Getting audited is inevitable and when the time comes you want to be prepared with all of the documents and reports the Law Society will want to see. While you may know about some of them, you’ll need every single one to pass a spot audit. To make it happen, running the necessary reports on a regular schedule and retaining them in an easily accessible manner is critical.
Spot Audit Process
If selected for a spot audit, an audit will be scheduled within two to three weeks. Once the audit starts, the Law Society will expect documents to be handed over for review within a specified time frame. If there is a delay or failure to turn over the documents, there may be a fine issued or an application made for an order requiring you to pay for all or part of the audit.
While some law firms don’t run these reports on a regular basis, the idea of catching up on these reports in the event of a spot audit can be difficult to put into action in a real life scenario. Generating multiple months and years of reports would be time-consuming even if the books were completely accurate. The greater likelihood is there will be errors (which is entirely normal) that if corrected on a monthly or ongoing basis would have been relatively easy to fix, but, if left unattended, will be a complicated, nearly impossible task to rectify.
Each Law Society has specific documents they require to be produced. For example, the Law Society of Ontario lays out their expectations in By-Law 9 Section 18. However, there are common documents that every Law Society will require in order to pass the audit.
One of the primary purposes of a spot audit is to protect the interests of the general public and trust accounts are directly tied to clients’ funds. To make sure they’re being managed ethically and in accordance with the rules, the majority of the reports Law Society will want to see specifically relate to trust accounts. In total, there are eight key reports you should be producing on a scheduled basis to maintain compliance.
To get a big picture overview of your financials, there are an additional five general accounting reports that will be requested. These reports provide multiple views of your books, ensuring there is no way to hide any fraudulent activity. It’s important to have documentation to support each piece of these reports and your ledgers, creating a clear trail that auditors can follow to see where the money is coming in and going out.
The final document the Law Society will want to review is the annual report. This report ties together each of the financial pieces to make sure they line up and there are no discrepancies. While you’re most likely already producing this, you don’t want yours to be a red flag to an auditor.
There are a significant number of documents, but that doesn’t mean the time put into maintaining them needs to be overwhelming. Legal-specific tools like CosmoLex are designed to take into account the unique needs of law firms, including Law Society requirements. Reports can be run regularly and stored in a secure manner, making sure they’re ready to be printed and presented in the event of a spot audit.
The documents requested during a spot audit aren’t optional and not presenting them can result in fines and sanctions. To prevent being in that situation, your firm should be regularly producing the required documents on a consistent schedule. Using technology to help you produce these can take the burden off their production and make it more likely you’ll have everything you need just a click away in the event of a spot audit.
To learn more, join our upcoming webinar: 13 Critical Law Society Documents.