All law firms will be subject to a Law Society compliance audit to ensure their books, records and accounts comply with the requirements of the Legal Profession Act, the Law Society Rules and the Code of Professional Conduct for British Columbia.
For most firms, this will be a straightforward review and will provide the opportunity for lawyers and their staff to raise any questions they may have on trust and general accounting systems and procedures.
Frequency of audits
The Law Society aims to audit each firm at least once every six years. Audits are selected at random unless prompted by an indicator such as:
- failure to file a trust report
- information on a trust report that indicates non-compliance with the trust accounting rules and procedures
- referral from other departments of the Law Society
- inadequacies that were identified during a previous compliance audit
- a compliance level that raises concerns about the lawyer’s trust accounting practices
Level of compliance
The Law Society assesses each firm to reflect their past history of compliance with Law Society Rules Part 3, Division 7. The assigned level of compliance takes into account any past behaviours that could pose a risk to the public including:
- prohibited large cash transactions (Law Society Rule 3-59)
- deposits to incorrect bank accounts (Law Society Rule 3-58)
- insufficient funds in trust (Law Society Rule 3-63)
- cheques improperly written on trust accounts (Law Society Rule 3-64)
- incorrect amount of funds transferred (Law Society Rule 3-64)
- incomplete accounting records (Law Society Rule 3-67)
- incomplete trust accounting records (Law Society Rule 3-68)
- lack of timely preparation of trust account reconciliations (Law Society Rule 3-73)
- trust shortages (Law Society Rule 3-74)
- late, incomplete or contrary trust reports (Law Society Rule 3-79)
- failure to remit taxes in a timely manner (Code of Professional Conduct rule 7.1-2)
Other information is also taken into consideration, such as areas of practice and the volume and size of trust transactions.
Preparing for an audit
You will be advised by letter approximately four to six weeks prior to the commencement of the compliance audit (Sample letter).
The letter includes the Compliance Audit Books & Records Checklist which lists the books and records the auditor will review.
An audit typically takes three to four days. If you have a scheduling conflict with the date specified in the letter, you will need to inform the Trust Assurance Department immediately in writing. The audit may be rescheduled at the discretion of the manager, but it will not be cancelled.
To ensure minimal disruption to your practice, all records should be ready and available on the date of the review and a work area set aside for the auditor.
In general, auditors are employees of the Law Society. However, there may be times when accounting firms are hired to perform the compliance audits.
Non-compliance with an audit
A lawyer who does not produce and permit the copying of records and other evidence or provide the required explanations may receive an administrative suspension until the records are produced, copying permitted and explanations provided (Law Society Rule 3-86(1)).
In addition, the lawyer or law firm will not have met an acceptable standard of financial responsibility relating to the integrity and financial viability of the lawyer’s professional practice (Law Society Rule 3-49(c)).
Under the Legal Profession Act, information obtained during an investigation is generally confidential and cannot be used in other proceedings except with consent.
The Law Society, however, is subject to the Freedom of Information and Protection of Privacy Act. As a result, information gathered by the Law Society may be disclosed, on request, to other persons whose interests are affected by it.
The Law Society will review the audit findings with you and provide a written explanation of any breaches found during the review. After reviewing the summary report of the auditor, the Law Society will do one of the following:
- close the file, if no deficiencies were found or minor deficiencies have been corrected
- arrange a follow-up visit to address more serious deficiencies and ensure corrections to the records have been made and procedures have been put in place
- provide you with a written request for further documentation to support deficiencies in the accounting records
- place you on a file monitor for a specified period of time
- refer your file to the Professional Conduct Department, in the event of serious breaches of the trust accounting rules
Your input is important and will help the Law Society make improvements to the Compliance Audit Program. You will be asked to fill out a Post Compliance Audit Survey at the conclusion of the audit.