Tips & Info
The Value of Compliance
By: Keith Hill Jr.
The most apparent benefit of adhering to the Law Society of Ontario (LSO) bookkeeping By-Laws is the prevention of incompliance penalties. However, because a great deal of these By-Laws focus on keeping a “clean” set of books, a substantial value is that maintaining compliance also facilitates the efficient management of the licensee’s practice in addition to providing a clear window for assessing the firm’s business. Of all fifteen (15) LSO By-Laws, By-Law 9 “Financial Transactions and Records” which speaks to the requirement to maintain financial records clearly demonstrates these benefits the most.
For instance, Part IV of By-Law 9 refers to money received in trust from clients. The first point of this By-Law is that trust monies are required to be put into a bank account immediately on the client’s behalf with detailed information to record said deposit. Furthermore, a “licensee shall not at any time with respect to a client, withdraw from a trust account more money than is held on behalf of that client in that trust account at that time.” This may seem obvious, but in the daily operations of a practice, an overdrawn trust account is an oversight that can easily take place and can snowball into a catastrophe. If licensees were not instructed to follow these systematic procedures, a growing firm could not keep track of how much money is owed to them for a specific matter versus how much has previously been collected or what has already been disbursed. This is particularly relevant when handling numerous real estate transactions. These mandates help firms circumvent an otherwise inevitable disaster.
Paragraph 4 of subsection (2) of By-Law 9 under “Withdrawal by Electronic Transfer” refers to the electronic debiting of a trust account. The paper trail of an e-transfer is insufficient to deduce pertinent information such as which matter the transfer relates to or the specific reason for the dollar amount being transferred. As a result, an Electronic Trust Transfer Requisition – called a Form 9A, is required to be completed when trust monies have been electronically debited from its account and credited to another. This requisition form makes it necessary to record when and where the money was transmitted, by whom, and for what reason. If this documentation was not a requisite, having to source this information retroactively could prove to be time consuming and costly, especially if being audited.
Additionally, if compliance requirements are not met or if they are completed inappropriately, there may be adverse tax consequences. By ensuring compliance and fulfilling the checks and balances established by the LSO, the result is a set of organized comprehensive books kept in a timely fashion – this minimizes the chance of incompliance issues. Moreover, good recordkeeping is equally important for maintaining profit and for maximizing billable hours. A clean set of books makes the docketing and collecting process operate at its crest.
Ultimately, demands and reprimands imposed by a governing body are typically perceived as more of a nuisance than value by those who are subject to them; even in the case of the most just governances. However, when observed properly these same regulations and penalties can serve to benefit those who abide by them more than the body by which they are enforced. As it relates to the Law Society of Ontario bookkeeping By-Laws, a significant value exists with its licensees in particular and throughout the legal community in general
©2019, Bookkeeping Matters. All rights reserved. Reproduction with credit is permitted.