Borrowing from the Client Account in December
Adjei & Co is a five-lawyer firm in Accra. On 28 November it received GH¢180,000 in settlement of a client's land case into its client account. In December the office account was short: rent of GH¢15,000 and salaries were due. The administrator transferred GH¢20,000 from the client account to the office account, expecting to repay it when another client paid. A separate client, who insisted on mobile money, paid GH¢8,000 into the managing partner's personal MTN MoMo wallet; the partner used GH¢2,000 for filing fees and has not recorded the balance. The firm's client ledger shows GH¢50,000 held for an estate and GH¢12,000 for a company matter. No bank reconciliation has been done since September. The partner signs cheques without checking the ledger. The annual audit is due in January. The administrator says the transfer was 'only temporary' and no client has complained.
1. Identify each breach of the firm's accounting and professional obligations and explain why it matters.
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1. The GH¢20,000 transfer from client account to office account. Client account money is trust property, not a firm reserve. A lawyer may withdraw it only for a payment to or for the client, or for fees that have been properly billed and are due. Using it to pay rent and salaries is misappropriation, even if the administrator intended to repay. A temporary 'loan' from one client's settlement is still an unauthorised use of that client's money, and it exposes the firm to a disciplinary finding and a civil claim.
2. Cross-subsidy risk. With GH¢50,000 held for an estate and GH¢12,000 for a company, the firm must be able to show whose money funded the transfer. If the GH¢180,000 settlement was used, that client is short. The firm cannot treat one client's balance as cover for another's.
3. Mobile money into a personal wallet. A personal MTN MoMo wallet is not a designated client account. Receiving GH¢8,000 there commingles client money with the partner's personal funds, defeats receipting and reconciliation, and makes it impossible to trace. The GH¢2,000 for filing fees may be a legitimate disbursement, but it must be recorded against the client ledger; the unrecorded balance is an unexplained receipt.
4. No reconciliation since September. The firm cannot verify its client balances. Monthly reconciliation is a basic control; without it, a shortfall can go unnoticed and the firm cannot sign a truthful accountant's report.
5. Supervision failure. The partner signs cheques without checking the ledger. That is not delegation; it is a failure of the partner's personal responsibility for client money.
2. What should the firm do immediately, and what must it disclose, to whom and when?
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Immediate remediation
- Stop all further transfers from client to office account and freeze the administrator's authority pending review.
- Restore the GH¢20,000 at once from the partners' own funds, not from another client's money. Identify exactly whose funds were used and correct that client's ledger.
- Deal with the MoMo receipt. Transfer the GH¢8,000 into the firm's client account, receipt it, record the GH¢2,000 filing fee with a receipt, and account for the balance. Do not leave client money in a personal wallet overnight.
- Reconstruct the reconciliation from September to date, client by client, and reconcile the bank statements and MoMo records.
- Preserve records. Do not alter the transfer instruction, cheque stubs or bank records.
Disclosure
- Affected client(s): if their money was used or is missing, tell them promptly and candidly what happened and what the firm has done. Concealment turns an accounting error into dishonesty.
- The firm: report to the managing partner and, if necessary, convene the partners. Consider whether the conduct is reportable to the General Legal Council or its Disciplinary Committee. A shortfall or deliberate cover-up should be self-reported; the firm should take advice on the timing and form.
- Insurer: notify the professional indemnity insurer immediately; late notification can prejudice cover.
- Auditor: give the auditor a complete reconciliation and a written explanation before the January audit.
Do not wait for a client complaint. The duty is to rectify and disclose, not to manage appearances.
3. Design the controls the firm should adopt before the January audit and explain how each control addresses the identified failures.
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Segregation of duties. The person who receipts money should not be the person who reconciles the bank account or signs cheques. The administrator should not have sole authority to move funds.
Two signatories. Every client-account payment should require two authorised signatories, at least one a partner, with a supporting ledger entry and invoice or client authority attached.
Monthly reconciliation. Reconcile the client bank account, office account, cash book and individual client ledgers every month. The managing partner should sign the reconciliation and investigate any difference immediately.
One ledger per client and matter. Show receipts, payments, fees and balances separately. Never use one client's balance to cover another.
No cash and no personal accounts. All client money must go into the designated client account or a firm-designated mobile-money merchant account. Prohibit personal wallets, personal bank accounts and cash receipts unless a written exception is approved.
Bill before transfer. Fees may be transferred only after a bill has been delivered and the client's ledger shows the amount due. Advance payments remain client money until billed.
Annual audit and partner certificate. Commission an independent accountant's report and have the partners certify compliance. Follow up every qualification.
Training and written policy. Train all staff on client money, receipting and the consequences of commingling. Keep the policy in the office manual and require new staff to sign that they have read it.