How Can an Accountant Help Prevent Breaches of Client Money Rules

Under the SRA Accounts Rules, client money must be handled separately from the firm’s own funds. This ensures that client money is always available and used only for the client’s matter.

Key requirements include:

• Maintaining separate client and office bank accounts.

• Keeping accurate records of receipts and payments for each client.

• Reconciling client accounts at least every five weeks.

• Ensuring funds are transferred promptly and correctly.

• Returning residual client balances without delay.

Breaches can occur through simple errors, poor bookkeeping, or inadequate systems. An experienced accountant helps prevent these issues before they become regulatory problems.

The accountant’s role in compliance

A specialist legal accountant provides independent oversight of the firm’s financial management, ensuring compliance with both accounting standards and SRA regulations. Their work focuses on systems, controls, and accuracy, helping to reduce the risk of breaches and ensuring that any potential issues are identified early.

1. Setting up compliant accounting systems

An accountant helps establish the right financial systems from the outset. They ensure that:

• Client and office accounts are clearly separated.

• Legal accounting software is configured to meet SRA requirements.

• Each client ledger accurately reflects the funds held, received, or disbursed.

Using software designed for law firms, such as LEAP, Clio, or Quill, allows for automatic reconciliations, reducing the risk of human error.

2. Regular reconciliations and audits

Reconciliation is one of the most important controls under the SRA Accounts Rules. Accountants perform or review regular reconciliations between the client account, client ledgers, and bank statements to ensure they all match.

If discrepancies are found, the accountant investigates and resolves them promptly. Regular reviews prevent small mistakes from accumulating into significant breaches.

Accountants may also conduct internal audits, reviewing compliance processes and highlighting areas for improvement before the SRA’s annual reporting period.

3. Training and guidance for staff

Many breaches occur because fee earners or support staff are unaware of how to handle client money correctly. Accountants can deliver training to help all employees understand their responsibilities under the SRA Accounts Rules.

Training typically covers:

• How to post receipts and payments correctly.

• The difference between client and office funds.

• Timely banking of client money.

• Managing residual balances.

Ongoing training ensures that everyone in the firm follows consistent and compliant procedures.

4. Monitoring transfers between accounts

Transfers between client and office accounts must be accurate and properly authorised. An accountant ensures that all transfers are supported by valid documentation and that client funds are only used for legitimate reasons, such as paying professional fees or settling disbursements.

They also verify that client funds are not held longer than necessary and are moved in accordance with the firm’s internal policies and SRA time limits.

5. Preparing the annual accountant’s report

Under SRA rules, most law firms holding client money must obtain an accountant’s report each year. A qualified accountant prepares and submits this report, confirming whether the firm has complied with the Accounts Rules.

By reviewing transactions, systems, and reconciliations, the accountant identifies potential weaknesses and advises on corrective actions before the report is submitted.

If the report identifies no breaches, it can be submitted as a “clean report.” If issues are found, the accountant helps the firm address them quickly and report them appropriately to the SRA.

6. Implementing strong internal controls

An accountant can design and implement internal financial controls tailored to the firm’s operations. These controls might include:

• Authorisation procedures for payments.

• Separation of duties so that no single person handles all aspects of a transaction.

• Automated alerts for low balances or unauthorised activity.

• Regular oversight by partners or compliance officers for finance and administration (COFA).

These checks and balances help maintain transparency and reduce opportunities for mistakes or misuse of funds.

7. Supporting the COFA and compliance team

Every law firm must appoint a Compliance Officer for Finance and Administration (COFA) who is responsible for ensuring compliance with the Accounts Rules. Accountants provide crucial support to the COFA by:

• Supplying accurate and timely financial data.

• Assisting with compliance reviews and reporting obligations.

• Helping document policies and procedures for client money management.

• Offering guidance on interpreting SRA regulations.

By working together, the COFA and accountant form a strong compliance framework that keeps the firm aligned with regulatory expectations.

8. Detecting and preventing fraud or misappropriation

Fraud or accidental misuse of client funds is one of the most serious risks facing law firms. Accountants use reconciliations, internal controls, and financial reviews to detect irregular transactions.

They also ensure that the firm has appropriate procedures for reporting suspicious activity under anti-money laundering (AML) regulations.

Regular monitoring and independent oversight significantly reduce the risk of fraud going unnoticed.

9. Advising on technology and automation

Modern accounting systems can automate many compliance functions, such as reconciliations, reporting, and client ledger management. Accountants advise firms on selecting and implementing software that supports compliance while reducing manual workload.

They also ensure that digital systems comply with data protection laws and integrate seamlessly with case management tools.

10. Ongoing monitoring and improvement

Compliance with client money rules is not a one-time exercise but a continuous process. Accountants help law firms maintain good financial discipline by performing periodic reviews, updating procedures as regulations evolve, and ensuring that new staff understand their responsibilities.

This proactive approach prevents breaches rather than simply reacting after they occur.

The consequences of non-compliance

Failing to comply with the SRA Accounts Rules can have serious consequences, including:

• SRA investigations and disciplinary action.

• Fines or loss of authorisation.

• Reputational damage and loss of client trust.

• Financial penalties or personal liability for partners.

Having a qualified accountant involved ensures that these risks are minimised through proper oversight, accurate record keeping, and strong internal controls.

Final thoughts

Accountants play an essential role in helping law firms prevent breaches of client money rules. They provide expert advice, implement sound financial systems, and conduct regular checks to ensure full compliance with SRA regulations.

By partnering with a specialist legal accountant, law firms can protect client funds, maintain regulatory confidence, and operate with greater transparency and efficiency. In a sector where trust is paramount, professional accounting oversight is one of the most effective ways to uphold both compliance and client confidence.