In 2012 the SRA introduced Compliance Officers into law firms, the first being the Compliance Officer for Legal Practice (COLP) which focuses on regulatory requirements for the work undertaken by the staff and firm. The second is the Compliance Officer for Finance and Administration (COFA) who ensures that the regulations surrounding monetary & financial aspects are adhered to. It is the COFA that I will be focusing on in this article.
When the roles were introduced, the SRA required each regulated legal practice to have a COLP and COFA. In some instances, it could be the same person taking both roles. This was usually the case for very small firms.
There have however been instances where compliance officers have been appointed because it is a regulatory requirement, rather than because they have a detailed understanding of some of the areas they are responsible for.
The COFA is primarily responsible for monitoring breaches of SRA Accounts Rules and reporting to the SRA any major departures from them.
Here are some areas that the COFA should be involved with:
- Working closely with the accounts department to ensure that the systems and processes are suitable and provide solutions with a minimal risk to client money.
- Liaising with the accounts department on an ongoing basis regarding any potential issues surrounding client funds and the financial administration of the firm.
- Understanding the reports provided by the accounts department and checking them thoroughly to ensure they are compliant in every aspect.
- Checking that the bank statement figure matches the reconciliation, the trial balance and the matter balance listing and signing off every month as part of due diligence. The COFA must sign the client bank reconciliations at least every five weeks.
- Determining with the accounts department whether there have been any breaches within the accounting period and assessing whether they are material breaches. A material breach can be one breach amounting to a significant sum or it can be a result of a procedural failing causing many minor breaches of the same nature.
- If a material breach has been discovered due to ongoing procedural issues resulting in multiple minor breaches, then the COFA must work with the accounts department to alter the procedure preventing future breaches from occurring.
- If a reportable breach has occurred, the COFA must also report what has been done to remedy it and whether any system changes have been made to prevent future occurrences.
- Reporting all breaches on a central register and signing the client reconciliation reports each month. The COFA will also need to send the report to the SRA should they find major departures from the rules during the accounting period.
- Having a knowledge of the profitability of the firm and working with the accounts department and management to ensure the ongoing viability of the practice and that it is a going concern. The SRA should be notified if a firm is experiencing significant financial difficulties. This is with an interest to the safety of client monies that the firm holds.
- The COFA must also work closely with the COLP as often compliance breakdowns occur from legal practice which has a knock-on effect resulting in a further issue surrounding the financial aspect of a file. It is also important to ensure that the procedures implemented by the accounts department also work for those within the legal practice management.
As can be seen from the above, the COFA role is something not to be taken lightly. It is a very important role within the firm and anyone who is going to become the COFA needs to understand fully what is going to be expected of them. They must take steps to read and understand the code-of-conduct and the SRA Accounts Rules fully. They must ensure they are properly trained in the areas of finance and administration before starting.
Here are some things to consider when selecting a COFA:
- Does the candidate have the time to undertake the role?
- Does the candidate have a good knowledge of SRA Accounts Rules, or would they be willing to learn?
- Is the candidate confident enough to speak directly with partners/directors about breaches or changes required in order to avoid them?
- Has the candidate ever had any disciplinary actions taken against them in the past?
- Is the candidate responsible and willing to work with the firm, monitoring and maintaining systems to ensure ongoing compliance?
The crucial part of being a COFA is not to nominate someone simply to satisfy the SRA’s requirements. The COFA’s role is one of ongoing maintenance and review of the firm’s monetary aspects across not only client account but the office profitability too. It is the COFA that the SRA will come to first should there be any significant departures from the SRA Accounts Rules.
We always recommend that whomever the COFA is within the firm, that they work closely with the accounts department and are kept abreast of any financial issues to help with monitoring & record keeping. This demonstrates that the company has a firm grip on its financial administration from the implementation of strict protocols.
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