How do you get the most out of a trust audit? Some see the annual audit as a painful, necessary evil. Bookkeepers shut down and descend into panic. It need not be like that at all. The GhostPractice team is helping customers to plan and prepare properly for their trust audits. The GhostPractice system has more than enough vital reports that will make the trust audit both painless and informative!
Preparing for your Trust Audit
Most accounting departments seem to stress out and almost shut down when the auditors are in town. This tends to spread panic and chaos around the firm.
If you know what the auditors are looking for and why they need it, it will go a long way to ensure that the audit process is as painless and as quick as possible. Providing the auditors with what they require also means that the department can continue functioning while the audit is being conducted!
Above all, preparation is key to getting the most out of this very necessary process. With the right systems and processes in place all year round, this annual event will be no big deal!
What is an Audit?
It is the process whereby external professionals (Auditors) investigate your firm and express an opinion on whether they think that, for a set period of time (one year), you have complied with the Rules of the Law Society and the Attorneys Fidelity Fund. The Audit report is intended solely for the use of the proprietor/partners/directors of your firm, the relevant Law Society and the Attorneys Fidelity Fund.
During a Trust Audit, this investigation relates to Section 78(1), 78(2), 78(2A), 78(3) and 78(4) of the Attorneys Act, No. 53 of 1979 and the applicable rules of the Provincial Law Societies. In other words, the way in which you operate your various Trust Accounts:
- General Trust Bank Accounts - Section 78(1)
- Investments on Behalf of Clients - Section 78(2A)
- Investments on behalf of the Law Society - Section 78(2a)
- In addition they will evaluate the Trust Balances on your Client Ledger (Trust Creditors).
In essence the audit is to determine whether your Trust accounts were maintained in compliance of the Rules and that the implementation of accounting and internal controls which have been applied is sound.
The Trust Audit does not extend to the financial statements of the business, nor is it a reflection of the firm as a whole - i.e. the auditors will only be investigating your Trust Accounts.
What are the Auditors looking for?
- The Values on your Trust Accounts at your last Audit.
- The values on your Trust Accounts at the end of the period that they are Auditing.
- The movement on all your trust accounts since the last Audit (2-1=3).
- All Trust monies received has been banked timeously in the correct banking accounts.
- Have you processed the Interest on All the Trust Bank Accounts?
- Have you processed all the Bank Charges (ex Vat) on all your Accounts?
- Have you reconciled the Bank Accounts Regularly?
- Have you paid any money to the Law Society?
- Money is only transferred from Trust bank Account to Business in respect of Fees and disbursements due….and only when permitted.
- Do you keep a Surplus or Deficit?
- Have you kept any Trust Debits and if so why?
- Have you had to do reverse Transfers and if you have, why?
- Have there been any changes in the composition of the firm which occurred since the last Audit?
What should the Auditors be looking at?
- The Trust Trial Balance by Branch (12 Month Comparison).
- Financial Status (for Selected Periods).
- The Business Debtors Age Analysis (Stored report from last Audit v Stored report from end of Audit Period) - Trust and Investment Trust Balances.
- Trust Commitments report.
- Trust Creditors Movement Analysis (12 periods).
- Trust Investments Schedule.
- Trust Transfer reports.
What can you do to ensure you have a pain free Trust Audit?
- Understand the rules of the relevant Law Society and the Fidelity Fund.
- Follow your Bookkeepers Checklist in your bookkeeping system (GhostPractice delivers this as standard in all implementations).
- Understand the reports listed above and how they are interlinked.
- Process the Interest Earned on All Trust Accounts regularly (Normal and Investments).
- Process the Normal Trust Bank Charges using the Bank Charges batches. This easily processes the Vat to your business ledger, leaving the ex Vat portion on your Trust ledger.
- Reconcile your Bank Accounts regularly.
- Process payments via the Payments module only.
- If you ignore 7 above. Only process payments if you have sufficient Trust Available on a Matter.
- If you ignore 7 and 8 - Go to your Trust Transfer module and rectify the "red" entries as often as possible. (i.e. Do not leave any accounts with a Trust Debit).
- Use the Trust Transfer module to tell you what amount to Transfer and Transfer the full amount (as opposed to transferring a figure and then trying to reconcile with your accounts at a later stage).
In order to follow these simple steps to assuring a smooth annual trust audit you need only two things:
- A Practice Management System which is up to date and produces meaningful management reports without you having to do a number of reconciliations and manual calculations outside of the system itself!
- The discipline to follow the simple guidelines. This part is easy, providing you have the right systems in place.
If you would like to increase your peace of mind as well as your fees, perhaps you should call us for an obligation free demonstration of GhostPractice. If you are interested please feel free to contact the writer at [email protected] or on 082-568-4738.
Yours in law