Starting:

Modify the matter listing to ensure that you only see the files that are residual.

• Exclude zero balances & archived files.
• Sort by last movement date.
• Remove all files where there has been movement in the last 6 months.

This ensures that you are only seeing balances which are likely to be residual.

Make a residual action record:

You will need a record which shows what action is being taken for each residual balance so that there is a central record.

Create a central sheet with the following headers:

• File number, file name, matter
• Action 1, Date of Action – Action 2, Date of Action – Action 3, Date of Action
• Outcome, Date of Outcome.

The above allows you to note the files that are residual and what actions have been taken when to return the funds back to the client. Generally, three attempts are seen as reasonable with a final outcome at the end.

Export each ledger:

I always recommend doing a ledger export to either Excel or PDF, but even if you need to print them on paper it is worth doing. The reason is to take you away from the accounts package so that your head is solely focussed on the ledgers and you can make notes all over them.

Reconcile each account:

Reconciling the account from the ledger is an obvious place to start, however it is always best to get as much information as possible first.

• Use the file itself and look at the source information within it.
• Get a copy of the completion statement/estate account/statement of account.

Check to see:

• If there is a related file where the money belongs.
• If there is a bill of costs or disbursement that has not been entered.
• If there are any missing payments that should have been made from the client account.

There could be transactions that simply require posting which will clear the residual balance. If these can be evidenced, post them, and move the monies accordingly. Monies that can legitimately be moved into office account can be transferred. However, do not generate bills to cover the client balance. This is known as “sweeping up” and breaches the SRA Accounts Rules.

Action your findings

Once the reconciliations have been made, action can be taken to remedy the residual balances. I recommend actioning them in a specific order to make fast progress.

• Transfer to office account any balances which belong there based on bills and disbursements owing.
• Concentrate on the balances under £500 next and make attempts to return those monies back to the client. Use bank details if you have them and avoid using cheques. Make attempts to contact the client first to ensure that the monies are being sent to the correct place. Usually a couple of emails, calls and letters will suffice.
• Then perform a run of contacting clients with a balance over £500 in the same way. However, for these balances, the SRA will expect you to have made use of social media, Companies House, Probate Registry, DWP letter forwarding service & free internet searches in an effort to return the funds.
• Add all attempts made, to the residual action record.
• Return the funds to the clients who responded via bank transfer.
• Schedule all balances under £500 and send to a charity ensuring they provide an indemnity agreeing to return the funds if the client demands them.
• Schedule all balances over £500 and prepare a letter to the SRA evidencing all attempts made to return the funds and complete their form found here: https://www.sra.org.uk/solicitors/resources/withdrawal-of-residual-client-balances/
• Update the residual action record with the outcomes of each file.

Maintain the Matter Listing

At the end of a residual client balances project, it is important to put systems in place to ensure that they do not re-emerge. It is also important to keep the Residual Client Action Record, in case despite best efforts one or two do. Perform regular checks of the listing, keeping an eye on the last movement dates and speak to the fee-earners regularly about aging files. The SRA rule 2.5 states that client money should be returned promptly to the client, or the third party for whom the money is held, as soon as there is no longer any proper reason to hold those funds.

Maintaining an up-to-date matter listing with balances only for live files means that the firm is more compliant and handling client monies is more manageable.

Alex Simons MAAT ILFM
New Business Manager
The Law Factory LLP