In an earlier post, Ann Irons explained how real estate lawyers can improve financial management through use of budgets, accounts receivables policy, and cash flow analysis. Irons, a CPA in Bellingham, MA, goes on to outline the benefits of internal controls and how they impact the financial health of your practice.

Internal Controls for Financial Transactions

Establishing clear internal controls benefits law practices by mitigating the risk of ethics violations and accounting errors.

Maintaining Trust Records

Outsourced escrow accounting is the simplest solution to ensure accuracy of trust account transactions and federal guidelines. However, well-laid internal controls can be helpful for practices that choose to handle these functions in house. Irons cautions that doing so may prove difficult for law offices that have only one or a few employees.

The employee responsible for preparing the monthly reconciliation should not be the same individual who reviews and signs off on the completed report; at least one other qualified person should do so. The person who reviews the report should verify that it is compiled in a timely manner, that all entries are specific and accompanied by supporting documentation, and that items that have been reconciled are cleared. It’s also advisable to look over trust balances on occasion to identify accounts that do not appear to have increased or decreased over an extended period (usually one year).

Segregation of Duties

No single person should be given control over all financial management functions. For example, the person who opens and sorts your mail should not also be tasked with making a list of payments received. Likewise, any checks received as payment should be stamped with “for deposit only”. A receipt should be provided whenever payment is received; this gives clients assurance and proof of payment, and it also eliminates the redirection of funds from one account to that of another client.

Policy for Signing Checks

Establish a clear policy outlining the proper handling of check requisitions, including those associated with clients’ trust accounts. Law practices with two or more attorneys may wish to set a threshold amount for checks issued. Any check above this amount should be signed off on by at least two lawyers or designated individuals. This threshold amount will vary depending on your average transaction value; there is no set dollar amount.

Other examples of check policies to consider:

• Never keep blank, signed checks on hand
• Checks must be numbered, issued, and recorded in sequence
• Each check should include some detail of the transaction, such as a case number or brief description

Need help sorting out your finances? To learn more about our accounting, tax, and payroll services for law firms, or to arrange a meeting with Ann Irons, CPA, LLC, contact us at (508) 966-0700. We welcome law offices, businesses, and individuals based in Bellingham, Woonsocket, Milford, Medway, and the surrounding areas.