The General Legal Council (“GLC”), the regulating body for attorneys, has put forward changes to the accounting regulations for attorneys which are to come into force as of January 1, 2022.
The Legal Profession (Accounts and Records) (Amendment) Regulations, 2021 (the “Regulations”) are geared primarily towards increasing compliance. The Regulations rely on attorneys to properly account for clients’ monies and on accountants to provide some assurance that having looked on the attorney’s books and records it appears that this is being done. The Regulations, since being initially laid down in 1999, provide for attorneys to clearly segregate their client’s monies from the attorney’s own funds, properly reconcile these accounts monthly and to account to the client for interest, in certain circumstances.
The Regulations, therefore, were aimed at cementing in attorney’s practices the principle that when a client entrusted funds to the attorney, whether it was the proceeds of a sale or an advance on legal fees for services not yet rendered, these were the client’s monies not the attorney’s and the attorney must account to the client for these funds.
The Regulations require the attorney to consider his or her practice and annually report to the GLC on its stewardship of client’s monies and confirm that it is keeping proper records. This must be done by filing with the GLC, by the end of June for most attorneys, an accountant’s report prepared by a chartered accountant or public accountant, in either case who holds a valid practicing certificate in Jamaica, and who, although not required to carry out a full-scale audit, would have examined the accounts and records maintained by the attorney and confirmed whether or not it seems to be satisfactory. The attorney must also sign this report certifying it’s accuracy. Where an attorney does not handle trust monies, or for some other reason can demonstrate to the GLC that it is unnecessary or impractical to file an accountant’s report, the Regulations permit the attorney instead to file a Declaration in the specified form confirming not only what those circumstances may be, but also that the attorney is nevertheless maintaining proper stewardship of the client’s records.
Only an attorney who has been granted an exemption because they exclusively practice outside Jamaica is wholly excused from the requirement to report to the GLC by filing an accountant’s report or a Declaration each year. If, however, the attorney is experiencing some kind of hardship or delay affecting its ability to file its Accountant’s Report when required, he or she can apply for an extension of time explaining the circumstances being faced.
The latest changes being made to the Regulations to better ensure compliance include the following:
The Regulations now acknowledge that some attorneys may only receive trust monies in the form of small deposits on account of legal fees and therefore it may be impractical to require those attorneys to file an Accountant’s Report. The Regulations therefore now expressly provide that this circumstance will be accepted as a basis for filing a Declaration instead of an Accountant’s Report. Note that the prescribed amount for this exception to apply is an aggregate sum not exceeding $3,000,000 at any time in the financial year.
The Regulations now provide for the filing of a Qualified Accountant’s Report where the accountant in the course of carrying out his/her inspection of the books and records of the attorney becomes aware of deficiencies or failures in the attorney’s systems which appear to put client’s monies at risk. This filing of a Qualified Report serves two important functions. It puts the GLC on notice that there may be an area of weakness which requires further investigation and early intervention. Additionally, it gives the attorney an opportunity, rather than filing a non-compliant report which will not be accepted or filing no report at all because of the deficiencies, to file the qualified report and explain how the issues have been or will be resolved and to have this qualified 4eport be accepted where it otherwise would have been rejected for being non-compliant. It is important to bear just a few points in mind regarding the qualified report:
The accountant is expected to notify the GLC if it sees that it needs to qualify the report, regardless of whether the attorney has filed the accountant’s report. This is a duty imposed on the accountant. The Regulations recognize however that it does not regulate the accountants. It is therefore the disciplinary body for the accountants who must determine what, if any, sanctions flows from a breach by the accountant of this duty.
Not every failure to comply with the Regulations makes the filing of a qualified report necessary. The reporting accountant is expected to carry out such checks as is proportionate and targeted to the size of the practice and the nature of the work the practice undertakes and must exercise his or her professional judgment to determine whether a qualified report is necessary. The qualified report will only be necessary where the breach or failure is significant or persistent. This recognizes that inadvertent or minor administrative errors or failures may occur from time to time. These are not the focus. The focus is on breaches indicative of a larger, more systemic concern which puts client’s monies at risk.
The accountant does not need the attorney’s permission or consent to notify the GLC that he or she thinks the accountant’s report needs to be qualified but he or she must simultaneously send a copy of the notice to the attorney. There is no intention to blind-side or surprise the attorney. There is no prohibition against the accountant discussing its concerns with the attorney. This is expected and welcome.
On receiving notice of a qualified report or a qualified report, the GLC may in carrying out its investigations require the attorney to appear before the GLC and give evidence or deliver additional information and the attorney is required to promptly comply.
Although attorneys tend to fear regulation, especially the accounting regulations and the requirements they may impose on the way attorneys carry on their business, these regulations are intended to protect both the public at large and the attorney.
Compliance and not punishment is the goal but unexplainable and unreasonable liberties with other people’s monies are punishable offenses.
Hilary Reid is a Partner in Myers, Fletcher & Gordon’s Commercial Department. She may be contacted via firstname.lastname@example.org or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.