Firms that hold client money must meet the Solicitors Accounts Rules every day, not only when the reporting accountant arrives. Treating the SRA audit as a once-a-year event creates stress, wastes time, and increases the likelihood of breaches that could have been avoided with simple, consistent routines. This guide sets out a practical, year-round approach that keeps your law firm audit-ready, protects client money, and provides partners and the COFA with clear evidence of control. We keep it straightforward, action-oriented, and aligned with how solicitors offer legal services.
Why year-round compliance matters
The Accounts Rules safeguard client funds and maintain public confidence in the legal profession. When reconciliations slip, residual client balances linger, interest policies are applied unevenly, or financial records are incomplete, the risk of breaches increases rapidly. Even where no client loses money, repeated violations can lead to mandatory reporting obligations and regulatory attention from the Solicitors Regulation Authority (SRA). Year-round compliance means cleaner ledgers, fewer surprises, faster annual SRA audits, and a stronger culture of accountability. It also supports better financial management and reporting, enabling partners to make informed decisions confidently. If you want the audit to confirm good practice rather than a remedial project, the work must happen throughout the accounting period.
Make compliance part of month-end
Start with a written month-end timetable that everyone follows. Agree on the order of work, for example: closing ledgers, downloading bank statements, preparing client account reconciliations, completing independent reviews, and drafting commentary. Aim to complete the month-end within ten working days. Keep a one-page checklist in a shared folder so the process remains resilient when staff are away. The COFA should receive a concise monthly pack every time. Turning compliance into part of the month-end makes it predictable and removes the annual scramble that often precedes an SRA audit.
Build discipline around client account reconciliations
Reconciliations are central to SRA compliance and managing client money. The rules require reconciliation at least every five weeks, but monthly reconciliations are a better baseline for many firms. Prepare a reconciliation pack that includes the bank statement, cash book, client ledger totals, and a list of reconciling items. Someone independent should review and sign off on the reconciliation, confirming that differences are resolved and not carried forward month after month. Age reconciling items so you can see when something is stuck. If matching is slow or error-prone, introduce light automation or rules in your case management system to reduce manual posting mistakes: document who prepared the reconciliation, who reviewed it, and the date. A clean reconciliation pack shortens audit time and reduces queries.
Run a residual client balances routine
Residual balances are a frequent finding in an accountant’s reports. Small sums that remain after matters close will accumulate unless you habitually clear them. Produce a monthly residual balances report that flags any ledger with an older balance, for example, more than three or six months. Try to return funds to the client and keep a record of attempts. If the client cannot be traced, follow the correct process for paying balances to charity and retain evidence of approval. Add the report and action notes to the COFA’s pack. A tidy residuals routine demonstrates that you take client money seriously and prevents unnecessary build-up that later requires a time-consuming clean-up.
Keep a clear client account interest policy and test it
Interest on client money must be handled in line with a written policy. The absence of a policy, or inconsistent application, creates avoidable breaches. Write the policy in plain English, including thresholds, calculation methods, typical scenarios such as property transactions or personal injury matters, and responsibilities. Add short reminders within your matter opening and billing processes so the policy is considered at the right time. Each quarter, test a small sample of files and record the outcome. If you identify errors, correct them, notify the COFA, and note the remedial steps. Consistency, rather than complexity, is what auditors look for.
Strengthen record keeping and evidence
Auditors must verify that client money is handled correctly, so financial documents must be complete. Every client and matter should have a transparent ledger reconciling to the control account and the bank. Use concise narrative descriptions that explain the purpose of each receipt and payment. Document all transfers between client and office accounts and between matters, including the basis for the transfer and the approval. Maintain a standard digital folder structure for reconciliations, residual balances, interest testing, breach logs, bank statements, and training records. Save files with consistent names so they are easy to find. Good records result in faster audits and fewer follow-up questions.
Map roles, permissions and controls
Many breaches arise from unclear responsibilities or system permissions that allow actions without review. Create a simple roles and responsibilities map for client money processes using a prepare, review, and approve approach—limit who can set up payments and authorise them. In your banking and case management systems, set sensible defaults for client and office accounts so the correct bank account is selected by default. Use user profiles to separate duties where possible. Small controls reduce the chance of accidental misuse and create proper evidence that decisions were correctly authorised.
Train fee earners and new starters
People cause most breaches unintentionally. Short, regular refreshers for fee earners and the finance team keep the rules front of mind. Training should cover client versus office money, when to transfer funds, apply the interest policy, close matters cleanly, and document exceptions. Induction for new starters should include the Accounts Rules and the firm’s policies. Keep attendance records and share a summary of training content with the COFA. Training does not need to be lengthy to be effective. Clarity and repetition work best.
Keep a breach register and an actions log
No firm is breach-free. The test is how quickly you spot issues, how you assess them, and whether you fix the cause. Maintain a breach register with the date, description, cause, materiality assessment, corrective action, and the closure date. Review the register monthly with the COFA. Use a separate actions log to track who will do what by when and to check progress in the next meeting. This shows active oversight and helps prevent repeat issues. When audit time comes, the register demonstrates that breaches were managed responsibly and not ignored.
Introduce a quarterly internal review
A light internal review each quarter keeps standards high. Select a small sample of files across fee earners and matter types and test for correct postings, clear narratives, documented transfers, and appropriate application of interest. Confirm that monthly reconciliations were completed and reviewed on time and that differences were cleared. Review training records and policy updates. Record findings, assign actions, and close them before the next quarter. If you want an independent view ahead of year-end, our Internal Control Review mirrors key SRA Accounts Rules tests and provides a practical improvement plan.
Use technology to support compliance
Simple technology steps make compliance faster. Create saved reports for residual balances, aged reconciling items, and breach logs so the COFA receives consistent information. Automate bank feeds where appropriate to reduce manual entry. Use user roles to restrict who can edit sensitive fields and who can authorise payments. If a process fails frequently because data lives in different systems, agree on a single source and map how information flows. Technology does not remove responsibility, but it removes friction that often causes errors.
Prepare early for the SRA audit and accountant’s report
Hold a short readiness meeting with the COFA, finance lead, and a partner two to four weeks before the accounting period ends. Confirm that mandates and signatories are current, that client and office accounts are correctly labelled, and that postings between the case management system and the ledgers reconcile. Ensure reconciliations are complete to the reporting date and that differences are explained with evidence. If you have had reportable breaches, prepare a short paper with the nature, cause, impact, and remedial action. Decide who will coordinate requests from the reporting accountant and how you will provide evidence securely. Organised preparation turns the audit process into a confirmation of control rather than an investigation.
Metrics and KPIs that keep you on track
Choose a small set of practical measures showing whether the routine works. Useful examples include percentage of client reconciliations completed on time, average age of reconciling items, number and value of residual client balances older than a threshold, percentage of the interest file sample that passed testing, number of breaches recorded and closed within target, and the percentage of month ends completed within the timetable. Track results monthly, share them in the COFA pack, and discuss trends. Metrics support decisions and highlight where to focus improvement efforts.
Red flags to fix before they grow
A few recurring patterns deserve attention. Mixed receipts where client money and costs are posted to one account without a clear split will trigger questions. Transfers between matters or from client to office without a documented basis and approval undermine confidence. Interest policies that exist on paper but are not applied in practice create inconsistent outcomes. Reconciliations completed but not independently reviewed, or aged differences that roll forward, are signs of process weakness. Old residual balances that never move clearly indicate that the routine is not working. Addressing these red flags early saves time and reduces risk.
How year-round compliance supports wider assurance
The habits that keep you SRA compliant also improve the quality of management information and external financial reporting. Clean ledgers, reconciled balances, documented approvals, and tidy evidence support faster month-end, better decision-making, and smoother year-end. When you need lender support or a broader audit, you already have the discipline in place. Suppose you want to extend these benefits beyond client money. In that case, our wider Audit and Assurance service can help you standardise processes across the practice without losing sight of solicitor-specific rules.
How Cottons helps firms stay audit-ready
We support law firms across the UK with efficient SRA audits, practical professional advice for COFAs and partners, and independent Internal Control Reviews that mirror the Accounts Rules. Our dedicated Solicitors Regulation Authority SRA team understands how the rules play out in real file handling and finance processes. We focus on clear evidence, proportional controls, and routines that fit busy legal teams. If you want reassurance that your firm is audit-ready all year round, or you would like help setting up the monthly and quarterly cadence described here, contact us, and we will be happy to help.