Top six clients’ money issues

• Overview

  RICS accountants routinely carry out regulatory review visits to firms handling clients’ money. The primary aims of the visits are twofold. Firstly, to ensure that client’ money is held in accordance with Rule 8 of the Rules of Conduct. Secondly, to provide advice and assistance, identify gaps and help regulated firms back into compliance where ever possible. We classify findings from visits into Critical, Serious and Additional points.

• 1 - Reconciliations

  Firms not completing ‘three-way’ client account reconciliations. Bank reconciliations may be completed reconciling the cash book or system balance to the bank statement. However, the reconciled cash book balance may not be reconciled to the total of the client ledger balances. This is an essential control to ensure that your accounting records are accurate and complete. Do not assume that the system will always be in agreement as errors and system glitches can result in imbalances which you may remain unaware of.

• 2 - Review and sign off of reconciliations

  Some firms give no evidence that reconciliations have been reviewed and signed off by a Principal or an independent senior staff member. It is important that there is a check on the timing and accuracy of reconciliations. We check that old reconciling items, unusual transactions etc. have been followed up and resolved. In a small firm, the review enables the Principal to have confidence that the records are up-to-date and in good order.

• 3 - Overdrawn client ledger balances

  The client account bank balance should not be overdrawn or for the cash book to show a negative position. However, if the individual client ledger balances in a general client account are overdrawn, there is automatically an overall deficit – there are insufficient funds in the account to settle all the amounts owing to clients. If discovered, the firm should place funds into the client account pending resolution of the negative balance. Firms should have controls in place to ensure that client ledger balances never become overdrawn.

• 4 - Authorisation of client account electronic payments by non-Principals

  Firms often have good cheque signing protocols but fail to mirror them for electronic payments.  We often see electronic payments being made by non-Principals who also process client money transactions, possibly with no supervision or oversight. Clearly this presents a high risk. Only Principals should be authorised to execute electronic payments. 

• 5 - Reconciliation issues – old uncleared reconciling items and differences, plus or minus

  Items that require reconciling should not be more than two months old with the exception of cheques which may be allowed six months to clear. Electronic receipts should normally be matched and recorded promptly but firms should implement tight procedures to process receipts which are initially unidentified. Particular attention should be paid to bank statement entries which have not been entered onto the accounting system. The presence of old reconciling items may suggest that client balances are incorrectly stated.

• 6 - The word ‘client’ not appearing in the bank statement title

  Where the bank has not included the full title on statements, the bank should be requested to amend the statement account title as soon as possible. The ‘client’ account designation is critical and the title must be amended if it is not included. Client money needs to be held separately and ring fenced from firm’s funds or other money. It needs to be distinct from any of the firm’s or Principal’s liabilities