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Financial Management

The Guideline is not intended to replace a lawyer's professional judgment or to establish a one-size-fits-all approach to the practice of law. Subject to Guideline provisions that incorporate legal, By-Law or Rules of Professional Conduct (“Rules”) requirements, a decision not to follow the Guideline will not, in and of itself, indicate that a member has failed to provide quality service. Conversely, use of the Guideline may not ensure that a lawyer has delivered quality service. Whether a lawyer has provided quality service will depend upon the circumstances of each case.

Table of Contents

4.1 Introduction
4.2 Billing Methods and Charges
4.2.1 Charges must be Fair and Reasonable
4.2.2 Disclose the Amounts Charged for Fees and Disbursements
4.2.3 Timely Disclosure of Charges
4.2.4 Advertising of Fees
4.2.5 Estimates
4.2.6 Joint Retainers
4.2.7 Money Retainers
4.2.8 Written Confirmation
4.3 Interim Billing, Work in Progress, or Account Status Reports
4.4 Financial Obligations
4.4.1 Meeting Obligations
4.4.2 Obligations to Third Parties
4.5 Changes to Costs Estimates
4.6 Restricted Practices
4.6.1 Hidden Fees
4.6.2 Contingent Fees and Contingent Fee Agreements
4.6.3 Charging Fees through Civil Society Organizations
4.7 Fee Arrangements with Other Lawyers or Paralegals
4.7.1 Division of Fees
4.7.2 Referral Fees
4.7.3 Exceptions
4.8 Appropriation of Client Funds
4.9 Handling of Money and Other Property
4.9.1 Prohibited Cash Transactions in Client Files
4.9.2 Exceptions
4.9.3 Trust Accounts
4.9.4 Withdrawal of Money from Trust Account
4.9.5 Withdrawal by Cheque
4.9.6 Withdrawal by Electronic Transfer
4.9.7 Automatic Withdrawals from Trust Accounts
4.10 Use of Credit Cards
4.11 Records
4.11.1 Maintain For Ten Years [Section 23(2) of By-Law 9]
4.11.2 Maintain For Six Years [Section 23(1) of By-Law 9]
4.12 Form of Records to be Maintained
4.13 Records Relating to Mortgages or Charges
4.14 Internal Controls
4.14.1 Cash, Client Files Involving Financial Transactions
4.14.2 Cheques
4.14.3 Trust Records
4.14.4 Clients’ Valuable Property
4.14.5 Staffing Policies
4.14.6 Segregation of Duties
4.15 Computer Controls
4.16 LawPRO
4.16.1 Insurance Types
4.16.2 Practice Types
4.17 Planning For Death, Disability and Business Interruptions
4.18 Disaster Plans

4.1 Introduction

The financial management of a law practice requires attention to sound business practices and adherence to governing regulatory provisions. The Financial Management Guideline (“Guideline”) summarizes both mandatory and recommended practices relating to the financial management of a law practice. This includes billing practices, the handling of money and other property, the use of credit cards, professional liability insurance requirements, and record keeping requirements. The Guideline offers a list of internal control procedures to assist lawyers in managing risk.

It is important for lawyers to implement fees and billings procedures that focus on

  • keeping the client informed as to the anticipated costs of legal services in a particular matter
  • maintaining cash flow
  • compliance with the Rules and By-Laws made pursuant to the Law Society Act.

 4.2 Billing Methods and Charges​

Although some billing methods are more common than others, lawyers should consider adopting procedures that are appropriate to the particular circumstances of each client matter. Common billing methods include:

  • hourly rate, charging for the actual time expended on the client matter
  • fixed or flat fee, charging a fixed rate regardless of the time expended on the matter
  • fees by stages, charging for a matter which is broken down into stages, and an estimate is given as to the fee for each stage or step in the matter
  • contingency fees, where part or all of the lawyer’s fee depends on the successful completion of the matter.

4.2.1 Charges must be Fair and Reasonable

In determining the amounts to be charged for legal fees or disbursements, lawyers must ensure that the charges are fair and reasonable [r. 3.6-1 of the Rules]. In determining what is fair and reasonable, lawyers should consider the following factors:

  • time required and spent
  • effort required and spent
  • difficulty of the matter
  • importance of the matter to the client
  • whether special skill is required and provided
  • whether special service is required and provided
  • amount of money or other assets involved
  • value of the subject matter
  • results obtained for the client
  • fees authorized by statute or regulation
  • special circumstances such as
    • loss of other retainers in order to accommodate the particular retainer
    • postponement of payment by the client
    • uncertainty of reward
    • urgency of the matter
  • the likelihood, if made known to the client, that acceptance of the retainer will result in the lawyer’s inability to accept other retainers
  • any relevant agreement between the lawyer and the client
  • the experience and ability of the lawyer
  • any estimate or range of fees given by the lawyer to the client
  • the client’s prior consent to the fee.

4.2.2 Disclose the Amounts Charged for Fees and Disbursements

Lawyers should, at the earliest possible opportunity, advise and explain to the client what the anticipated charges will be for fees and disbursements.

4.2.3 Timely Disclosure of Charges

At a minimum, charges for fees or disbursements shall be disclosed to the client in a timely fashion. What constitutes disclosure in a timely fashion will vary depending on the particular circumstances [r. 3.6-1 of the Rules].

4.2.4 Advertising of Fees

A lawyer may advertise fees charged for legal services if:

  • the advertising is reasonably precise as to the services offered for each fee quoted,

  • the advertising states whether other amounts, such as disbursements, third party changes and taxes will be charged in addition to the fee, and
  • the lawyer strictly adheres to the advertised fee in every applicable case.
[R. 4.2-2 of the Rules]

4.2.5 Estimates

A lawyer should provide to the client in writing, before or within a reasonable time after commencing representation, as much information regarding fees and disbursements, and interest as is reasonable and practical in the circumstances, including the basis on which fees will be determined.

A lawyer should be ready to explain the basis for fees and disbursements charged to the client. This is particularly important concerning fee charges or disbursements that the client might not reasonably be expected to anticipate [Commentaries [3] and [4] to r. 3.6-1of the Rules].

4.2.6 Joint Retainers

Lawyers acting for two or more clients in a matter shall, unless the clients otherwise agree, divide the fees and disbursements equitably between them [r. 3.6-4 of the Rules].

4.2.7 Money Retainers

If practicable, lawyers may obtain a money retainer from the client at the outset of the engagement and ask that the money retainer be replenished as the matter proceeds and interim accounts are rendered.

In determining the frequency and amount of the money retainers required of clients, lawyers should consider their obligation to continue to represent clients in certain circumstances, despite non-payment of fees. For example, lawyers may not withdraw from representing a non-paying client if serious prejudice to the client would result [rr. 3.7-3 and 3.7-4 of the Rules].

4.2.8 Written Confirmation

Lawyers may wish to provide written confirmation of their estimated fees and their billing policy to the client by

  • written retainer agreement executed by the client
  • engagement letter from the lawyer
  • confirming memo to the client by mail or email.

4.3 Interim Billing, Work in Progress, or Account Status Reports

Lawyers may periodically send clients work in progress, account status reports, or reminder letters to

  • keep clients apprised of the expense or cost of the matter to date
  • request payment of any outstanding legal costs.

If practicable and appropriate in the circumstances of the particular retainer, lawyers may consider implementing a firm policy that requires matters to be billed on a regular basis (fees and disbursements), usually on a monthly basis.


Lawyers shall ensure that all statements of accounts delivered to clients clearly and separately detail the amounts charged as fees and as disbursements [r. 3.6-3 of the Rules].

4.4 Financial Obligations

4.4.1Meeting Obligations

Lawyers shall promptly meet financial obligations in relation to their practice. [Rule 7.1-2 of the Rules]

4.4.2 Obligations to Third Parties

Prior to retaining third parties such as consultants, experts, or other professionals, lawyers should clarify the terms of the retainer in writing, including specifying the fees, the nature of the services to be provided, and the person responsible for payment [Commentary to r. 7.1-2 of the Rules].

If the lawyer is not responsible for paying amounts owed to third parties in relation to a client’s matter, the lawyer should assist the client in making satisfactory arrangements for payment, if reasonably possible to do so.

If there is a change of lawyer, the lawyer who originally retained the third party should advise the third party about the change and provide information about the new lawyer including:

  • name
  • address
  • telephone number
  • facsimile number
  • e-mail address.

4.5 Changes to Costs Estimates

When something unusual or unforeseen occurs that may substantially affect the amount of a fee or disbursement, the lawyer should give the client an immediate explanation. A lawyer should confirm with the client in writing the substance of all fee discussions that occur as the matter progresses, and revise any initial estimate of fees and disbursements provided to the client [Commentaries [3] and [4] to r. 3.6-1.1 of the Rules].

4.6 Restricted Practices

4.6.1 Hidden Fees

Lawyers may only take fees, rewards, costs, commission, interest, rebate, agency or forwarding allowance, or other compensation related to employment from

  • the client
  • someone other than the client, but only with full disclosure to and with the consent of the client, or
  • in cases where the lawyer’s fees are being paid by someone other than the client, such as a legal aid agency, a borrower, or personal representative, with the consent of such agency or other person [Commentary to r. 3.6-1 of the Rules].

The consent of the client, other person or agency shall be either in writing or reduced to writing [r. 1.1 of the Rules]

4.6.2 Contingent Fees and Contingent Fee Agreements

Lawyers shall not enter into contingent fee arrangements with clients except in accordance with the provisions of Rules 3.6-1 and 3.6-2 of the Rules.

4.6.3 Charging Fees through Civil Society Organizations 

A civil society organization (CSO) is defined in Rule 1.1-1 of the Rules.  Lawyers providing legal services to clients through a CSO are prohibited from directly or indirectly charging fees for the legal services rendered either by way of service, membership, or other fee model [r. 3.6-1.2 of the Rules]. Lawyers in this arrangement may, however, charge clients for disbursements relating to such services if the disbursement is fair and reasonable and, prior to entering into the lawyer-client relationship, the lawyer 

  • communicates the disbursement cost(s) to the client, and
  • ensures the client understands his or her obligation with respect to the payment of such disbursement cost(s).

[R. 3.6-1 of the Rules; s. 51 of By-Law 7]

4.7 Fee Arrangements With Other Lawyers or Paralegals

4.7.1 Division of Fees

Lawyers may divide fees with other lawyers or paralegals who are not in the same firm only if all of the following conditions are met:

  • fee division, splitting, or sharing is with a person who is a lawyer or paralegal
  • the client consents in writing
  • the fee is divided in proportion to the work done and the responsibilities assumed [rr. 3.6-5 and 3.6-7 of the Rules].

4.7.2 Referral Fees

Lawyers and paralegals may only accept or pay referral fees if all of the following conditions are met:

  • The financial or other reward for the referral of the client or client matter is given to a person who is a lawyer or paralegal.
  • The lawyer or paralegal who receives the referral has the expertise and ability to handle the matter.
  • The referral is not because the referring lawyer or paralegal has a conflict of interest or was suspended at the time the referral was made and, as a result, was not permitted to act on the matter.
  • A referral fee agreement has been entered into at the time of the referral or as soon as possible after the referral.
  • The lawyer or paralegal making or accepting the referral is not providing legal services through a CSO.
  • The lawyer or paralegal recommended at least two lawyers or paralegals to the client. If not, the lawyer or paralegal disclosed the reason(s) that it has not been possible to do so.
  • The referral fee is fair and reasonable and does not increase the total amount of the fees charged to the client.
  • The amount of the referral fee does not exceed 15% of the fees paid to the lawyer or paralegal who received the referral for the first $50,000 billed in fees for the matter, and 5% of any additional fees for the matter to a maximum referral fee of $25,000.
  • The lawyer or paralegal provided the client with the Law Society’s Requirements for Referral Fees and a reasonable opportunity to review and consider it.
  • The lawyer or paralegal entered into a Referral Agreement with the client in the form provided by the Law Society at the time of the referral or as soon as practicable after the referral.

[RR. 1.1, 3.6-6.0, 3.6-6.1, and 3.6-7 of the Rules]

In determining whether to pay or accept a referral fee, lawyers should review Rules 3.6-6.0 to 3.6-6.1 of the Rules and consult the Law Society’s Referral Fees resources.

4.7.3 Exceptions

The rule with respect to referral fees prohibits lawyers or paralegals from entering into arrangements to compensate or reward non-lawyers and non-paralegals for the referral of clients. However, the rule does not prohibit a lawyer from

  • making an arrangement respecting the purchase and sale of a law practice when the consideration payable includes a percentage of revenues generated from the practice sold,

  • entering into a lease under which a landlord directly or indirectly shares in the fees or revenues generated by the law practice, or

  • paying an employee for services, other than for referring clients, based on the revenue of the lawyer’s firm or practice.

[Commentary [1] to r. 3.6-7 of the Rules]

Lawyers in multi-disciplinary practices may share fees, cash flows, or profits, and may accept from and pay referral fees to non-lawyer partners, provided that the conditions set out in Rule 3.6-8 of the Rules, are met.

Lawyers who are members of inter-provincial law firms or in law partnerships with Ontario and non-Canadian lawyers may share fees, cash flows, or profits, and may accept from and pay referral fees to their non-Canadian lawyer colleagues, provided the conditions set out in Rule 3.6-8 of the Rules, are met.

Affiliations are not subject to the exception for multi-discipline practices and inter-provincial and international law firms [Commentary to Rule 3.6-8 of the Rules].

4.8 Appropriation of Client Funds

Lawyers shall not appropriate any funds of the client held in trust or otherwise under the lawyer’s control for or on account of fees except as permitted by the By-Laws of the Law Society Act [r. 3.6-10 of the Rules].

4.9 Handling of Money and Other Property

4.9.1 Prohibited Cash Transactions in Client Files

When a lawyer engages in, or gives instructions with respect to the following activities

  • receives or pays funds
  • purchases or sells securities, real properties or business assets or entities
  • transfers funds by any means

The lawyer shall not receive or accept from a person cash in an aggregate amount of $7,500 or more in Canadian dollars in respect of any one client file.

4.9.2 Exceptions

This prohibition does not apply where the lawyer receives cash

  • from a public body and certain entities as described in Section 6(a) of By-Law 9
  • from a peace officer, law enforcement agency or other agent of the Crown, acting in an official capacity
  • pursuant to an order of the tribunal
  • to pay a fine or penalty
  • for fees, disbursements, expenses or bail, provided that any refund out of such receipts are also made in cash [ss. 4 to 6 of By-Law 9].

4.9.3 Trust Accounts

a) Operation of a Trust Account  

A trust account is used to hold client money. If a lawyer does not receive trust funds in their practice the lawyer is not required to open a trust account. A lawyer who has a trust account is prohibited from using the trust account for purposes not related to the provision of legal services [r. 3.2-7.3 of the Rules].

A lawyer practicing law or providing legal services to clients through a CSO must provide such services at no cost to the client and, as a result, is prohibited from operating a trust account in connection with the legal services rendered [ss. 51(1) and 52 of By-Law 7].

b) Money Paid Into a Trust Account

A lawyer who receives money in trust for a client shall immediately pay the money into a bank or other institution.

Pursuant to Sections 7(2) and (3) of By-Law 9, a lawyer receives money in trust for a client if the lawyer receives the following from a person

  • money belonging in whole or in part to the client
  • money held on behalf of a client
  • money held on a client’s direction or order
  • money advanced as a retainer for fees for legal services not yet rendered
  • money advanced as a retainer for disbursements not yet made
  • money paid to a lawyer that belongs in part to a client, in part to the lawyer, where it is not practicable to split the payment of the money
  • money that, by inadvertence, has been inappropriately drawn from a trust account, not in accordance with Section 9 of By-Law 9 [see below].

c) Money Not to be Paid Into a Trust Account

Lawyers are not required to pay into a trust account money received in trust for a client if

  • the client so requests, in writing
  • the lawyer pays the money into an account to be kept in the name of
    • the client
    • a person named by the client
    • an agent of the client
  • the lawyer pays the money to a person on behalf of the client immediately upon receiving it from the client, in accordance with ordinary business practices [s. 8(1) of By-Law 9].

Although not required to pay these funds into a trust account, lawyers shall include all handling of such money in the lawyer’s records in accordance with Part V of By-Law 9.

Lawyers shall not pay into a trust account
  • money that belongs entirely to the lawyer or to another member of the lawyer’s firm
  • money that is received by a lawyer
    • as payment for fees for services for which a bill has been delivered
    • as payment for fees for services already performed for which a bill will be delivered immediately after the money is received
    • as reimbursement for disbursements made or expenses incurred by the lawyer or on behalf of the client [s. 8(2) of By-Law 9].
 

4.9.4 Withdrawal of Money from Trust Account

a) Money That May Be Withdrawn

Lawyers shall only withdraw the following from a trust account:

  • money properly required for payment to a client or to a person on behalf of a client
  • money to reimburse the lawyer for money properly expended, or incurred on behalf of a client
  • money required for, or toward, payment of fees for services performed by the lawyer for which a billing has been delivered
  • money directly transferred into another trust account and held on behalf of a client
  • money that should not have been paid into a trust account but was inadvertently paid into a trust account
  • other money if authorized to do so by the Law Society [ss. 9(1) and (2) of By-Law 9].

b) Manner of Withdrawal of Certain Money

Lawyers are only permitted to withdraw or transfer client monies from a trust account:

  • by cheque drawn in favour of the lawyer
  • by transfer to a bank account, other than a trust account, kept in the name of the lawyer
  • by electronical transfer according to the procedure set out in Section 12 of By-Law 9, or in the case of closing funds in real estate transactions in accordance with Section 13 of By-Law 9.

[SS. 10 to 13 of By-Law 9]

4.9.5 Withdrawal by Cheque

Lawyers shall ensure that cheques drawn on a trust account are not

  • made payable to either cash or to bearer
  • signed by a person who is not a licensee, except in exceptional circumstances and if conditions exist as set out in Part IV of By-Law 9.

4.9.6 Withdrawal by Electronic Transfer

Lawyers shall only withdraw money from a trust account by electronic transfer if the conditions in Part IV of By-Law 9 are met. Conditions to be met include:

  • electronic system requirements
  • timely production of confirmation of certain information relating to the electronic transfer
  • use of electronic transfer requisition, Form 9A.

4.9.7 Automatic Withdrawals from Trust Accounts

Lawyers may authorize Teranet to withdraw from a trust account certain funds required to pay document registration fees and land transfer tax, provided that all the conditions set out in Sections 15 to 17 of By-Law 9 are met.

4.10 Use of Credit Cards

Lawyers may enter into agreements with financial institutions that offer credit card services provided that certain conditions are met:

  • all service charges, discounts and other fees payable by the lawyer to the financial institution are deducted from the general account and not the trust account
  • credit card payments for retainers shall only be deposited directly into trust accounts and credit card payments for payments on account shall only be deposited directly into the general account
  • client confidentiality is maintained - the sales slip shall not indicate the nature of the legal services, only the words “legal services” plus a file number and dollar amount
  • amount of the charge is inserted at the time the client signs the slip
  • the words “trust account” appear on the original credit card slip
  • sales slip is presented for deposit in the appropriate trust account in accordance with the By-Laws
  • credit card company’s discount or fee is not charged to the client.

For more information, lawyers should consult the Law Society’s Use of Credit Cards in The Legal Practice resource.

4.11 Records

Lawyers shall maintain financial records for all money and other property received and disbursed in connection with the lawyer’s practice, in the form and for the period of time set out below, in accordance with Part V of By-Law 9.

4.11.1 Maintain For Ten Years [s. 23(2) of By-Law 9] 

The following records shall be maintained for at least the 10 year period immediately preceding the lawyer’s most recent fiscal year end:

1)      Trust Receipt Book of Original Entry [s. 18(1) of By-Law 9] identifying

  • each date on which money is received in trust for a client

  • the method by which money is received

  • the person from whom money is received

  • the amount of money received

  • the purpose for which money is received

  • the client for whom the money is received in trust.

2)      Trust Cash Disbursements Book of Original Entry [s. 18(2) of By-Law 9] showing all disbursements paid out of money held in trust for a client and identifying

  • each date on which money is disbursed

  • the method by which money is disbursed, including the number or similar identifier of any document used to disburse money

  • the person to whom money is disbursed

  • the amount of money disbursed

  • the purpose for which money is disbursed

  • the client on whose behalf the money is disbursed.

3)      Clients’ Trust Ledger [s. 18(3) of By-Law 9] showing separately for each client for whom money is received in trust

  • all money received

  • all money disbursed

  • any unexpected balance.

4)      Record of Monthly Comparisons of Trust Liabilities and Trust Bank Reconciliations [s. 18(8) of By-Law 9] showing

  • monthly comparison of the total balances held in trust account(s) and the total of all unexpected balances held in trust for clients as they appear from the financial records

  • reasons for any differences between the totals

  • records to support the monthly comparisons, including

    • detailed monthly listing showing the amount of money held in trust for each client and identifying each client

    • detailed monthly reconciliation of each trust bank account.

5)      Record of Property Held in Trust [s. 18(9) of By-Law 9] showing all property other than money held in trust for clients, describing each property and identifying the

  • date on which the lawyer took possession of each property

  • person who had possession of each property immediately before the lawyer took possession

  • value of each property

  • client for whom each property is held in trust

  • date on which possession of each property is given away

  • person to whom possession of each property is given.

6)      Banking Documents for all Trust and General Accounts [s. 18(10) of By-Law 9], in particular

  • bank statements

  • pass books

  • cashed cheques

  • detailed duplicate deposit slips.

7)      Electronic Trust Transfer Documents [s. 18(11) of By-Law 9], in particular

  • signed electronic trust transfer requisitions

  • signed printed confirmations of electronic transfers of trust funds.

4.11.2 Maintain For Six Years [s. 23(1) of By-Law 9]

The following records shall be maintained for at least the 6 year period immediately preceding the lawyer’s most recent fiscal year end:

1)      Book of Duplicate Receipts with each receipt [s. 19(1) of By-Law 9] identifying

  • the date on which cash is received

  • the person from whom cash is received

  • the amount of cash received

  • the client for whom cash is received

  • any file number in respect of which cash is received and containing the signature of:

    • the lawyer or person authorized by the lawyer to receive cash, and

    • the person from whom cash is received

Lawyers shall make reasonable efforts to obtain the signature of the person from whom cash is received and should be wary of accepting cash from someone who does not want to sign a receipt.

2)      Record of Trust Transfers [s. 18(4) of By-Law 9] that

  • shows all transfers of money between clients’ trust ledger accounts, and

  • explains the purpose for which each transfer was made.
     

3)      General Cash Receipts Book of Original Entry [s. 18(5) of By-Law 9] showing all money received, other than money received in trust for a client and identifying

  • each date on which the money is received

  • the method by which money is received

  • the person from whom the money is received

  • the amount of money received.
     

4)      General Cash Disbursements Book of Original Entry [s. 18(6) of By-Law 9] showing all money disbursed, other than money held in trust for a client, and identifying

  • each date on which money is disbursed

  • the method by which the money is disbursed

  • the amount of money disbursed

  • the person to whom money is disbursed.
     

5)      Fees Book or Chronological File of Copies of Billings [s. 18(7) of By-Law 9] showing

  • all fees charged and other billings made to clients

  • the dates on which fees are charged and other billings made to clients

  • the identity of clients charged and billed.
     

6)      Teranet Withdrawal Documents [s. 18(12) of By-Law 9], in particular

  • signed authorizations of withdrawals by Teranet

  • signed paper copies of confirmations of withdrawals by Teranet.

4.12 Form of Records to be Maintained

In accordance with Sections 21 and 22 of By-Law 9, lawyers shall ensure that all financial records

  • are permanent

  • if entered and posted by hand, are entered and posted in ink 

  • can be produced promptly in paper copy on request of the Law Society of Ontairo

  • are current, and in the case of the lawyer’s Record of Monthly Comparisons of Trust Liabilities and Trust Bank Reconciliations, created within 25 days after the last day of the month in respect of which it is being created.

4.13 Records Relating to Mortgages or Charges

Lawyers who hold mortgages or other charges in trust for clients shall comply with the record keeping requirements in Part V of By-Law 9.

4.14 Internal Controls

Although a lack of internal controls does not necessarily constitute a breach of the Rules or By-Laws made pursuant to the Law Society Act, lawyers may consider implementing internal controls to assist in their efforts to comply. The following are suggested internal controls. Not all suggestions are practicable for all lawyers. Depending on their particular circumstance, lawyers may choose to adopt some or all or create their own self-assessing internal controls.

4.14.1 Cash, Client Files Involving Financial Transactions

Consider the following suggestions when dealing with files relating to financial transactions:

  • Implement a ‘no cash’ policy wherein the firm will not receive or accept cash, or implement a procedure to ensure that the $7,500 limit per client file is not exceeded
  • No cash will be accepted by the firm unless the person from whom cash is received and the lawyer receiving cash first sign receipts in duplicate.

4.14.2 Cheques

Consider the following suggestions when dealing with trust accounts. Lawyers may wish to adopt similar controls for general accounts:

a) Cheque Requisitions

  • all cheque requests are accompanied by a signed cheque requisition evidencing approval
  • only certain designated lawyers may authorize trust account payments
  • only certain designated individuals may authorize general account payments
  • firm personnel responsible for preparing cheques are instructed not to prepare cheques unless the requisition includes a signature of approval
  • supporting documentation (such as an original invoice, reporting letter, statement of receipts or disbursements) accompanies the cheque requisition, where possible
  • original copy of the invoice is stamped “paid” (to prevent an individual from using an invoice more than once to obtain funds)
  • photocopies of invoices are not generally accepted as support for cheque requisitions.

b) Cheque Signing Policies

  • cheques in excess of a threshold amount require the signatures of two partners
  • cheques are never to be signed in blank
  • cheques made payable to financial institutions include details of the transaction
  • cheques are in numbered order and the sequence is checked
  • at least one of the individuals signing the cheques always reviews the request for payment to determine if the request relates to trust funds and reviews the client file, to determine
    • the validity of the request for payment
    • the reasonableness of the amount requested
    • if sufficient funds are available to pay the amount of the cheque
    • that an accounting to the client for receipts and disbursements is completed.

4.14.3 Trust Records

Consider the following suggestions:

  • Monthly reconciliations and adjustments are reviewed and signed by someone other than the individual who prepared the reconciliation
  • Reviewer of the reconciliation ensures that
    • reconciliations are prepared on time
    • reconciled items are cleared promptly
    • all unusual items are questioned and an adequate explanation is given for the unusual nature of the item and noted in the firm records and client file
    • a list of trust balances is periodically reviewed for closed or completed matters including trust balances that have not changed in the past 12 months
  • Trust transfer requisition is prepared to transfer funds from one client’s trust ledger account to another trust ledger account
    • written authorization from the client to transfer funds to another trust ledger is always obtained prior to the trust transfer
    • trust transfer requisition is signed by the responsible lawyer and an explanation is provided
    • accounting department, or personnel responsible for accounting, has been instructed to process trust transfer requisitions only if the criteria for signatures and explanations has been met
  • Senior partner or office manager periodically reviews the client’s trust ledger accounts for unusual items
  • Blank trust cheques should be kept in a secure manner.

4.14.4 Clients’ Valuable Property

A lawyer must clearly label and identify client property and place it in safekeeping distinguishable from the lawyer’s own property [r. 3.5-4 of the Rules]. The lawyer may consider checking on the physical existence of these items periodically.

4.14.5 Staffing Policies

A lawyer may consider developing and implementing staffing policies that address the following issues:

  • respect for an individual’s need to take regular holidays
  • prohibiting sexual harassment of and discrimination against colleagues, employees, clients, or other persons
  • compliance with the workplace violence and harassment provisions of the Occupational Health and Safety Act (“OHSA”).
  • red flags in personal and financial management, including where a staff member or lawyer
    • is consistently too busy to take holidays
    • appears to be living beyond his or her means, which may include
      • sudden and significant increases in advances
      • large increases in unbilled disbursements 
    • productivity has fallen off for no apparent reason
    • appears withdrawn or nervous
    • continually makes last minute requests for funds
  • conducting periodic reviews of client files by a senior partner or office manager to ensure the
    • client receives an accounting for trust receipts and disbursements
    • details of the accounting to the client match with the trust ledger
    • file is maintained in an orderly fashion
  • outside interests that may create a conflict of interest situation are managed.

4.14.6 Segregation of Duties

Lawyers should segregate firm duties so that the same individual does not have complete control over the management of client and law firm funds. Some suggestions include:

  • the individual who opens the mail is different from the individual responsible for preparing a listing of all cash and cheques received
  • all cheques received are stamped “deposit only”
  • firm issues receipts for all cash or cheques received to
    • provide client with proof of payment
    • help prevent funds from being redirected to another client’s account
  • numerical sequence of receipts are checked to ensure that all funds receipted are also recorded in accounting records and deposited into the bank.

4.15 Computer Controls

Lawyers should consider controls and systems appropriate for their circumstances to ensure information maintained in their computers is secure and only accessible by designated firm members as required.

4.16 LawPRO

Lawyers should ensure they have and maintain sufficient professional liability insurance coverage appropriate to their particular circumstances and practice arrangement. Lawyers may consider assessing their insurance by reviewing LawPRO’s Insurance Types and the lawyer’s Practice Type.

4.16.1 Insurance Types

  • standard program
  • run-off insurance
  • optional insurance coverage to increase coverage limits including
    • innocent party
    • excess
    • run-off buy up 

4.16.2 Practice Types

  • private practice including lawyers
    • on temporary leaves
    • in MDPs
    • in professional corporations
  • retired lawyers, judges and other lawyers no longer practising law
  • in-house corporate counsel
  • government lawyers, educators and other lawyers not in active practice
  • new calls to the profession
  • lawyers providing legal services through CSOs.

4.17 Planning For Death, Disability and Business Interruptions

Lawyers may consider implementing a plan to deal with death, disability, or business interruptions. The purposes of planning for business interruptions for death or disability are to

  • preserve the practice
    • for the disabled lawyer, during the lawyer’s disability, or if the disability is permanent, for wind up or sale
    • on the lawyer’s death, for wind up or sale on behalf of the estate
  • enable another lawyer to step into the practice for continuation, winding up or sale, with relative ease
  • comply with the lawyer’s professional responsibilities, including
    • maintaining client confidentiality
    • having financial resources in place to preserve the practice.
Lawyers may consider adopting the following to assist in the event of their disability:
  • ensure the practice is organized and that all information is recorded and easily accessible for the successor lawyer
  • purchase insurance
    • life insurance to pay for the wind up or sale of the practice
    • disability/business interruption insurance to pay the successor lawyer to continue the practice and to provide a source of disability income for the disabled lawyer
  • have a power of attorney granting a successor lawyer the ability to access trust and general accounts and continue with the practice.
The lawyer may consider having a will that addresses issues related to the practice in the event of death. Consider appointing a lawyer as co-estate administrator or executor to deal with the law practice.

4.18 Disaster Plans

Lawyers should consider planning for disasters which stop normal office processes as a result of either routine or dramatic events, such as

  • extreme weather conditions
  • prolonged power or communications failure
  • robbery or other criminal activity
  • civil unrest
  • terrorist acts.
In devising a disaster plan, lawyers may wish to consider the following
  • set out a plan to protect firm members
  • have an evacuation plan
  • have frequent scheduled and unscheduled drills
  • keep emergency exits clear
  • maintain emergency equipment on sight
  • train staff in CPR and first aid
  • preserve assets and critical information such as critical dates and deadlines
  • duplicate paper files in electronic form and store in a secure location off site
  • ensure viability of the firm operations, including steps for business recovery and resumption
  • deal with succession issues in cases where key firm members are either killed or permanently disabled.
Terms or Concepts Explained