“Whom shall I engage to manage the bookkeeping?” is an important practice management decision every lawyer needs to make when setting up a law firm. In this article, we examine the role of the bookkeeper in a legal practice; and provide you with practical guidelines on what to consider when engaging a bookkeeper.
The Legal Profession (Solicitors’ Accounts) Amendment Rules 2004 (“the SAR”) which takes effect on 1 April 2004 will have an impact on your choice of a bookkeeper as the SAR now prescribes that authorisation for payments from the client account above $5000 must be signed by 2 lawyers unless the books relating to its client accounts are kept by an accounting firm or accounting corporation or by a bookkeeper approved by the Law Society.
The Book-keeping Arrangement
Whether you employ a full time bookkeeper or outsource your bookkeeping to a third party depends on the number of financial transactions in your client and office accounts each month, the timelines in which the information is required and the complexity of your financial management. This is determined by the size of your practice as well as the nature of legal services that the firm engages in. For example, a law firm with 3 lawyers specialising in high volume work such as debt recovery or conveyancing would be better served by a full time in-house bookkeeper; whereas a firm specializing in high-value but low-volume corporate work may find an outsourced bookkeeping arrangement adequate to keep them on top of their financials each month.
Of course we would recommend that all new practices implement an industry-standard practice management system that establishes the client and matter database as a robust foundation on which to grow their practice. However the reality is that most solos outsource their bookkeeping due to time and cost constraints; and because they prefer to concentrate on the business of practising law and building the business than on administrative backroom details.
As most lawyers have only a vague notion of what a bookkeeper does, they may have engaged their bookkeeper solely on the basis of fees and expediency without giving due consideration of factors such as professionalism, experience and quality of the service. In fact, to our knowledge, some lawyers have outsourced their bookkeeping to a relative or friend; or someone whom they had heard of through word of mouth.
Whether your bookkeeper is outsourced or a full-time employee, hiring a bookkeeper is something that lawyers should undertake with careful deliberation. As some of our clients have discovered, changing their bookkeeper can be a painful, time consuming and costly exercise; especially if the bookkeeper is discharged for not keeping the books in order.
Selecting your bookkeeper is akin to how your client selects a lawyer to represent them. While cost and referrals are important, the bookkeeper’s qualifications, experience in similar law practices, and communication / client care skills are equally important considerations. Finally, to ensure an acceptable level of efficiency, accuracy and the ability to deliver financial reports that are meaningful to the owner of a law firm, we believe that the bookkeeper should be using accounting software that is customised to meet the specific accounting requirements of legal practice.
The Role of the Bookkeeper
Some lawyers denigrate the bookkeeper’s role to that of a data input clerk (albeit with an understanding of double-entry ledgers). This is far cry from the picture of a responsible and trusted individual responsible for keeping the Lawyer on top of his financials. Apart from entering financial data into your ledgers, bookkeepers also conduct month-end reviews and bank account reconciliations. When the books don’t balance or the bank account statements cannot be reconciled – this is when your bookkeeper proves her worth to your practice. She must check the data input against the source documents, undertake a thorough analysis of the financial data in order to discover the discrepancy, then make the correct ledger entries to order to “balance” the books. This is the only way you can have an accurate picture of your financial position. Without her analysis and reports, you can have only the haziest notion of where your firm is in terms of its cash flow and debt position.
Bookkeeper’s responsibilities under the SAR
Bookkeepers of law firms have the additional un-enviable responsibility of implementing bookkeeping policies to ensure the firm’s compliance with the Legal Profession (Solicitor’s Accounts) Rules (“the SAR”) at all times. These additional responsibilities relate to writing-up the relevant books of accounts described in Rules 11(1), 11(2) and 11(4) of the SAR and undertaking monthly client account bank reconciliations.
Under the SAR, your bookkeeper has a direct and active responsibility to alert the Law Society of possible breaches of the SAR. In fact the “Approved Bookkeeper” is required to swear a Statutory Declaration prescribed by the Law Society containing an undertaking by her to inform the Council of difficulties encountered in writing up the relevant books of accounts or in reconciling the client cash book with the client account bank statements. This is an onerous duty which will undoubtedly place the bookkeeper in a difficult position vis a vis her employer / client should she encounter such problems in a law firm.
Currently, the SAR stipulates that only the Client Account ledgers are required to be kept by the Approved Bookkeeper. However, it is good practice to also have the office account ledger and the general ledger be kept by the same Approved Bookkeeper. She should generate the requisite financial statements and undertake the office bank reconciliation on a monthly basis. Financial reports such as Clients Ledger Report, General Ledger Report, Profit & Loss and Balance Sheet, Bank Reconciliation Reports, Aged Debtors Report are the very minimum you need to understand your financial position, and in risk management – to alert you to difficulties in maintaining a healthy cash flow and compliance with the SAR.
What you should look for in a selecting a bookkeeper
A bookkeeper who has experience of law office accounting and who uses specialised legal accounting software will be in a better position to provide you with adequate bookkeeping support and comprehensive financial information to help you to stay on top of your financials and to reduce your practice risks.
A competent bookkeeper will even anticipate the year-end audit by providing auditors with the requisite financial information in a manner that expedites the audit process – this may translate to a trouble-free audit and lower audit fees. Saving you headache and anxiety, she will be worth her cost many times over.
Generally, we find that that many lawyers, especially lawyers starting their own practice with little knowledge of financial management, do not know what to expect from their bookkeepers in terms of service delivery standards.
To help you, we set out here a list of qualifications (including the requirements of the SAR) and service delivery standards that you should consider when engaging a bookkeeper for your law practice -
1. Registered Business Entity
It is not uncommon for bookkeeping to be undertaken by freelance bookkeepers who are unregistered business entities.
For your outsourced bookkeeper to be an “Approved Bookkeeper” in compliance with the SAR, the bookkeeper must be a registered entity under the Registry of Companies and Businesses.
2. Qualifications and Experience
The SAR stipulates that an “Approved Bookkeeper” must possess at least one of the following qualifications:
(i) London Chamber of Commerce and Industry (LCCI);
(ii) Association of Accounting Technicians (AAT);
(iii) Certified Accounting Technician (CAT);
(iv) Diploma in accounts from a Polytechnic;
(v) Passed ACCA level 2
(vi) Degree in Accountancy
If the bookkeeper has the qualifications set out in (i), (ii) or (iii), he/she must also have at least 1 year’s experience of bookkeeping for a law practice.
A bookkeeper who does not possess any of these qualifications can still qualify as an Approved Bookkeeper provided that he/she has written up the relevant books of accounts of a law practice for 5 years as at 31 December 2003.
We welcome the Law Society’s approach of coupling paper qualifications with relevant law office bookkeeping experience. In our experience, the lack of formal bookkeeping qualifications is often more than adequately compensated for by relevant experience and domain knowledge.
3. Domain Knowledge
It is extremely important that the bookkeeper possesses a good working knowledge of law firm processes and procedures. A bookkeeper from the retail or manufacturing industry is likely to need initial handholding and supervision as he/she would not be acquainted with SAR requirements or the unique business processes in a law firm (eg, anticipated disbursements, many matters to one client, and online services such as EFS or BizFile).
4. Attributes
Good bookkeepers are meticulous and dogged as well as possessing good analytical skills. They are often required to identify, track and rectify discrepancies in the course of their bookkeeping duties. They should also possess good communication and people skills as they often need to work with members of your staff to obtain and convey information on myriad financial transactions undertaken by the firm from invoicing to time-recording and disbursements.
5. Software
A good bookkeeper should use the right software to keep and process your financial data – ie, Windows or Web based instead of DOS; industry standard legal accounting software instead of excel spreadsheets and generic accounting software, an open database (eg, Access or SQL) for ease of access to the data instead of a proprietary database.
Bookkeepers who use legal accounting software will have the edge in terms of the range and timeliness of financial reporting. In the event you discharge the bookkeeper, it is also possible to require that she delivers all your financial data in a digital format that you can easily install in your own accounting system.
Ask your prospective bookkeeper what software she uses to process the data and to generate the financial reports she is required to deliver every month. You should always ask her for a sample of the standard financial reports (eg, profit & loss statement or client account transaction report). The sample report should contain the information you require in a clear and user-friendly format. We would also advise you to present the sample reports to your auditor to for their confirmation that the reports generated by the bookkeeper contain adequate information for the purposes of the year-end audit.
Should your Auditor also be your Bookkeeper?
It is not uncommon for firms to outsource their bookkeeping to their external auditor or a company associated with the external auditor to facilitate their year-end audit. However, the possibility of a conflict of interest arising makes this a less than desirable arrangement as far as public interest is concerned. In the USA, the Sarbanes Oxley Act of 2002 lists book-keeping services as a service that an audit firm should not be rendering to its client if it has been appointed as auditors.
Defining Expectations
A bookkeeper keeps your books, ie she is responsible for ensuring that all your financial transactions are properly and accurately recorded in the requisite ledgers, sub-ledgers, journals, etc. In engaging your bookkeeper, it is important to define your expectations from the outset.
Examples of some of the items to address may include -
Type and Delivery of Financial Report;
- Frequency of Bank Account Reconciliations;
- Source Documents to be returned by a specified number of days from delivery;
- Data Backup (we have seen far too many cases of bookkeepers losing critical financial data as a result of computer failure);
- Return / Delivery of Data (digital formats and hard copies) at Termination;
- Confidentiality
For all of the reasons we have described above; but most of all, for your own peace of mind, choose your bookkeeper with the same care and consideration your clients have invested in choosing you as their lawyer. We hope that we have made a case for all responsible and competent bookkeepers out there slogging painfully at your books, making sure that every number entered accurately represents your financial position.
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How We Can Help
How We Can Help
The Bizibody bookkeeping team has over 25 years of bookkeeping and business experience. We undertake accounts set-up and bookkeeping for law firm clients in Singapore to ensure compliance with the strict regulatory safeguards for lawyers handling client funds under the Solicitors Accounts Rules.
In order to accommodate the needs and budgets of our clients, we offer a range of different bookkeeping options. These include insourced onsite bookkeeping arrangements where Bizibody bookkeepers will write up your books at your office, obviating the need to send your source documents to our office.
