When it came time for people to stay home to help stop the spread of COVID 19, some law firms would have switched seamlessly to a remote office environment. Others would have had more difficulty, if they were able to work remotely at all. Whatever the case, the swiftness with which the change occurred would have highlighted some deficiencies, at least with respect to moving to a remote office environment. This article will focus on issues related to BC law firm accounting departments.
Paperless Office
A paperless accounting system makes working remotely possible. Some law firm accounting departments are already paperless, some function partly paperless, and some are not paperless at all. But what does it mean to be paperless? Paperless can mean no paper or less paper. Using the “less paper” definition, many BC law firms are already paperless. However, COVID 19 has demonstrated the need for a “no paper” accounting system. What, you may wonder, does a no paper accounting system look like?
Document Management System (DMS)
The cornerstone of a paperless accounting department is a computerized document management system (DMS). This DMS could be anything from an organized file folder system to document management system software. The DMS allows law firm accounting department staff to save documents in an organized fashion so that those documents can be easily used and retrieved. For the DMS to be useful, it must be accessible. What this means during COVID 19 is that the server that the DMS is located on must be accessible from home. If a law firm decides to use a cloud based DMS, they must ensure that it complies with the Law Society of BC requirements.
Accounting Program
After the DMS, a computerized accounting program that is accessible online is essential. This accounting system must be tailored to law firm and Law Society requirements, such as being able to track trust transactions on a firm, client or matter basis. This computerized accounting program could be a system of spreadsheets or an accounting program designed specifically to satisfy the requirements of BC law firms or a combination of the two. Whatever the case, it must be designed to meet the Law Society of BC requirements.
Accounts Payable
In order to have a truly paperless accounting system, the BC law firm must be able to conduct the accounts payable cycle online. This means that the law firm must be capable of receiving and approving invoices and making payments online. Invoices and invoice approvals can be saved in the DMS. An EFT payment system, set up on the firm’s banking platform, will make online payments possible. The specific process for each law firm, from receipt of invoice, to approval, to posting of approved invoices to the accounting system, to payment requisition, to approval of payment, to payment, will be dictated by the individual law firm set up, as well as by Law Society of BC requirements. This accounts payable cycle will involve the adoption of non-paper processes.
Trust
Trust accounts present a special problem for law firms. The Law Society of BC devotes two sections (Divisions 7 and 8) of Part 3 of the Law Society rules to accounting for trust funds. There are rules about how trust funds can be received and how they can be disbursed.
In 2017 the Law Society of BC adopted new rules around EFTs and trust accounts. Rule 3-64.2, Electronic deposits into trust, specifies how law firms are to accept funds into the trust account via EFT. Rule 3-64.1, Electronic transfer from trust, and Rule 3-65, Payment of fees from trust, detail the requirements that must be met for a law firm to be able to electronically withdraw funds from the trust account. This would done using the law firm’s online banking platform. The process, from receipt, to requisition, to approval, to disbursal of trust funds, is specified in BC Law Society Rules 3-64.1, 3-64.2, and 3-65.
Trust funds could also be received via an online credit card payment system, so long as the system satisfies the Law Society rule requirements.
Accounts Receivable
The accounts receivable cycle is an area in law firm accounting that is also governed by rules and regulations. The requirements for a lawyer’s bill are described in the Code of Professional Conduct for British Columbia, 3.6-3, Statement of Account: the bill “must clearly and separately detail the amounts charged as fees and disbursements.” Once a bill has been generated, the Legal Professions Act, 69(3), dictates that it “must be signed by or on behalf of the lawyer or accompanied by a letter, signed by or on behalf of the lawyer, that refers to the bill.” Finally, before funds can be transferred from the trust account to pay the lawyer’s bill, per Law Society of BC Rule 3-65(2), the bill must be delivered to the client. Delivery can take many forms, including mailing, emailing or faxing.
How this cycle of approvals and document generation and delivery is achieved will be particular to each law firm. One of the issues, of course, will be how a lawyer will be able to sign or otherwise approve a bill. This can be achieved, in this paperless scenario, by electronic signature. As with other accounting cycles, documentation and approvals are saved using the DMS.
In the final stage of the accounts receivable cycle, payments are received from clients. This can be achieved through an online credit card payment system, by EFT or wire payment. These systems will require online access to the banking platform. Payments can also be made by cheque. During this time, offices will have to decide how to receive and deposit cheques. Mail could be redirected (for how long needs to be determined), or it could be picked up. Regarding depositing the cheques, once received, some bank branches are still open, although with limited hours. Otherwise, an ATM card or a remote deposit service, using a compatible cheque scanner, could be used.
Reporting
The accounting program, if it is accessible online, should provide all other accounting functions in a seamless manner, including preparing monthly bank reconciliations and financial reporting.
Conclusion
During this crisis, good communication will be essential to the smooth operation of the law firm accounting department. In place of face-to-face communications, law firm accounting department staff can rely on other remote-friendly communication systems, such as: email, phone, conference calling, and video technology.
BC Law Firm Accounting 