The Solicitors Regulation Authority expects every firm that handles client money to comply with the Solicitors Accounts Rules. Most breaches are preventable, yet they recur because processes slip, roles are unclear, or controls are not embedded. In this guide, we set out the five issues we encounter most often during an SRA audit, why they matter, and what practical steps you can take to avoid them. We aim to help your COFA and partners keep client money protected and your accountant’s report straightforward.
1. Mixing office and client money
What goes wrong: Office payments are made from the client account, client funds are held in the office account, or temporary transfers blur the line between the two. This can happen when staff try to speed up payments, when fee earners misunderstand the rules, or when system defaults route transactions to the wrong bank account. Even a small, short-lived misuse counts as a breach because it risks money belonging to clients.
How to prevent it: Make the separation of accounts non-negotiable. Lock down bank details in your client accounting systems, restrict payment permissions, and require prior written authorisation from a second person for any transfer between client and office accounts. Train fee earners on what constitutes client money versus office money, emphasising the importance of keeping these funds separate in accordance with the SRA Accounts Rules. Build simple prompts into the matter opening process so the correct account is used from the start. Document any permitted transfers and the basis for them, and ensure a senior reviewer signs these off.
2. Delayed or incomplete client account reconciliations
What goes wrong: Client account reconciliations slip past the five-week requirement, reconciliations are produced but not reviewed, or unresolved differences sit on the list for months. Without timely bank reconciliations, firms cannot be sure that client ledger balances match the client bank or that transfers have been allocated promptly and recorded correctly.
How to prevent it: Set a fixed timetable and stick to it. Automate as much of the matching process as possible within your client accounting systems, then focus manual effort on exceptions. Reconciliations should be prepared, reviewed, and signed off, with both steps evidenced. Differences must be investigated and cleared, not parked. Provide the COFA with a monthly reconciliation pack that includes bank statements, reconciliations, outstanding items, and a short note of actions taken. If you need a fresh set of eyes on the process, an Internal Control Review can help strengthen controls and ensure compliance.
3. Residual client balances left on ledgers
What goes wrong: Small amounts remain on client ledgers after a matter is complete, often because interest accrued, disbursements were estimated, or clients cannot be contacted. Over time, these residual client balances accumulate, and the firm appears to be holding client money unnecessarily, which the SRA views as a significant risk.
How to prevent it: Run a residual balances report each month. Set clear thresholds and timelines for action. Try to return funds to clients or the paying party promptly and keep records of attempts. Where balances are genuinely unreturnable, follow the required process to pay the money to charity with appropriate authorisation and keep evidence of approval. Make the residual balance report part of your COFA dashboard so it receives regular attention. An organised clean-up ahead of your next SRA audit will save time and reduce follow-up queries.
4. Incorrect handling of client account interest
What goes wrong: Firms either fail to pay interest that should go to clients, apply an out-of-date policy, or apply the policy inconsistently across matters. Sometimes there is no written notification or policy at all, which makes consistent treatment impossible and exposes the firm to complaints.
How to prevent it: Maintain a short, clear written policy that aligns with the Accounts Rules and your client care commitments. Set simple rules for when interest is due, how it is calculated, and the specific sum identified as payable. Include the policy in induction training and place reminders in your case management system so the approach is applied consistently across branch offices and matters. Test a small sample of files quarterly to confirm the policy has been followed and retain evidence of the check. If you discover errors, correct breaches promptly and record the remedial action.
5. Weak record keeping and audit trails
What goes wrong: Client ledgers are incomplete, narrative descriptions are vague, transfers between matters or between client and office accounts are not properly documented, and supporting evidence is missing. When records lack detail and clarity, an accountant cannot verify compliance easily and the COFA cannot monitor risks effectively.
How to prevent it: Start with complete and accurate chronological records for every matter. Record the purpose of each receipt and payment in plain language. Keep documentation for all transfers, including why they were made and who approved them, ensuring prior written authorisation where required. Reconcile client ledger totals to the control account and to the bank regularly. Build a simple month-end checklist that covers ledgers, reconciliations, residual balances, interest checks, and breach logging, and make sure a named person completes and signs it. Good records speed up the accountant’s work, improve financial reporting, and reduce questions later.
Root causes we see repeatedly
Process gaps: Policies exist but are not embedded in daily routines. Build controls into your client accounting systems and checklists so compliance is the default way of working.
Training gaps: Fee earners and junior staff do not understand the Accounts Rules or the firm’s policy decisions. Provide short, regular refreshers and keep attendance records.
Role confusion: No one owns specific checks. Assign named owners for reconciliations, residual balance reviews, and interest testing.
Lack of follow-through: Issues are identified but not fixed. Maintain a breach and actions log, review it at COFA meetings, and record closure of actions with dates.
A practical compliance routine that works
Monthly cadence: Reconcile client accounts, run the residual balances report, test a small sample for interest compliance, and update the breach log.
Quarterly cadence: Carry out a light internal file review across different fee earners and matter types, and confirm that reconciliations are timely and differences resolved.
Leadership oversight: Give the partners a short quarterly summary covering reconciliations, residual balances, breaches, and actions taken. Keep it factual and action-oriented so decisions follow quickly.
Documentation: File your reconciliations, review notes, and logs in a standard location so they are easy to share at audit time.
Preparing for your accountant’s report
Ahead of the accounting period end, confirm that bank mandates and signatories are correct, your client and office accounts are clearly identified, and your case management postings map cleanly to the ledgers. Check that reconciliations are complete to the reporting date, that any differences have an explanation, and that evidence is available on request. If you have had breaches during the year, document the nature, cause, and corrective action taken. This level of readiness helps your accountant complete the final report efficiently and reduces the chance of qualification.
Frequently missed details that trigger further issues
Mixed receipts: When a payment includes both client money and costs incurred, the posting must split correctly between client and business accounts.
Transfer documentation: Inter-matter transfers need clear explanations, prior written authorisation, and audit trails.
Interest de minimis: If your policy uses a de minimis threshold, make sure it is applied consistently and recorded.
Archived matters: Ensure closed files do not hide residual balances and that the ledger is cleared before archiving.
Banking platforms: If you use multiple banks or pooled accounts, ensure statements and reconciliations cover all accounts and that numbering is continuous.
Building confidence as a COFA
The COFA role works best with timely, concise information. Ask for a monthly pack that includes client bank statements, reconciliations with sign-offs, a list of outstanding reconciliation items, a residual balances report, a sample interest test, and the breach log. Hold a short monthly meeting to review these, agree on actions, and confirm owners and dates. Keep minutes so there is a record of oversight. If a breach occurs, record it promptly, assess materiality, take corrective action, and brief partners. This rhythm shows active control and will be obvious to your reporting accountant.
Using an SRA audit to improve your firm
Treat the SRA audit as more than a compliance hurdle. The findings often highlight opportunities to tighten processes, clarify responsibilities, and reduce friction for the legal sector teams. For example, if reconciliations are late because information is spread across systems, consolidate data or automate inputs. If residual balances arise repeatedly, change your matter close-down checklist so the balance check happens before archiving. Small, well-targeted changes reduce future breaches and save time for fee earners and accounts staff.
How we support solicitors
We work with law firms across the UK to deliver efficient SRA audits, produce the annual accountant’s report, and strengthen systems around client money. When we complete an audit, we keep our requests clear, focus on evidence that matters, and help you understand any findings in plain English. If you want a health check ahead of your year-end, we can run an Internal Control Review that mirrors the key SRA Accounts Rules tests and gives your COFA a practical action plan. For broader support across audits and compliance, our Audit & Assurance team works alongside our dedicated solicitors specialists so you get sector-aware advice that fits your practice.
Next steps
If you want reassurance before your next audit or need help addressing any of the common breaches outlined here, contact us. We will review your current reconciliations, residual balance process, interest policy, and record keeping, then agree on a short, realistic timetable to bring everything up to best practice. With the right routine in place, your next SRA audit should be calm, predictable, and efficient.