External Examiner Newsletter

In this issue:

• Upcoming deadlines
• Changes to the External Examiner (EE) Report
• Important reminders for EE reporting
• Canaries in the Coal Mine 2024
• Maintaining confidence in EEs
• Other useful information

Welcome to your External Examiner (EE) newsletter for 2024.

The trust year ended on 31 March and reporting via LSB Online is now open to law practices, approved barristers’ clerks and EEs. There are two deadlines that are fast approaching:

Part A: Law Practice Confirmation and Part B: Statement of Trust Money are both due by Tuesday 30 April 2024.

External Examiner Reports are due by Friday 31 May 2024.

Changes to the External Examiner Report

In consultation with our Uniform Law partners, we’ve made changes to how we’re asking External Examiners to report to us.  

Now, as well as recording all breaches you identify when examining trust account records, we’re asking you to grade the seriousness of each breach, whether significant or minor.

This change adds a useful layer of context to the issues you identify, which can cover a range of compliance levels and degrees of seriousness.

We have also made minor changes to bring the EE Report in line with the EE Checklist.

We know that you see records that cover a wide range of compliance levels and that not all breaches are equal. We also believe that you are best placed to identify how serious a breach really is. While there is no guideline for what amounts to a high, medium or low level breach, we will rely on your experience and the many factors that you are aware of in the examination process.

Important reminders for EE reporting

With the examination period upon us, here are some things to remember when preparing your reports:

• Please make sure you record all breaches or errors made by a law practice or approved barristers’ clerk, including:
  • reconciliations not prepared – this constitutes an extreme risk
  • failures to prepare up-to-date reconciliations
  • all deficiencies/irregularities in the trust account records
  • intermixing of trust money and non-trust money
  • controlled money that is not being titled correctly
  • failures to issue statements at 30 June
  • funds being drawn prematurely
  • reconciliations not being checked to bank statement balance.
• Cross-check trust deficiencies/irregularities against responses in Part B: Statement of Trust Monies.
• Check with your law practice whether they have reported trust deficiencies/irregularities to us during the year. If so, clarify how they have responded to or adopted our recommendations.
• Do not use the final comments section to report breaches.

As you conduct your visits, also bear in mind the following:

• You must include all issues and breaches in your EE report, regardless of monetary value.
• You don't need to obtain bank confirmation to confirm bank balance at 31 March.
• You don't need to sight the practising certificate of the principal lawyer(s).
• If there is a mistake on Part A: Law Practice Confirmation or Part B: Statement of Trust Monies then these forms must be restarted.
• If Part B or the EE report is not allowing you to change the categories of trust money to make your opinion, then the law practice will need to resubmit the Part B form.
• Comments relating to ‘no financial loss’ are not relevant to a trust account holding client money.  
• Digital accounting systems do not have to be on the approved list of trust accounting software. However, Excel spreadsheets and Word documents are not appropriate and should not be used.
• If a law practice needs to update their address or other contact details, please advise them to use our lawyer enquiry form

Canaries in the Coal Mine 2024

Our Canaries in the Coal Mine video is a must-watch guide to the external examination year. It covers all the important things you need to know before examining a law practice’s trust account records, including:

• why we regulate trust accounts, and the role you play as an EE
• what we expect of you when preparing EE reports
• how your work supports our risk-based approach to regulation
• a rundown on final trust examinations
• a look at our EE Checklist and how it can help you
• what ‘red flags’ to watch out for and when to notify us of problems
• what support is available to assist law practices.

We hope this video answers all your questions, but we welcome feedback about additional content that would help you conduct your examinations. Please contact us via our EE enquiry form to share feedback, questions or suggestions.

Maintaining confidence in EEs

As an EE, the intelligence you obtain during your examinations is critical in helping us prevent harm to clients. With your help, we can intervene in law practices that are failing to meet their trust account obligations. Your role therefore requires a high level of trust and your credibility is vital.

On 12 March this year, we had to take steps to disqualify an EE – the first time we have been required to do so. In this instance, we determined that the person was no longer qualified for appointment as an EE for several reasons:

• they were no longer a member of the Institute of Public Accountants (or any other professional body)
• they were found to have contravened s 83A(1) of the Crimes Act 1958 (Vic)
• they were found to have contravened s 1308(1) of the Corporations Act 2001 (Cth),
• and their registration with the Tax Practitioners Board was cancelled and they were disqualified for two years.

The circumstances that led us to take this action were extraordinary. While we are confident that our approved EEs work at a high standard, and are competent and diligent, this highlights the importance of our role in ensuring that all EEs meet their obligations under the Uniform Law. It also helps us to ensure the ongoing integrity of EEs, so that law practices and approved barristers’ clerks can continue to have confidence in their EEs, and consumers can be assured that their trust money will be handled with due care and professionalism.

Contact us

Getting in touch with us is easier than ever thanks to our new dedicated enquiry form for external examiners. We recommend using the form when you need our help with:

• registering as an EE
• asking about an interstate accounting firm
• clarifying something on an examination report or end-of-trust-year report
• transferring an EE to a new entity
• notifying us of a change of your address or other details
• reporting any issues with LSB Online.

You can also upload documents when you submit an enquiry. We created the form to streamline how we handle requests, so try it out next time you have one.

Other useful information

If you have any concerns about a law practice, for example, where a sole practitioner is very ill or otherwise not coping, please don’t wait until it is time to make your report – contact us immediately at edp@lsbc.vic.gov.au.

Our website is packed with helpful information, including how to appoint an EE and tips for completing an external examination. If you are unsure about anything it is a good place to start.
  
The Law Institute of Victoria (LIV) has developed a wide range of resources to support law practices. Their trust accounting support and practice management consultancy services are available to all lawyers, not just LIV members. Please remind lawyers of these services if you think they can help. You can also contact Marco Zanon at the LIV about any trust-related matters that are not regulatory concerns:

Marco Zanon – Law Institute of Victoria
P: (03) 9607 9447
E: trustconsult@liv.asn.au

If you want to communicate with your fellow EEs, we maintain a register with contact details you can download from our website.