Client money
This guidance is based largely on the checklist on the subject produced by the Institute of Chartered Accountants of Scotland, whose assistance and permission is gratefully received.
When handling clients' money, you are required to open a client bank account separate from either your personal account or the practice's account.
The bank must confirm that the funds held in that account are held for clients, that these funds cannot be set off, and that any interest is credited to the account.
Funds in excess of GBP10,000 held for more than 30 days for any one client must be held in a separate account designated for the client. To achieve this position, the bank must be a clearing bank which complies with the regulations.
Signatories to the client account must all be principals of the practice firm. The regulations also require the practice to keep clear records of the client money transactions
Payments
Where payments have been made out of the client bank account on behalf of a client, the practising unit must have received written authority from that client.
Reconciliations
Reconciliation of the clients' bank account to total of client balances must be carried out every five weeks and a record of the reconciliations kept for six years (if differences arise, these must be corrected immediately).
The sum held in clients' accounts must be at least equal to the sum of the clients' credit balance. No client account may have a debit balance.
There must be no transactions through the clients' bank account which do not relate to the clients' money. This includes fees paid in advance. Any non client transactions processed through the client's bank account should be detected and errors corrected immediately upon discovery.
Withdrawals
Procedures must be in place in accordance with regulations for withdrawals from clients' bank account. In particular, all withdrawals must be authorised by a principal of the firm.
Monies withdrawn from settlement of fees must have been agreed with client, otherwise 30 days must have elapsed from date of issue of fee and client has not questioned the amount.
Where firm has power of control over a client's own bank account, written authority must be received from the client and acknowledged by the bank and adequate records of the transactions must be maintained. Interest, if material, should be allocated between clients on an appropriate basis.
Annual review
Evidence must be shown that an annual review has been carried out to ensure that the account has been operated in accordance with client money regulations. Where possible, the review should be conducted by a principal not involved in the handling of client money.
Sole practitioners and continuity in the event of incapacity or death
If the principal is a sole practitioner, he or she must confirm that he has arrangements in place with another firm to enable the proper distribution or processing of client's money held by the firm in the event of incapacity or death of the sole practitioner.