The Law Society operates a risk based system for identifying firms for inspection.

In assessing risk, due consideration is given of the Law Society’s objectives to protect the public, protect client moneys, protect the reputation of the legal profession, ensure solicitors have proper procedures in place to prevent and detect the commission of money laundering and terrorist financing offences, minimise claims on the Law Society Compensation Fund and build confidence in the regulatory system for solicitors.

Particular attention is paid to the following matters in identifying firms for inspection:

• Firms who fail to fulfil, or who delay in fulfilling their statutory obligations to: file an accountant’s report, apply for a practicing certificate or put in place their professional indemnity insurance.
• Qualified annual accountants’ reports.
• Complaints/ Enquiries.
• Previous Law Society inspections.
• Judgement debts.
• Media reports.
• Expressions of concern.

Routine inspections

In addition to firms chosen for inspection based on risk, new firms are listed for inspection after about three years in practice. Established firms are considered for inspection after five years if the firm has not come to the attention of the Law Society for any other reason.

Items required for an inspection

The following documents and records must be provided to the Law Society’s accountant for inspection:

• All books and records written up to the accounting date.
• A list of client and office ledger balances as at the accounting date, and a list of balances in relation to client deposit accounts, if applicable.
• A clients ledger control account from the last accountant’s report to the accounting date. This is to prove the correctness of the client listing.
• Bank statements for all bank accounts up to the accounting date.
• A letter from the solicitor’s bank, setting out the balances on all office and client accounts as at the accounting date.
• A client bank account reconciliation as at the accounting date.

In addition, the following accounting records must be available for inspection:

• Register of bank accounts.
• Bank reconciliations for each bank account.
• Quarterly client account balancing statements and six-monthly office balancing statement(s).
• Bank statements for all client and office bank accounts up to the most recent date.
• Record of receipts and payments on office account and on client account / detailed client ledger control account.
• Paid client account cheques in numerical sequence / Copies of bank drafts.
• Dedicated file for electronic transfers.
• List of balances on both client and office ledgers.
• File of bills of cost.
• Client and Office Ledgers.
• Inter-ledger Transfer journal.
• Client file .

The above is not an exhaustive listing and further information may also be requested by the investigating accountant as necessary.

The investigation process

In summary, a Law Society investigation generally includes the following steps.

Step 1 – the initial meeting

The investigation will commence with an initial meeting with the solicitor to:

• Obtain background information on the practice. The following information may be sought:
• Bookkeeping system - who maintains it and how often is it updated.
• Banking – cheque signatories, electronic payment authorisers, internet banking control, anti-virus.
• Staff numbers – assistant solicitors – Practising Certificates.
• Systems and controls.
• Registers e.g. undertakings.
• Professional indemnity insurance, any claims on insurance.
• Financial position – Last financials, Tax / Revenue filing up to date, Practice indebtedness, Personal indebtedness, Judgements.
• Fee income sources.
• Anti-money laundering procedures.; and
• Allow the solicitor to make any necessary disclosures

Step 2 - routine auditing

The Law Society’s investigating accountant will then commence their routine auditing of books and accounts to establish accuracy of records. The following will be reviewed:

• Establish statement of client affairs – is there a deficit/surplus?
• Agree control accounts / bank reconciliations / balancing statements.
• Review register of bank accounts.
• Review client bank account statements.
• Check activity forward of review date.
• Review list of payments and lodgements for a period.
• Review transfer of fees to the office account.
• Review returned paid cheques.
• Review electronic transfers.
• Review list of client and office ledger balances.
• Review ‘inactive’ client ledger balances outstanding two years or more.
• Review office bank account statements and nominals.
• Review financial statements.
• Review tax position for arrears, whether taxes have been warehoused with Revenue.
• Review selected ledger cards.
• Select files for review.

Issues considered

The investigating accountant will have consideration during the inspection for the following:

• Is clients’ money handled correctly?
• Are proper books of account maintained?
• Are the accounting records up to-date?
• Were the books of accounts written up in arrears?
• Are reconciliations prepared on a timely basis?
• Does the solicitor supervise the accounts?
• Is there evidence of regular reviews?

Compliance with Legal Services Regulation Act 2015

A review of Section 150 notice of costs and Section 152 bills of costs will be performed during the inspection.

Compliance with anti-money laundering legislation

• A review will be done of the firm’s AML policies, controls and procedures document and also their AML Business Risk Assessment to ensure compliance with the Criminal Justice (Money Laundering and Terrorist Financing) Acts 2010 (as amended) and Solicitors (Money Laundering and Terrorist Financing) Regulations 2020
• When performing AML checks the accountant will also review the client identification documentation and the client risk assessment which was documented for particular files as selected for review, including any supporting documentation

For more information, see guidance on AML compliance.

Step 3 – File reviews

File review – general

As part of their file review, the investigating accountant will assess the following documents for each matter selected for review:

• Supporting documentation regarding all lodgements and payments including bill of cost, statement of account.
• Copies of cheques / bank drafts.
• Authorisation to transfer fees.
• Confirmation of undertaking satisfied.
• Confirmation that matters have been dealt with promptly.
• Attendance Notes.
• Section 150 / Section 152 compliance.
• Anti Money Laundering compliance.
• Statement of account.
• Electronic transfer confirmations issued by bank.

File review – conveyance files

With specific reference to conveyance files, the following will be reviewed:

• Section 150 notice.
• Supporting documentation for all receipts, payments, loan documentation.
• Copy of contract.
• Explanation for any difference in monies received.
• Evidence of payment of stamp duty on time, copy of stamp certificate.
• Evidence of Registration.
• Evidence of discharge of secured loan, if applicable.
• Evidence that any undertaking given was complied with.
• Statement of account / Section 152 Bill of costs.
• Anti-Money Laundering compliance to include documented client risk assessment and enquiries as to the source of funds and of wealth of clients.

File review – probate files

With specific reference to probate files, the following will be reviewed:

• Section 150 notice.
• Copy of will and grant of probate.
• If solicitor is executor – charging clause included and not witnessed by the solicitor.
• Copy of Revenue Affidavit / Statement of affairs.
• Evidence that all assets are collected and accounted for.
• Evidence that legacies, paid promptly, fully and in accordance with will.
• Evidence client advised of fees / Authority to transfer costs.
• Distribution / Estate Accounts / Section 152 Bills of costs.
• Anti-Money Laundering compliance to include documented client risk assessment.

File review – litigation files

With specific reference to litigation files, the following will be reviewed:

• Section 150 notice – quote/basis of charging.
• Evidence that client informed of and agrees with:

- Amount of settlement

- Solicitor/client fee, if charged, and / or

- that party/party costs will be recovered.

• Evidence that settlement and party/party costs received.
• Confirmation of disbursement of same.
• Compliance with Section 152, in particular Section 152(2) – client advised of total fees charged and the amount recovered on a party/party basis.
• Statement of account.

The information listed above for file reviews is not exhaustive and other information may be required as solicitors are required to have relevant supporting documentation as will enable client moneys handled and dealt with by the solicitor to be duly recorded and the entries relevant thereto in the books of account to be appropriately vouched.

Step 4 – final meeting and common breaches and issues

Upon completion of the investigation the Law Society’s accountant will meet with the solicitor(s) to discuss their findings

Common breaches or issues arising from investigation include:

• deficit in client funds;
• debit balances on client ledgers;
• credit balances on office ledgers/undischarged outlays;
• standard of bookkeeping – inadequate books, not up to-date, posted in arrears, insufficient details on postings, poor audit trail;
• insufficient documentation on file;
• inactive matters or delays in dealing with matters;
• delays in lodgements, split lodgements, client money not lodged to client bank account;
• non-compliance with Legal Services Regulation Act 2015;
• non-compliance with Anti-Money Laundering regulations;
• fees transferred prior to bill being agreed and authorised by the client;
• round sum transfers to the office account;
• solicitor making personal payments from client account;
• professional fees not lodged into the office account;
• money to which the solicitor is beneficially entitled to held in client account, e.g. undrawn fees, personal ledger card, surplus;
• no register of bank accounts, incorrect title on bank account;
• lack of interim reconciliations and reviews;
• balancing statements not being done and signed off;
• separate ledger cards not maintained for each matter;
• deposit interest earned on client monies incorrectly treated; and / or
• viability of the practice, Revenue debts, unsustainable loans etc.

Step 5 - post investigation

When the investigating accountant completes their inspection, they prepare a report and forward it to the Law Society executive staff.

The report will issue to the solicitor with a covering letter confirming what is required of the solicitor.

In general, if there are no material breaches of the Solicitors Accounts Regulations or anti money laundering legislation outlined in the report, the matter will be dealt with through correspondence from a Financial Regulation Executive.

If the report discloses issues of a minor nature, the solicitor will be asked to respond to the contents of the report within a certain timeframe and the solicitor’s response will be reviewed by a Financial Regulation Executive. However, if there is an insufficient response or no response from the solicitor the report will be put before the Regulation of Practice Committee.

All other reports will be put before the Regulation of Practice Committee together with the solicitor’s response(s).

Hybrid investigations

A hybrid Law Society investigation may be conducted if mutually agreed between the solicitor and the investigating accountant. Hybrid inspections will generally involve Step 1 and Step 2 being carried out remotely (where possible), followed by the investigating accountant’s attendance at the solicitor’s office premises in order to carry out Step 3 and Step 4.

In order to facilitate hybrid investigations, the solicitor may be requested to furnish certain documentation (such as books of account, bank statements and selected client ledger accounts) to the investigating accountant electronically and securely, or where possible to provide remote access to cloud-based accounting systems. The investigating accountant will review the documentation provided remotely in advance of attending the solicitor’s office premises.