3. Responsibilities of the Trust Account Supervisor
The trust account supervisor (or the designated trust account supervisor) is responsible for the controls in relation to the operation of all law firm trust bank accounts and general accounts, the accuracy of the law firm’s reporting requirements and the timeliness and accuracy of the law firm’s record keeping requirements [Rule 5-42.1(1)].
The trust account supervisor is responsible for any of these tasks that have been delegated to another person.
The trust account supervisor is responsible to the Law Society for controls in relation to all trust and general bank accounts for the law firm. “Controls” refers to the internal mechanisms to protect clients’ trust monies from defalcation and from negligent and risky handling of such monies.
Although the trust account supervisor will not be held responsible for the misconduct of other lawyers in the firm, effective policies and procedures reduce the risk of such conduct occurring. As such, the trust account supervisor is expected to establish policies and procedures for matters such as:
i. handling of all forms of trust receipts;
ii. receipt of cash;
iii. requisition and authorization of all forms of trust account withdrawals;
iv. authorization of transfers between matters;
v. storage of trust cheques;
vi. delivery of the firm’s statements of account to clients prior to applying trust money to pay the account
vii. maintenance and storage of trust accounting records in accordance with Law Society rules; and
viii. addressing inactive trust balances.
If a defalcation or fraud by other members or staff of the law firm occurs, the Law Society expects that the trust account supervisor would examine the controls in place at the firm and address any deficiencies so as to reduce the likelihood of such conduct in the future.
- If you receive cash, it must be securely stored prior to deposit at your savings institution;
- Each and every disbursement of trust money must be supported by a source document that is reviewed by the cheque maker before affixing their signature to the trust cheque;
- Keep cheque stock in a secure location;
In computerized accounting systems, your accounting system itself typically has numerous internal controls built into it that should be used. For example, each user should have their own user name and password which is kept private and changed regularly, and different levels of users can be have different levels of access, depending upon their role. No user should be able to change or delete entries. If you have a staff member who leaves, their access to your system should be removed.
The trust account supervisor is responsible to the Law Society for accurately completing all reports to the Law Society relating to the law firm’s trust bank accounts and general accounts.
i. Opening a Trust Account
This starts with ensuring the Law Society is notified within 30 days of the opening of a trust account.
ii. Annual Member Report
The Annual Member Report is to be completed by all practising lawyers and starting with the 2019 Annual Member Report, some questions will be included that only a trust account supervisor must complete. These questions relate to:
- statistical information regarding trust accounts operated by the firm;
- information regarding any cash received by the firm during the reporting period; and
- information regarding inactive matters.
iii. Contact Person for the Law Society
In addition, the Law Society administers a number of audit programs, including new firm audits, regular spot audits, ongoing monitoring programs and check-ups, often without advance notice to the firm. When conducting these audits, law society auditors will require access to accounting records and programs and may review client files. The trust account supervisor will be the Law Society’s contact person for these purposes and perhaps at other times when information is required regarding the trust account(s).
As outlined later in these materials, law firms are required to store their three most recent years of trust accounting records at their primary place of business. It is a recommended practice that the trust account supervisor ensure other staff know the location of the accounting records in case the auditor arrives and the trust account supervisor is not immediately available.
iv. Reportable Events
Reporting requirements also include notifying the Law Society when a ‘reportable event’ occurs. While a reportable event might be a change to where the firm banks, it might also include a circumstance where the trust account has been compromised. Every trust account supervisor is asked to use their judgment in determining when it is appropriate to contact the audit department.
Below are examples of reportable events:
- theft (trust or general account) suspected, attempted or otherwise;
- third party fraud on the trust account (e.g. fraudulent trust cheque) suspected, attempted or otherwise;
- negative balance in a client matter (the matter is overdrawn);
- trust account overdrawn;
- any firm trust cheque returned for insufficient funds; or
- new branch office or change in trust account branch location.
v. Closing a Trust Account
The trust account supervisor is also responsible for any reporting requirements related to the closing of a trust bank account. Examples of these types of circumstances include:
a) the firm is switching their banking from one savings institution to another and the old trust bank account is being closed;
b) the current partnership is closing and is creating a new partnership with other lawyers; or a sole practitioner is retiring and winding up the firm.
c) a sole practitioner is retiring and winding up the firm.
In each case, the Law Society will need to be notified of the closure, although the requirements regarding the closure will vary based on the circumstances.
vi. To Cease Acting as a Trust Account Supervisor
Finally, if for any reason the trust account supervisor wishes to cease acting in that capacity, he or she is required to provide thirty days written notice to both the firm and to the Law Society.
c) Reporting to Canada Deposit Insurance Corporation
If any of the firm’s trust accounts are maintained in a savings institution which is insured by the Canada Deposit Insurance Corporation, the trust account supervisor must ensure compliance with the reporting and disclosure obligations set forth in the Canada Deposit Insurance Corporation Act and the Schedule thereto [Rule 5-53].
d) Record Keeping
As will be examined later in these materials, there are strict record keeping requirements for the firm trust bank accounts as well as the firm general bank accounts. These include daily entries in the books of original entry and the client trust ledgers as well as properly reconciling the trust bank account on a monthly basis.
The trust account supervisor’s responsibility for these requirements will vary depending on the firm’s circumstances.
A sole practitioner who personally keeps the books and records will be directly responsible for ensuring that they are maintained in a timely and accurate fashion in accordance with the Law Society’s requirements. This trust account supervisor will be managing the records on a daily basis and will be ensuring that they are current at all times.
A trust account supervisor in a firm that has a capable and trusted bookkeeper or accountant is permitted to delegate that function. This trust account supervisor will not be required to have daily oversight of the trust accounting activities. However, he/she will be required, at a bare minimum to understand the bookkeeping requirements and to satisfy himself/herself from time to time that they are being met. Furthermore, this trust account supervisor is required to review and understand each monthly trust reconciliation so as to be satisfied that it is being completed within the deadlines imposed and is properly reconciled.
If the firm were to lose the services of the trusted bookkeeper or accountant, the trust account supervisor would be expected to take on greater responsibility to ensure that the records were being kept current at all times and in a compliant fashion.
For firms that have a relatively new bookkeeper or accountant, the trust account supervisor is expected to be actively involved in all aspects of the record keeping until such time as the bookkeeper has demonstrated a thorough understanding of the Law Society’s unique requirements and a track record for compliance.