The investigators
A well-managed practice will invariably utilise compliance as a tool to meet its regulatory requirements. Mary Hallissey meets two of the Law Society’s investigating accountants, who lift the veil on their role
For many solicitors, the words ‘regulatory inspection’ may conjure a sense of unease, but according to the Law Society’s investigating accountants, that reaction is unwarranted.
Far from being an adversarial exercise, a visit from the Law Society’s team of investigating accountants is, in practice, closer to a professional health check – a constructive, collaborative process designed to help solicitors run tighter, more financially resilient practices.
With the vast majority of Irish law firms already operating to the highest standards of accounts management and client-fund stewardship, inspections more often serve to affirm good practice than to uncover problems.
In a profession built on trust, where clients routinely place significant financial interests in their solicitors’ hands, robust compliance with the Solicitors Accounts Regulations is not simply a legal obligation, but a cornerstone of a sustainable, well-managed practice.
As the Law Society’s own inspectors are quick to point out, a compliant practice and a thriving practice are, more often than not, one and the same thing.
Law Society investigating accountants Noreen MacCarthy and Jim Ryan (part of a team of ten) stress the point that the vast majority of law firms in Ireland are compliant with the Solicitors Accounts Regulations.
Proper stewardship
“Most practices maintain their books of account to the highest professional standards in accounting for clients’ moneys,” Jim Ryan points out.
“As investigating accountants, the proper stewardship of clients’ moneys is a fundamental principle that underpins the way we perform our roles.”
Noreen agrees: “Complying with the regulations assists practitioners in ensuring they have sufficient client funds to meet their client liabilities,” she says.
“A good bookkeeper is almost a prerequisite for keeping control of the practice’s finances and ensuring compliance with their various regulatory and Revenue obligations.”
Jim adds: “Compliance is a tool for running a practice. Our experience has shown us that a well-managed practice will invariably meet its regulatory requirements.”
However, both note that few practices have an in-house bookkeeper working in a back office anymore.
Many outsource these responsibilities to an external bookkeeping firm or person, and will use cloud-based accounting systems to facilitate this.
Typical working day
The duo’s typical working day starts with a list of practices due for routine inspection, which occurs usually every four to five years. “Most practices fall into that category and are inspected on a routine basis,” explains Jim.
Some practices are selected for inspection based on an assessment of risk – for example, a history of late filing of the annual reporting accountants’ reports; if significant client-account deficits have been flagged; or if a serious financial complaint has been made.
Jim and Noreen are both long-serving Law Society employees and started in their roles following previous stints working in industry: “The skills needed are patience and thoroughness, because it’s very forensic and detailed work,” says Noreen.
What are they looking for during an inspection?
A typical inspection includes looking at the accounting system, at client and office-ledger accounts and transactions for a certain period, at the corresponding bank statements and bank reconciliations, followed by a review of a sample of files.
“It’s all focused on compliance with the regulations in mind,” Noreen explains. “If there are any breaches, whether major or minor, are they being spotted by the law firm within a reasonable timeframe, and have they been corrected?”
‘Afterthought’ accounts
“In some practices, the accounts are done as an afterthought – and that’s not good,” Noreen warns.
Up-to-date accounts provide the practice with critical financial information in managing clients’ funds and in the overall management of a practice’s finances.
“You need accounts prepared and reconciled on a regular basis. Depending on the volume of transactions, that could be every month, every fortnight, or even daily for larger practices.
"What we’re looking at is to make sure that the client funds are fully accounted for and accurately reflected in the books of account,” Jim adds.
“When I started 30 years ago,” Noreen reflects, “I was told that my job was to protect the Compensation Fund, to ensure that there was a certain standard, so that there would be minimal claims on the fund.
"Part of our role is to protect and support the public interest and sustain trust in the profession by ensuring effective financial regulation.”
Custodians of trust
Jim adds: “The public puts its trust in the profession. Solicitors are the custodians of that trust. We’ve seen the consequences in the past, unfortunately, when that trust has been broken, the subsequent reputational damage to the profession and the Law Society but, more importantly, for individual clients who suffered financial losses.
"We’re looking to ensure that the accounts are kept in accordance with the Solicitors Accounts Regulations. It’s as simple as that.”
Anti-money-laundering compliance has played an increasing role in inspections in recent years, meaning compliance with the Solicitors (Money Laundering and Terrorist Financing) Regulations 2020 and related legislation.
The completion of a business-risk assessment and policies, controls and procedures, together with documented client-risk assessments, are key components in demonstrating best practice in anti-money-laundering compliance.
“Most solicitors find an inspection visit to be very beneficial,” says Jim. “If we identify any shortcomings, we may suggest improvements to the way the accounts are maintained.”
Cybercrime threat
On cybercrime, the accountants ask solicitors if they have antivirus software in place, and whether they are aware of the threats of cybercrime to their practices’ bank accounts.
Minor breaches of the regulations are usually dealt with through correspondence – the solicitor is given time to rectify the issue. Once the issue is confirmed as resolved, the matter is at an end.
Where there have been serious breaches of the regulations, solicitors may be required to appear before the Regulation of Practice Committee.
In these circumstances, solicitors are always advised to get separate legal representation, since, for some, appearing before the committee without an advocate can be a challenging prospect.
The Law Society has many helplines and resources to assist in such situations.
The investigating accountants themselves have support as they need it, and adopt a very collaborative and team-based approach to their jobs.
“There can be situations during an inspection where solicitors face very challenging professional and personal circumstances. It can be very stressful for all parties concerned,” says Jim.
“It’s so important for a solicitor to avail of the networks of support – from colleagues, the Law Society, and bar associations,” says Noreen.
“I was told by one solicitor that an inspection is like a medical check-up – you don’t look forward to it, but it must be done.
“Errors do happen. But I tell people I like to see the errors being spotted and corrected within a reasonable timeframe, because then I know that the accounts on the system are real and regularly updated and reconciled.”
Jim adds that some new practices are keen to have an inspection early on to make sure that everything is set up and being done correctly.
“The Regulation Department’s role is to ensure effective financial regulation for practising solicitors so that they operate to the highest professional regulatory standards. This is achieved by means of regulatory compliance visits,” he concludes.
Noreen agrees and offers simple advice for any solicitor preparing for an inspection: “Have the accounts up to date, a table and chair available for us, and a nice cup of tea or coffee. It should go swimmingly after that!”
Mary Hallissey is a journalist at the Law Society Gazette