Every solicitor knows that client money is a matter of trust. The Solicitors Regulation Authority (SRA) Accounts Rules exist to safeguard those funds, and the annual SRA audit is designed to confirm that the systems protecting client money are effective and compliant. But beyond regulatory compliance, how you handle client money directly impacts your firm’s reputation. Failures make headlines, while robust systems build confidence with clients, regulators, lenders, and other stakeholders. This article explains how SRA audits protect client money, why reputation is at stake, and how to use the audit process to reinforce both.
The link between client money and reputation
Clients trust solicitors with deposits for property purchases, settlement funds in litigation, and various sums held in escrow. Misuse or mismanagement of those funds, even through error, damages that trust quickly. The SRA treats client money breaches as serious because public confidence in the profession is at risk. For firms, the consequences go beyond regulatory action. A single client complaint about funds being mishandled can spread through online reviews, affect referrals, and undermine relationships with lenders or panel managers. Therefore, the annual audit ensures compliance and demonstrates to all stakeholders that your systems are safe and well-managed.
What the SRA audit tests
The reporting accountant’s report required by the SRA examines whether your firm has complied with the SRA Accounts Rules. In practice, this means testing:
- Client account reconciliations: completed at least every five weeks, reviewed independently, and differences resolved promptly.
- Residual balances: whether old client money has been returned or dealt with properly in accordance with best practice.
- Transfers: whether client-to-office and inter-matter transfers are documented, justified, approved, and comply with regulatory requirements.
- Interest policy: whether interest on client money is calculated and credited consistently and fairly.
- Breach logging: whether breaches are recorded, assessed, and, where material, reported to the SRA and the Solicitors Disciplinary Tribunal if necessary.
- Evidence of oversight: whether the Compliance Officer for Finance and Administration (COFA) and partners actively monitor compliance and financial management.
Each of these tests is critical to protecting client funds. Weak reconciliations or missing financial documents are not just administrative errors but red flags that client money could be at higher risk.
How audits prevent loss
An SRA audit independently reviews your firm’s systems and financial transactions. Many breaches come from minor errors repeated over time: reconciliations signed late, residual balances ignored, or transfers documented poorly. Left unchecked, these patterns create the conditions for client money to be misplaced or misused. By identifying them early, the audit prevents losses and protects both clients and the firm. Consider the audit an annual “stress test” of your firm’s financial management systems.
The reputational stakes
Reputation is a vital asset for law firms, and client money handling is a critical part of it. Firms receiving a qualified reporting accountant’s report may be subject to greater scrutiny by the SRA. In severe cases, disciplinary outcomes are published online for years and are accessible to clients, competitors, and the press. Even where breaches are immaterial, repeated findings suggest weak governance and poor financial performance. On the positive side, a clean audit report supports your credibility with clients, lenders, insurers, and the Law Society. Strong controls demonstrate professionalism and build trust.
Building confidence with lenders and insurers
Lenders and insurers want reassurance that solicitors handle money securely. Panels often require evidence of compliance with the Accounts Rules, and professional indemnity insurance underwriters consider controls around client money when setting premiums. Firms that can point to clean audit reports, clear breach registers, and strong COFA oversight present themselves as lower risk. Therefore, the annual SRA audit feeds directly into financial and reputational outcomes for many firms, including large law and national firms.
Using audits to improve efficiency
One of the hidden benefits of the SRA audit is the opportunity to refine processes. Audit findings often highlight inefficiencies such as duplicative reconciliations, poorly structured digital records, or unclear roles and responsibilities. Addressing these not only improves compliance but also saves time and costs. For example, introducing a monthly residual balance report reduces the year-end scramble, and creating a standard digital folder structure speeds up audits and internal reviews. Firms that act on audit findings often find that their finance processes become smoother and quicker, improving overall financial performance.
The COFA’s role in safeguarding reputation
The Compliance Officer for Finance and Administration (COFA) oversees compliance with the Accounts Rules. A COFA who takes audit findings seriously, maintains a clear breach register, and briefs partners regularly provides visible evidence of governance. This strengthens the firm’s reputation with clients, staff, regulators, and other firms. Conversely, if the COFA is sidelined or under-resourced, audit findings may reveal gaps that undermine confidence. Therefore, supporting the COFA with proper information, authority, and resources is a reputational and compliance issue.
Practical steps to prepare for your audit
Preparation should be year-round rather than reactive to protect the client’s money and reputation. Useful steps include:
- Monthly reconciliations: treat five weeks as a minimum and reconcile every month promptly.
- Residual balances review: produce a monthly report, attempt to return funds, and document all tracing steps.
- Interest testing: check a small sample quarterly to ensure policy is applied consistently.
- Breach and actions logs: keep them updated and reviewed monthly by the COFA.
- COFA pack: provide the COFA with concise monthly evidence of reconciliations, breaches, residual balances, and interest tests.
- Quarterly internal reviews: test a small file sample to catch errors before the year-end.
- Partner briefings: provide clear, regular updates so compliance is seen as a shared responsibility among partners and members.
By embedding these steps, your audit becomes a confirmation of good practice rather than a source of stress or risk.
Common pitfalls that damage reputation
Audit findings that recur across many firms include:
- Reconciliations are prepared late or are not reviewed independently.
- Residual balances left for years with no tracing attempts.
- Transfers between client and office accounts without narrative, approval, or proper documentation.
- Interest policies are applied inconsistently or ignored in practice.
- Breach registers are not maintained, making oversight impossible.
Each of these findings raises doubts about whether client money is truly protected. Fixing them quickly safeguards both compliance and reputation.
Linking compliance to client trust
Ultimately, compliance with the Accounts Rules is about client trust. When you can show a client that funds are held securely, reconciled promptly, and returned swiftly when due, you strengthen their confidence in your legal services. A client who feels their money is safe is more likely to recommend your firm, return for further work, and pay invoices promptly. Compliance and reputation are therefore two sides of the same coin.
How Cottons supports law firms
At Cottons, we work with solicitors across the UK to prepare for and complete SRA audits. Our dedicated solicitors sector team helps firms tidy residual balances, strengthen reconciliations, and maintain breach registers that demonstrate oversight. We also provide independent Internal Control Reviews that mirror the Accounts Rules and highlight improvements before the year-end. Our Audit and Assurance services bring consistency across all financial management processes for firms that want to link compliance with wider financial governance.
SRA audits safeguard client money and your firm’s reputation. A clean, well-prepared audit demonstrates professionalism to clients, regulators, lenders, insurers, and the Law Society. You build efficient systems that protect money and trust by treating audit findings as improvement opportunities. In a profession built on confidence, that is one of the most valuable advantages your firm can have.