of the requirements to pay and to charge GST when services are supplied is necessary in office accounting. Queensland Law Society Practice Management Course: Trust Accounting Page 11 of 27

16 6. Charging fees, paying from trust, preparing statements 6.1. Legal costs and disbursements Section 346 defines legal costs as amounts that a person has been or may be charged by, or is or may become liable to pay to, a practice for the provision of legal services including interest on the amounts, but excluding disbursements and interest on disbursements. Section 300 defines disbursements as including outlays Costs disclosure and agreements Subject to the exceptions in section 311, where the total legal costs, excluding disbursements, to be charged exceed $1500, the practice must make a costs disclosure to the client under section 308. The disclosure must be: made before, or as soon as practicable after, the practice is retained in the matter: section 310(1) in writing: section 310(1) expressed in clear plain language: section 314(1). It must specify: the basis on which legal costs will be calculated: section 308(1)(a) an estimate of the total legal costs payable by the client or, if that is not reasonably practicable, a range of estimates and an explanation of the major variables that will affect the calculation of the costs: section 308(1)(c). To comply with section 308, these documents may be provided to the client: Form 1 (form of disclosure of costs to clients) with attached factsheet Your Right to Know. Form 2 (form of notification of client rights) with attached factsheet Your Right to Challenge Legal Costs. The practice may prepare its own disclosure statement. A written costs agreement may also be made between the practice and the client under section 322. Legal costs are recoverable under such an agreement: section 319(1)(a). It should be clearly distinguished from a bill of costs Bill of costs A bill of costs is an invoice or account for work done by the practice. It lists professional fees, charges for services such as photocopying, the amounts of any office account money spent on the client s behalf (disbursements or outlays) and GST. Payments from trust money are not included in a bill of costs. The client s money funded those payments, so the practice is not entitled to reimbursement for them. Queensland Law Society Practice Management Course: Trust Accounting Page 12 of 27

17 The bill: may be in the form of a lump sum bill or an itemised bill: section 330(1) must be signed on behalf of the practice by a legal practitioner or an employee of the practice (a letter signed on behalf of the practice to which the bill is attached or enclosed is sufficient): sections 330(2) and (3) must include, or be accompanied by a written statement setting out the avenues open to the client where there is a dispute as to the costs: section 331(1). If the practice gives the client a lump sum bill, the client may request an itemised bill which must then be given within 28 days after the request is made: sections 332(1) and (2). Proceedings to recover legal costs may only be commenced if the client has been given a bill of costs and at least 30 days have passed: section 329(1). If your client wishes to claim an input tax credit, the format of the bill must also comply with GST legislation for tax invoices Party/party bill of costs A bill of costs to a client for work done should not be confused with a party/party bill of costs, which may be prepared in litigation matters if a party has been ordered to pay the costs of another party. A party/party bill of costs is prepared by the successful party and submitted to the unsuccessful party for agreement or, if agreement cannot be reached, assessment. Costing in litigation matters is covered in the subject Civil Litigation Practice Trust account statements Trust account statements are required to ensure that practitioners fully report all dealings with the client s trust or controlled money. Section 53(1) of LPR provides that the practice must furnish a trust account statement to each person for whom or on whose behalf trust money (other than transit money) is held or controlled by the practice. The statement must contain particulars of: all the information required to be kept in relation to trust money included in the ledger account or record the remaining balance (if any) of the money: section 53(5) LPR. A statement must be provided as soon as practicable: after completion of a matter after the client makes a reasonable request for the statement during the course of the matter after 30 June each year: LPR section 53(6), subject to LPR section 53(7). The term as soon as practicable is not defined. According to QLS, it may depend on factors such as the size of the ledger, the practice s accounting facilities and staff availability. Queensland Law Society Practice Management Course: Trust Accounting Page 13 of 27

18 Separate statements must be provided for each trust ledger account, controlled money account and power money account see chapter seven of this unit for details Trust to office transfer legal costs, disbursements and outlays The practice may withdraw money for payment of its legal costs from the general trust account or a controlled money account if the requisite procedures are followed: section 258(1)(b). The client s written authority should be obtained for all transfers from the general trust account or a controlled money account to the practice s office account. Failure to do so would be a failure to hold the client s funds in accordance with section 249(1) and section 258(1)(b) and may constitute unsatisfactory professional conduct or professional misconduct under section 240. Costs may be transferred pursuant to the client s verbal authorisation, confirmed in writing within five working days after the practice effects the withdrawal: LPR section 58(5)(b). Legal costs may be withdrawn by two methods: Withdrawal with authority. Withdrawal on issue of a bill of costs: LPR sections 58(3)(a)(i) and (ii) Withdrawal with authority For a withdrawal with authority, these conditions must be satisfied: Before effecting the withdrawal, the practice has given to or sent the client a written notice of withdrawal or a request for payment, referring to the proposed withdrawal: LPR section 58(3)(b). The trust money is withdrawn in accordance with a costs agreement that complies with the legislative provisions and authorises the withdrawal: LPR section 58(3)(a)(i). The trust money is withdrawn in accordance with instructions received by the practice, authorising the withdrawal: LPR section 58(3)(a)(ii) Withdrawal on issue of a bill of costs The written notice of withdrawal or request for payment would usually be in the form of a bill of costs relating to the money, or a letter. For withdrawal on issue of a bill of costs, the practice must have given the client the bill relating to the money and: The client has not objected to withdrawal of the money within seven days after being given the bill: LPR section 58(4)(b)(i). The client has objected within seven days but has not applied for a review of the legal costs under LPA 2007 within 60 days after being given the bill: LPR section 58(4)(b)(ii). The money becomes otherwise legally payable: LPR section 58(4)(b)(iii). Queensland Law Society Practice Management Course: Trust Accounting Page 14 of 27

19 Disbursements or outlays Disbursements or outlays are excluded from the definition of legal costs, but may be withdrawn from the general trust account or a controlled money account if: the practice gives or sends to the client a request for payment, referring to the proposed withdrawal, or a written notice of withdrawal the money has already been paid by the practice on behalf of the client: LPR section 58(3)(a)(iii). Queensland Law Society Practice Management Course: Trust Accounting Page 15 of 27

20 7. Maintaining records of other trust money 7.1. Categories of trust money As discussed in chapter one, trust money is money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice : section 237. It includes controlled money, transit money and money subject to a power exercisable by the practice to deal with it for another person, together with certain investment money: section 238(3) Controlled money Controlled money is 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 : section 237. The term controlled money account is defined and would usually be an interest bearing account over which the practice has exclusive control. As soon as practicable after receiving controlled money, the practice must deposit it into the account nominated in the written direction: section 251(1). Pursuant to section 47(1) of LPR, the controlled money account must include the following particulars in its name: The name of the practice. The expression controlled money account or CMA or CMA/c. Sufficient particulars to identify the purpose of the account and distinguish it from other accounts maintained by the practice: LPR section 47(1). There are a number of records that must be maintained for controlled money accounts: Written directions for deposits to, and withdrawals from, the accounts: sections 251(1) and (3). Controlled money receipts to be made out as soon as practicable after receiving money: LPR section 48. initiating records of withdrawals: LPR sections 50(2)-(4). Register of controlled money, consisting of records of money movements: LPR section 51. Monthly listing of accounts within 15 working days after the end of each month: LPR section 51(8). ADI statements: LPR section 51(7). Trust account statements for each record of controlled money movements: LPR section 53(3). QLS also recommends that a controlled money control account be maintained to record all controlled money receipts and withdrawals and that it be reconciled monthly with the listing of controlled money accounts. Requisite particulars for controlled money receipts are set out in section 48 of LPR. Although there is no requirement to make out a receipt for interest received from the investment of controlled money where it is credited directly to the controlled money account, QLS recommends doing so. Further, the interest must be recorded in the relevant controlled money movement record: LPR section 48(11) and section 51(6). It will also be recorded in the controlled money control account if one is maintained by the practice. Queensland Law Society Practice Management Course: Trust Accounting Page 16 of 27

21 Controlled money can only be disbursed: under the original or a subsequent written direction given by the person on whose behalf the money is received: section 251(3) in accordance with a court order or as authorised by law: section 251(7) as prescribed by section 58 of LPR regarding the withdrawal of trust money for payment of legal costs. Withdrawal is by cheque, or by EFT if the practice is authorised to do so by QLS: section 252(1). Further, the withdrawal must be effected by, under the direction of, or with the authority of an authorised principal or, if unavailable, an authorised legal practitioner associate, an authorised practitioner holding an unrestricted practising certificate which authorises the receipt of trust money, or two or more authorised associates jointly: LPR section 50(1). A written record of each withdrawal must be kept for each controlled money account: LPR sections 50(2)-(4). QLS suggests that a cheque butt, cheque requisition or EFT transaction summary meet these requirements. For each controlled money account, a separate record of money movements must be maintained: LPR section 51(2). The requisite information and particulars to be recorded are set out in LPR sections 51(3) and 51(4) and should be maintained like a trust account ledger. Receipts and payments must be recorded as soon as practicable after the controlled money is received or payment is made: LPR section 51(5). Interest received must be entered in the register as soon as practicable after the practice is notified: LPR section 51(6) Transit money Transit money is 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 : section 237. Cash must be deposited to a general trust account or controlled money account before being dealt with under instructions: section 255(4). Cheques drawn in favour of someone else do not need to be deposited into a trust account. Such a cheque may be given to the person to whom it is drawn in accordance with the instructions relating to the money within the stipulated time period or, if no period stipulated, as soon as practicable after its receipt: section 253(1). Section 52(2) of LPR requires the practice to record and keep brief particulars sufficient to identify the transit money transaction and the purpose for which the money was received. A specific register may be used or, alternatively, a file note kept on the matter file. In either case, the transit cheque should be photocopied and the copy retained with other documentation received, such as directions from the client Power money The definition of trust money in section 237 includes money that the practice is given a power or authority to deal with for and on behalf of a person, for example, under a power of attorney, guardianship order or authority to sign on another s bank account. A record of all dealings with the money must be kept, together with all supporting information, such as bank statements, invoices, receipts and cheque books: LPR section 56(2). QLS recommends recording the dealings in a ledger format. A separate trust account statement must be furnished for each record: LPR section 57(4). The practice must also keep a register of powers and estates in respect of which the practice or an associate is acting, or entitled to act, in relation to trust money: LPR section 57(1); the details to be recorded are set out in section 57(2). Queensland Law Society Practice Management Course: Trust Accounting Page 17 of 27

22 Any power money received in cash must first be deposited in the general trust account or a controlled money account before it can be dealt with pursuant to the power: section 255(5) Written direction money Written direction money is trust money received by a practice with a written direction by an appropriate person to deal with it otherwise than by depositing it in the general trust account: section 248(1)(a). An appropriate person is the person legally entitled to give directions in relation to dealings with the trust money: section 248(4). The practice must deal with the money in accordance with the direction within the time period stipulated or, if no period is stipulated, as soon as practicable after it is received: section 248(2). However, if it is cash, it must first be deposited in the general trust account or a controlled money account: section 255(2). The written direction must be kept as part of trust records for seven years after finalisation of the matter: LPR section 36. Further, QLS recommends that endorsed cheques be copied and the copy kept with the written direction Investment money Section 238(3) provides that investment money is trust money if: the money was entrusted to or held by the practice in the ordinary course of the practice primarily in connection with the provision of legal services to or at the direction of the client the investment is or is to be made in the ordinary course of practice for the ancillary purpose of keeping or enhancing the value of the money pending completion of the matter or pending payment or delivery of the money to or at the direction of the client. Investment money is not trust money if it is involved with the provision of financial services or investments: sections 238(1) and (2). The practice must maintain a register of investments if trust money is invested for or on behalf of a client: LPR section 55(2). It consists of the individual investment ledger accounts kept to record details of each investment, with the requisite information set out in section 55(3) of LPR. In addition, QLS recommends the keeping of an investment control account to record details of all investment money transactions. This account should be reconciled monthly with a list of the individual investment money accounts. Trust money cannot be withdrawn from a general trust account and deposited into an investment money account without written authority from the person entitled to it: LPR section 55(3). The written authority and any documentation evidencing the investment must be kept with the register of investments. Money for investment must be deposited to the general trust account before being invested, and must then be deposited into the general trust account after being withdrawn from the investment account. Interest accruing on the investment must also be treated as trust money and recorded in the register of investments. An investment journal may be used as a book of first entry, but is not compulsory. Queensland Law Society Practice Management Course: Trust Accounting Page 18 of 27

23 7.2. Procedure Investment control account (optional) should show: Individual investment ledger account must show (LPR section 55(3)): date date name of individual investment ledger account name in which investment held name and address of person on whose behalf investment made brief description of investment, including details identifying nature and location source of investment, including reference to trust ledger, written authority and number of cheque details of evidence of investment interest received details of repayment of investment amount amount balance. balance. On receipt of trust money to be invested, deposit into general trust bank account, completing: trust receipt and bank deposit form trust cash receipts book trust client ledger account (CR). To make an investment, get written authorisation from client, then complete: trust cheque trust cash payments book trust client ledger account (DR). Then, invest per authorisation and complete: investment journal (optional) and investment ledger, including: investment control account (CR) individual investment ledger account (CR). Queensland Law Society Practice Management Course: Trust Accounting Page 19 of 27

24 On receiving notice of accrual of interest, complete a similar process to initial investment. On realisation of investment, complete: trust receipt, bank deposit form and optional investment journal trust cash receipts book and investment control account (DR) trust client ledger account (CR) and individual investment ledger account (DR). To pay proceeds to, or at direction of, client, complete: trust cheque trust cash payments book trust client ledger account (DR). Queensland Law Society Practice Management Course: Trust Accounting Page 20 of 27

25 8. Preparing monthly reports 8.1. Balancing the cash book Trust account Section 44(3) of LPR requires a practice within 15 working days of the end of each month to: balance and reconcile the trust account cash book balance at the end of the month with the trust account ledger listing (trust trial balance) reconcile the ADI s statement balance for the trust account at the end of the month with the trust account cash book balance at the end of the month. The reconciliation statements must each show the date they were prepared: LPR section 44(2). The first step in this process is to balance the cash book, by: calculating total receipts for the month add all amounts listed on the receipts page calculating total payments for the month add all amounts on the payments page calculating the cumulative figure by adding the total receipts for the month to any balance carried forward from the previous month calculating the balance at the end of the month, by subtracting the total payments for the month from the cumulative figure carrying forward that balance to start the next month (showing the balance on the next receipts page of the cash book) Office account Although not required by legislation, it is also good practice to balance the office cash book. When totalling the amounts received and paid during the month, note the amounts received and paid for GST and record them in the GST ledger account. In addition, if a costs journal and petty cash book are used, the costs and petty cash payments will need to be totalled at least monthly and credited to the costs rendered and petty cash ledger accounts Investment money There is no separate cash book for investment money Reconciliation with ledger Trust account The trust account cash book balance must be reconciled with the trust ledger balance: LPR section 44(2)(b). The trust ledger balance is the total of the individual trust ledger accounts. These should all have credit or nil balances, with the exception of a ledger account maintained for a practice s deposit to a prescribed account in the name of the Chief Executive, Department of Justice and Attorney-General Prescribed Account under section 285. Section 44(2)(b)(ii) of LPR requires the reconciliation statement to contain a list of the practice s trust ledger accounts, showing the name, identifying reference and balance of each and a short description of the matter to which each relates. Queensland Law Society Practice Management Course: Trust Accounting Page 21 of 27

26 List all ledger accounts, except those with nil balances at the end of the month. Add all credit balances and deduct any debit balance. The result should equal the trust account cash book balance Office account Monthly reconciliations should also be prepared for the office account. Usually the only ledger accounts with credit balances will be those for initial capital and costs rendered. As with the trust account, the total credits less the total debits should equal the office account cash book balance Investment money If an investment control account is kept, it should be reconciled with the individual investment ledger accounts at the end of each month. The investment control account will have a credit balance that should equal the total of the credit balances in all individual investment ledger accounts ADI reconciliation Trust account The trust account cash book balance must be reconciled with the balance in the ADI s statement for the trust account: LPR section 44(2)(a). This reconciliation is a comparison of the statement from the ADI with the cash book, looking for errors or omissions in either. Errors or omissions will require correcting entries by you or the ADI. Any remaining differences must be noted as follows: Receipts in the cash book but not in the ADI statement are outstanding deposits. Cheques in the cash book but not in the ADI statement are unpresented cheques. The reconciliation must contain, as at the end of the month: the balance of the ADI statement the amount of trust money on hand and date received the amount of each outstanding deposit and dates received and deposited details of any outstanding cheques including number, amount and date for each balance according to cash book. The totals of (a), (b) and (c) less the total at (d) should equal (e) Office account A bank reconciliation should also be done monthly for the office account, comparing the bank statement for the office account with the office cash book. Some practices operate their office account on an overdraft in which case, the bank statement for the office account would show the balance as a debit. Queensland Law Society Practice Management Course: Trust Accounting Page 22 of 27