Since last October Queensland Law Society’s Trust Account Investigations team has undertaken 258 investigations.
These have revealed various errors or concerns, ranging from minor infractions to more worrying practices.
There are 2515 active law practices (as of 30 September) with 2147 open trust bank accounts. Around 400 law practices do not operate law practice trust accounts.
Here’s the top 10 breaches of the Legal Profession Act 2007 (LPA) and/or Legal Profession Regulation 2017 (LPR) disclosed during the Part 3.3 investigations. The breaches are listed on frequency, not risk to client funds, and include the corrective action that needs to be taken in each instance:
1 (73 breaches)
Electronic bills of costs without consent
Bills of costs forwarded electronically to clients without the clients consenting to the receiving of bills electronically (section 330 of the LPA).
Corrective action:
The law practice is required to confirm in writing to the Society that it has amended its procedure to ensure that bills of costs are not issued to clients without the client’s consent for the issue of bills of costs electronically
2 (58 breaches)
Withdrawing trust money incorrectly
Failure of the law practice to withdraw trust money for legal costs in accordance with section 58 of the LPR.
Corrective action:
Trust account funds must not be withdrawn/transferred to the law practice general account in breach of section 58 of the LPR (which outlines the process to follow and conditions to be met).
3 (55 breaches)
Trust money not held exclusively for the correct person
Trust money was not held exclusively for the person on whose behalf it is received (breach of section 249 of the LPA and/or section 42 of the LPR).
Corrective action:
Trust ledger accounts should be established for each client transaction/matter.
4 (47 breaches)
Failure to pay caused by practitioner
Where a legal practitioner caused a failure to pay or deliver any trust money (breach of section 259 of the LPA).
Corrective action:
The law practice is required to confirm to the Society in writing that it has reviewed the dormant trust ledger account balances and disbursed funds accordingly. For any dormant balances remaining the law practice is requested to provide a reason as to why the monies are being held.
The law practice is advised that moneys held on behalf of a beneficiary who is not known or whose whereabouts are not known should be reported to the Public Trustee under section 713 of the LPA.
5 (33 breaches)
Unsigned bills of costs
Issued bills of costs to clients without signing the bill or enclosing a letter signed by the law practice (breach of section 330 of the LPA).
Corrective action:
The law practice is required to confirm in writing to the Society that it will have the bill of costs signed, or the letter signed that is attached to or enclosed with the bill, in accordance with section 330 of the LPA.
6 (30 breaches)
Failure to provide costs disclosures
Failure to provide the required costs disclosures for matters that it expected to charge professional costs in excess of $1500 (exclusive of GST) for work performed (Part 3.4 of the LPA).
Corrective action:
The law practice is required to confirm in writing to the Society that it has amended its procedures to ensure that:
• Costs disclosures are provided in all instances where it is expected that professional costs will exceed $1500.
• It will disclose to the client, in writing, any substantial change to anything included in a disclosure already made as soon as reasonably practicable after the law practice becomes aware of that change, for example, amended costs estimate.
7 (29 breaches)
Failure to include rights notification
Bills sent to clients were not accompanied by the notification of client’s right (section 331 of the LPA).
Corrective action:
The law practice is required to confirm in writing to the Society that it has amended its procedure to ensure that the notification of client’s rights is sent to clients when billed.
8 (27 breaches)
Improper credit balances
Debtor ledgers recorded credit balances and not investigated by the law practice (possible failure to hold trust money in a trust account in breach of section 249 of the LPA).
Corrective action:
Undertake a review of the various general/debtor ledger accounts that record a credit balance to determine whether the credit balance represents the incorrect holding of trust funds in the law practice’s general account.
If the credit balance does represent the incorrect holding of trust money in the general account, the law practice is required to confirm in writing to the Society that appropriate corrective action has been undertaken, for example, transfer general account funds to the law practice trust account immediately.
If the credit balance does not represent the incorrect holding of trust money in the general account, the law practice is required to confirm in writing to the Society that appropriate corrective action has been undertaken, for example, a bill of costs issued to client and recorded in general/debtor ledger account resulting in the ledger account recording a nil or debit balance.
9 (22 breaches)
Failure to record transactions within five days
Failure to record trust account transaction(s) in the cashbook within five working days (inclusive of the day of the transaction) of the transaction taking place in accordance with sections 40(4) and 41(4) of the LPR. (Receipt not issued due to lack of information is not a breach.)
Corrective action:
The law practice is required to confirm to the Society in writing that trust account transactions shall be recorded in the trust account cashbook within five working days, inclusive of the day of the transactions, in the future.
10 (19 breaches)
Failure to reconcile
Failure to reconcile trust account records in accordance with sections 44(1) and (2) of the LPR.
Corrective action:
The law practice is required to provide to the Society with copies of monthly trust account reconciliation statements prepared in accordance with section 44 of the LPR.
Dishonourable mentions
The following breaches didn’t quite make the top 10:
11 (18 breaches)
Reconciliations not completed on time
Trust account reconciliation(s) were not completed within 15 working days after the end of the month concerned as required by section 44(3) of the LPR.
Corrective action:
The law practice is required to confirm to the Society in writing that monthly trust account reconciliation statements shall be prepared within 15 working days of the commencement of a new calendar month in accordance with section 44 of the LPR.
=12 (11 breaches)
Overdrawn trust ledger accounts
Overdrawn trust ledger accounts (deficiencies) were not promptly restored to a credit or nil balance (section 259 of the LPA). A number of instances where a legal practitioner, without reasonable excuse, caused a deficiency in a trust account or trust ledger accounts without reasonable excuse, and/or caused a failure to pay or deliver any trust money (breach of section 259 of the LPA).
Corrective action:
Restore any trust account deficiency immediately upon discovery.
Provide notification to the Society in writing pursuant to section 260 of the LPA of an irregularity in relation to the trust account records of the law practice.
Confirm in writing to the Society that the trust account deficiency has been restored and provide evidence (for example, a copy of the trust ledger account and trust account bank statement showing funds deposited to restore the deficiency).
=12 (11 breaches)
Funds incorrectly deposited or transferred
Trust funds were incorrectly deposited or transferred to the law practice general account when no entitlement to do so (breach of section 249 of the Act).
Corrective action:
Transfer general account funds to the law practice trust account immediately.
14 (10 breaches)
Receipts not issued quickly enough
Trust moneys and/or controlled moneys were not receipted as soon as practicable after the trust money was received (breach of section 34(3) and 48(3) of the LPR)
Corrective action:
Trust account receipts and controlled money receipts will be issued as soon as practicable after receiving trust money and controlled money.
Got a trust account query? Email managertai@qls.com.au
One Response
“The 1840s just called… they want their electric telegraph machine back.”
When will QLS advocate for a reform of the LPA to bring it into the 21st Century and in line with modern business practices? In the ‘real’ world, electronic invoicing is the norm, if not the default.