Tips & Info
By: Keith Hill Jr.
At best, a Spot Audit can merely be a minor inconvenience – a routine checkup that only ensures your financial records and reporting are managed and maintained as they should be. Once the auditor reviews your books with satisfaction, they leave and you continue business as usual in as little as a few hours.
On the other hand, the simple notice of a Spot Audit can send the auditee in to a panic with reasonable fear that their livelihood is in jeopardy. In this case, the auditor usually finds “things of concern” and can end up extending the auditing process for months, turning a routine visit in to an investigative and punitive process – and at worse, your trust account is frozen by the Law Society who will then assign a forensic auditor to your case.
The goal of the licensee should always be to seek pre-emptive ways to bring about the former scenario and in effect shun the latter. A major factor in achieving this goal rests on having experienced and professional legal bookkeeping specialists maintaining your books.
The Spot Audit Program
An exponential expansion of The Law Society Audit Department has occurred in the past several years. Their mandate is to conduct a Spot Audit on each firm every five years. All newly formed firms must be audited in the first twelve months of operation.
According to the Law Society, Spot Audits are “designed as a pro-active compliance measurement and problem detection tool, Spot Audits measure the integrity of law firm financial filing (By-Law 8), assess ongoing compliance with financial record-keeping requirements (By-Law 9) and the Rules of Professional Conduct, and identify serious misconduct related to financial matters. A primary goal, which reflects a remedial approach, is to provide on-site guidance aimed at helping your law firm correct minor deficiencies with your record-keeping practices before they lead to serious non-compliance or misconduct issues”.
The Law Society further states that “Spot Audit supports and promotes high quality law firm record keeping by answering questions and providing guidance regarding private mortgages, trust and general record keeping requirements, and By-Law 9 and providing onsite support and ensuring compliance with LSO requirements by conducting audits”. In other words, Spot Audits have varying degrees of benefits for the licensee.
Spot Audit Day Tips
To assist with having a smooth audit experience here are a few tips:
Make sure your bookkeeper is notified immediately when you’re first informed of the audit date and particulars.
Forward your bookkeeper all correspondence from the LSO.
Be proactive – even if your general account is not part of the audit, do your best to also have it up to par for good measure.
The auditor will be at your office to "work", therefore provide a good work environment to assist them in being efficient – offer a comfortable work area with adequate desk space, privacy, and the like, where possible. Assisting with their productivity helps to expedite the auditing process.
Whatever form an audit takes place, albeit seemingly intrusive, the auditing procedure is a necessary evil. Therefore, it’s best to be anticipatory and operate your business as though one is always imminent versus having a reactionary approach which can become lengthy and convoluted. A good bookkeeper is essential in this manner because they will be familiar with what an auditor is looking for and in several instances he/she will even be familiar with the auditor themselves.
There’s a clear difference between audit day experiences where firms do not have consistent bookkeeping services as opposed to those where a bookkeeper maintains the integrity of the books on a regular basis. If you secure a bookkeeper reactively, he/she will be working at length putting together your paper trail and/or piecing one together when there is a lack thereof. And chances are you will be scrambling at the final hour before the arrival of the auditor. In the other scenario, by working closely with an experienced bookkeeper to keep your firm’s financial records and reporting on track, you will help prevent your audit day experience from becoming an audit day nightmare.
This article was written "pre-COVID" and the subsequent implementation of the "Limited Scope Audit".
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