10 things you should have done as COFA: Part one
In this two part series Richard Hill highlights five key areas of the COFA role. Read part two here.
The introduction of the Compliance Officer for Finance and Administration (COFA), and more crucially the reporting duties that are incumbent on the role, has seen firms adopt a shift in focus away from past tendencies to reactively remedy breaches to the more proactive prevention of breaches. Acting after the event puts COFAs in the potential hot seat of reporting a material breach to the SRA. With responsibility for recording every breach of Accounts Rules, there should be no more crossing of fingers at audit time and hoping that certain files aren’t picked. With the COFA’s reporting obligations for material breaches along with the likelihood that Reporting Accountants will ask to review breach registers, in addition to the possibility that the SRA might require sight of the firm’s breach register at any time – in the current climate there is no escaping breach reporting (irrespective of the criticisms about the SRAs obvious lack of resources for handling a large volume of material breaches reported).
Here are a few suggestions (in no particular order) as to the areas that those (lucky) COFAs in conjunction with the firm’s management team should have in hand by now as we head towards the first anniversary of the role:
1. Dealt with surplus client monies
In the past many firms have been guilty of letting small amounts, even pennies, accumulate and leave littered around ledgers. These balances have caused real compliance headaches for firms despite the rules having changed back in July 2008. Whilst the rules introduced back in July 2008 are not retrospective in their application i.e. previous balances don’t come under the rules, not having dealt with these older balances five years after the rules are dealing promptly with residual balances were introduced can only be seen as a systemic failure and evidence that the firm does not have the correct processes in place.
COFAs should by now have a grip on these ledgers. There are some circumstances where it is unrealistic to expect that all historic balances have been dealt with such as where firms have inherited untraceable client funds (usually through mergers). But what is paramount is that COFAs have the step-by-step tracking process in place now to deal appropriately with these historic client balances. The COFA needs to be able to demonstrate that procedures are in place and these balances are being progressed so that ultimately they are returned or donated. Remember all client funds held in the last five years should now be dealt with promptly and returned so that the list of historic balances is not growing.
If these procedures are not in place and/or perhaps most importantly, it is clear that historic balances are not being progressed, this can surely only be seen as reportable as a material breach particularly if the accumulated balances total a material amount.
2. Got to know your COLP counterpart
Collaboration between the COFA and COLP is a must to ensure that the firm is fully compliant. Many tasks will involve both the COFA and COLP such as file reviews, monitoring undertakings and the reporting requirement to the SRA whether it be a material breach or the annual information report (now of course only required for licensed bodies).
And let’s be honest, life as a compliance officer is often not easy and to have a fellow “watchdog” to confide in will also help on a personal level. The COFA role is arguably more straightforward than the COLP role in that Accounts Rules breaches are generally very black and white, so it may brighten your mood listening to the COLP woes and also get some valuable advice on how to handle non-compliant partners!
It’s a fact - two heads are better than one in raising awareness of compliance and risk management.
3. Understood top 10 risks of non-compliance
COFA’s should now have a clear picture in their mind of the risks that threaten compliance and what simpler way is there than communicating these across the firm than with a top 10-list in bullet point format? COFAs must properly understand the risks to their firm and so should be wary of being over zealous by introducing unnecessary procedures that in reality do little to address the real risks faced by their own firm. The COFA must balance the need for appropriate accounting procedures and controls in place to ensure the firm, its managers and employees comply with the SRA Accounts Rules against the need for fee earning staff in particular to avoid being overburdened with compliance procedures that add little value to the service offering to its clients.
The biggest risk to Accounts Rules compliance is the handling of client money. The more client monies transacted the bigger the risk. For smaller firms in particular, a big risk to the firm’s compliance could be an obstructive partner or even two (although diplomacy would suggest this should not be in the top 10 circulated!). A risk for all firms to consider is who is going to replace the current COFA should they be absent for any significant period of time. Often firm’s will only have one natural candidate for the role with sufficient Accounts Rules knowledge and seniority to adequately fulfill the role.
4. Recorded your consent and the firm’s agreement (….and sought indemnity from the firm)
Firms have a degree of flexibility in their selection of COFA, as it does not have to be a lawyer. A recent survey has shown that 53% of COFA’s are employees.
If you are an employee acting as COFA, you should have reviewed your contract of employment and for most, should have sought an indemnity from the firm and/or have in place an insurance policy. Additional terms or documentation should be included as an addendum to your standard contract of employment to confirm that you understand the role and responsibility you are consenting to. Additionally the firm needs to acknowledge formally its commitment to have adequate systems in place and also to empower the COFA to undertake their jobs effectively including providing additional resource should this be necessary.
It should be noted that proposing such a commitment from the firm can also be a very useful tool to focus partner’s minds on their compliance responsibilities – solicitors by their very nature tend to pay attention when asked to sign a formal document!
5. Carried out file reviews and documented findings
How do you really know if individual fee earners or support staff are in reality being compliant?
Answer is file reviews.
By now COFA’s should have purposefully decided on the quantity, timescales and selection process of the files to be reviewed and also carried out the file reviews. Crucially, file reviews should not be a one off exercise. Implemented as a joint task with the COLP, regular file reviews encourage a culture of accountability, openness and dialogue, which is essential for effective supervision.
The file review process employed shouldn’t just focus solely on each file’s compliance but should also provide a mechanism to identify trends and more positively possible improvements in procedures, training and file management.
All findings should be documented. It is not compulsory under OFR to keep written records of systems, policies and procedures but if you don’t how will you or your firm demonstrate that there are suitable arrangements in place?