Held to account

When companies such as property manager Trillium express doubts about solicitor client accounts, questions need to be asked. ‘If there was a way that the process could be made quicker and we could cut out the middleman, we’d definitely go for it,’ says James Sangster, the company’s national asset management director.

Indeed, in the atmosphere of mistrust introduced by the global downturn, many question whether law firms need to hold client money at all. Fraudulent behaviour is increasingly rising to the surface, with statistics from the December 2008 Solicitors Regulation Authority performance report showing that breaches of the Solicitors’ Accounts Rules are the primary reason for regulatory intervention.

Surges in cases of financial sector fraud uncovered during a downturn is a well-documented trend, and one that has resulted in regulatory bodies such as the Financial Services Authority increasing its presence in the market. The SRA’s December 2008 statistics show that breaches of the Solicitors’ Accounts Rules have risen by ten percentage points since 2007. The most high-profile example recently was that of Vinay Veneik, the former Berwin Leighton Paisner real estate partner, who will face the Solicitors Disciplinary Tribunal on charges of misusing client account money, among other charges. For every Veneik, there are countless other examples at smaller firms up and down the country.

The natural assumption, therefore, would be that this is an area for the regulatory body to pay extra attention to. However, when Legal Business contacted the SRA, the body was less than decisive in its approach. ‘The SRA has no formal line on this issue,’ a spokesperson commented. ‘It’s not a matter we have examined coherently.’ The impression given was that the board was divided in its opinion regarding client accounts.

However, levels of fraudulent accounting are something that law firms are increasingly under pressure to face. As accountancy firm Smith & Williamson’s associate director Pambos Patsalides points out: ‘I have come across fraud when carrying out SRA examinations or in dealing with forensic investigation work, especially in high-risk areas such as conveyancing and probate work. I am aware of cases where a solicitor or an employee at a law firm has diverted client funds. Normally, this leads to a spider web of fraud.’ Patsalides says his team is alert to this, and is quick to examine the firm’s financial position, particularly the overdraft and partner drawings. ‘Accountants have definitely upped their game in this area,’ he adds.

This issue has recently been on The Law Society’s radar. Client accounts and the way they are controlled was a key factor in Nick Smedley’s recent report for the Society on the regulation of corporate legal work. However, it appears less than convinced that the system needs serious modernisation. ‘There may well be things you can do to improve [the client account system], but I’m not clear what the inefficiencies are,’ comments Mark Stobbs, director of policy at The Law Society. ‘Obviously, if solicitors didn’t have client accounts, they wouldn’t be able to steal from them. But it’s a relatively small number of lawyers who actually do that.’

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