Internal control of Client to Client transfers

The current SRA Guidelines ask for firms to establish policies and operate systems to control and record accurately any transfers between their clients.

 

As no client money is physically moved in the firm’s client bank accounts, a standard procedure within the whole of a firm is important, to ensure these transfers are valid, appropriate, and especially, authorised.

 

Many firms have weak or even non-existent record keeping and authorisation procedures for these transfers.

 

Unlike other forms of withdrawing client monies, Client to Client transfers have none of the default safeguards in place that online bank withdrawals and cheque payments have, where an authorised signatory has the ultimate decision on the release of the transaction. They are therefore high risk transactions.

 

Firms need to ask themselves the following questions, reassess their risks and consider improving their controls:

 

1          Why is a Client to Client transfer required?

Is it because an error has been made in identifying or posting a receipt to the wrong matter ledger? If so, was this human error or a procedural issue? Does the COFA need to be advised of the error? Is the transfer for an agreed loan from one client to another? If so, do both client files hold the written authority from both clients?

 

2          Who can raise a Client to Client transfer?

Can this be done by a fee earner, cashier, partner/director, or a secretary? Does your firm treat the transaction as administrative or as a withdrawal from Client account? Do you have secondary authorisations on the transfers or can one person initiate and post the transaction? Does the person raising the transfer have to justify the reason for it?

 

3          How are Client to Client transfers raised?

Is a withdrawal chit/slip raised, either manually or electronically, through the firm’s accounting system? Or is an email sent to the cashier instructing them to do the transfer? Can a cashier raise a transfer without prior approval or instruction?

 

4          How are Client to Client transfers approved and authorised?

Are transfers actually being authorised before processing? Is the authority delegated to a fee earner as case manager of a matter? Can only an authorised signatory sign transfer chits/withdrawal slips? Does the system prevent an improper transfer?

 

5          Are Client to Client transfers recorded and reviewed?

Is a register maintained to record the value and purpose of the transfer? If not, how can transfers be tracked and traced? Does the COFA review transfers at monthly or regular intervals and check the legitimacy of the transaction?

 

By reviewing these questions, it should become quite apparent where the risks may lie in your client to client transfers. We are always available to share our knowledge of how best to tighten controls in your systems.

 

For further information please contact a member of the professional practices team on 01772 821021.

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