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Preparation for LSO audit should happen long before notice given

If law firms take a proactive approach to record-keeping protocols, a Law Society of Ontario (LSO) spot audit will be much less disruptive and stressful, Toronto legal management consultant Mark Dormer tells AdvocateDaily.com.

Designed as a compliance measurement and problem-detection tool, LSO’s spot audits “measure the integrity of law firm financial filing, assess ongoing compliance with financial record-keeping requirements and the Rules of Professional Conduct, and identify serious misconduct related to financial matters,” the regulator’s website states.

A primary goal of the audit is to provide on-site guidance aimed at helping firms correct minor record-keeping deficiencies before they lead to serious non-compliance or misconduct issues.

Dormer, owner and president of Cosgrove Associates Inc., says audits are random although certain events can trigger one, including being a new law firm, failure to file or unusual activity in an annual report, or inadequacies found during a previous spot audit.

Depending on the size of the firm and the practice area, an audit could take a day or even a week.

“An audit of a smaller firm that has very few trust transactions could take a day while a larger firm could take a week, he says. “For instance, with a real estate practice, there's much more checking and record-keeping so an audit takes more time."

Lawyers are generally given a few weeks' notice of an impending audit but the Toronto legal management consultant advises that preparation should take place long before then.

“If you implement certain protocols on a proactive basis then the spot audit will be relatively smooth,” he says.

Cosgrove Associates works with lawyers and their accounting staff or software to give recommended procedures for running trust accounts and record-keeping.

“We also conduct our own audits using the same materials as the LSO, and this essentially functions as a test run,” Dormer says.

Not only do these systems prepare a firm for an audit — such protocols should be in place generally, he suggests.

Dormer says some of the main areas where lawyers are unaware or deficient involve issues around:

  • processing debit or credit card payments
  • stale-dated cheques
  • inactive trust accounts
  • electronic transfers

He adds that getting your firm’s record-keeping protocols into shape can also help towards defending against fraud and malicious attacks.

“When every transaction is being reviewed, the lawyer or bookkeeper may be able to detect fraudulent activity,” Dormer says.

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