RISK MANAGEMENT.

Counting the cost

Every solicitor knows the implications of an overdrawn client account.

However, what procedures do you have in place to ensure that risks of an accounting error are reduced? Do any of the following situations ever arise in your office?1) Cheques are drawn against before they are cleared.2) Funds are remitted in conveyancing transactions before they are received?3) There are either no, or only limited controls as to who may sign cheques.4) Your petty cash is used by staff and partners as a cashpoint.5) Your cashier or firm's accountant has no authority.Sounds familiar? If it does then you are exposing yourself to the risk of something, potentially catastrophic, going wrong.

Sound accounting procedures and systems are needed to safeguard against financial errors and fraud.

It is surprising the number of firms who allow client account cheques to be signed by one person.

A gift to a fraudster.

Consider the following procedures:1) All client account and office account cheques over 1000 are to be signed by two authorised signatories.2) No monies to be drawn against uncleared effects, both cheques and CHAP transfers.3) All payment requests being checked to ensure there are sufficient funds in the account to meet the payment before the cheque is drawn, and not after.4) A bar on any individual client account being overdrawn at any time.

Under no circumstances is the bar to be overridden.5) A spot audit carried out by the cashier or accountant of any file they choose where a payment request is received, in order to verify the authenticity of the request.6) A clear audit trail of all financial transactions properly recorded on the file.

This should consist of all payment in or out slips, statements, and any other financial dealing placed on the file immediately it has occurred.

7) Strict controls relating to the use of the petty cash, such as payments only being made on production of a receipt.

The rules should be observed by all, including partners.

Sloppy petty cash procedures may be indicative of sloppy accounting procedures.

Time-consuming, bureaucratic, and regulatory? Perhaps, but you cannot afford to take risks where money is involved.

An individual in the firm must be monitoring accounting procedures on a continual basis.

What if that cheque you draw against bounces? What if the money from your purchasers does not arrive, after you have sent out tens of thousands of pounds from your client account? What if an authorised signatory in your firm is defrauding you?

Resist client pressure to send money before you can safely do so, why should you provide a bridging facility on a casual basis without security? Would a bank or any other financial institution do this?Why should you take the risk?This column was prepared by the St.

Paul risk management team