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External Examiner newsletter

In this issue:

• Upcoming due dates
• Important reminders for External Examiner reporting
• Independence and maintaining confidence in External Examiners
• External Examiner surveys
  • VLSB+C Early Intervention Strategy survey
  • Annual External Examiner survey
• Risk Outlook
• Canaries in the coal mine video
• More information
• Contact us

Welcome to your External Examiner (EE) newsletter for 2025.

Upcoming due dates

The trust year ended on 31 March 2025 and reporting via LSB Online is now open. Two deadlines are fast approaching:

• Part A: Law Practice Confirmation and Part B: Statement of Trust Money are both due by Wednesday 30 April 2025.
• EE Reports are due by Saturday 31 May 2025.

Important reminders for External Examiner reporting

To help you complete your examination, we encourage you to use our EE Checklist. When conducting your examination and completing your EE report, here are some important things to remember: 

Recording breaches

• Make sure you record all breaches or errors that the law practice or approved barrister’s clerk has made for the examination period – regardless of the monetary value, the reason for the error or whether the error has already been reported to the Victorian Legal Services Board (VLSB). 
• If you include your opinion about a breach in Part 4 of your report, it should also be recorded in Schedule 1 – Breaches of Legislation.

Identifying significant risk

Issues that constitute a significant risk include: 

• reconciliations that haven’t been prepared at all or have been prepared late – at the very least, you should be reviewing all end of month reconciliations to make sure they’re completed correctly
• deficiencies or irregularities in the trust account records that haven’t been reported
• intermixing of trust money with non-trust money
• controlled money that hasn’t been recorded correctly.

Monitoring dormant balances

• Make sure you monitor dormant balances – instances where the same ledgers appear each year and the law practice hasn’t taken steps to complete the matter or clear the balance. These should be listed in Part 6 of your report. The list should include the total number and value of dormant balances, and the age of each dormant balance. 

Identifying which software accounting system is in use

• Determine which trust accounting system the law practice uses. It doesn’t have to be on the approved list of trust accounting software, though we encourage the use of these systems. Excel spreadsheets and Word documents are not appropriate and therefore should be identified as a breach in your report. The same applies to Xero, MYOB and QuickBooks, as these aren’t compliant and should not be used to maintain trust records. 

Carrying out vital checks

• Check with the law practice or approved barrister’s clerk whether they have reported trust deficiencies or irregularities to the VLSB during the year. If so, find out how they have responded to or adopted our recommendations and include this in your report. 
• Review Part A – Law Practice Confirmation and Part B – Statement of Trust Monies to make sure they’re correct, and if they’re not, both forms need to be resubmitted.
• Check that the law practice’s invoices include a notification of client’s rights, and that in all cost-related documents (e.g. costs disclosure and invoices) the law practice is referencing the current legislation (i.e. the Legal Profession Uniform Law). If they’re not, include this in your report.
• Check and report any instances where a law practice has withdrawn invoiced fees prematurely or otherwise not in line with Rule 42 of the Legal Profession General Rules.
• Confirm that the law practice is keeping a backup of trust records in either hard copy or a printable form (i.e. PDF). The law practice can’t rely on the software provider’s cloud storage, and if they are, this should be included as a breach. 
• Check and report any instances where the law practice isn’t complying with their statutory deposit account obligations.

Making final comments

• Do not use the final comments section to report breaches. This section should only include additional information that can’t be reported elsewhere in the report, and shouldn’t be used to note that there are no breaches or that breaches have been recorded in Schedule 1.
• Comments relating to there being ‘no financial loss’ are not relevant to a trust account holding client money. All breaches are to be reported – regardless of whether the law practice or their clients suffer any financial losses, and regardless of whether the law practice rectified the breach. 
• If there have been delays in the law practice giving you records or you have had difficulty communicating with them, please report this in the final comments. If the report has been delayed, reporting the date you had all of the required material from the law practice helps us assess the severity of the delay. 

Updating contact details

• If a law practice needs to update their address or other contact details, please tell them to use our lawyer enquiry form.

Independence and maintaining confidence in External Examiners

As an EE, the intelligence you gain during your examinations is critical to helping us prevent harm to clients. With your help, we can identify where law practices are failing to meet their trust account obligations and intervene early.

This is why your credibility is vital, and why it’s essential that you maintain a high level of confidence in your role.

We’ve received a number of enquiries from law practices asking if their EE can also be their bookkeeper. The role of EE requires you to be independent, in line with professional accounting standards. If an EE for a law practice is also the bookkeeper or accountant, they cannot maintain independence or objectivity. There are no restrictions on your ability to communicate with the law practice, but you shouldn’t be responsible for their day-to-day record keeping. 

We understand that the time to complete your annual examination is short and that you may use support staff to collect and collate the information needed to complete your examination. However, as the registered EE assigned to the law practice, you are responsible for conducting a review of the law practice’s records to identify whether they are compliant with the Uniform Law and Rules, and prepare the report.  

When we have previously conducted our own trust records investigations of a law practice that you are assigned to, you may have been provided with a copy of a trust records investigation report for your information. Due to confidentiality provisions, we will no longer provide you with copies of these reports. If you would like to review a report, you can ask the law practice for a copy. 

Our investigations shouldn’t impact how you approach your examination or what you include in your report. We expect you to report all instances that you have identified in your examination, even if it’s the same issue our investigation has already identified. 

External Examiner surveys

Early Intervention Strategy survey

The Victorian Legal Services Board and Commissioner (VLSB+C) is seeking your views and opinions on our early intervention work. 

Our Evaluation and Impact team is conducting an evaluation of our Early Intervention Strategy, which has been in place since 2022. The strategy is aimed at reviewing the intelligence that we have about the legal profession, and developing useful plans to intervene early in order to prevent or mitigate harm. 

As an EE, we’re interested in your experience and insights into this work. We invite you to take part in our survey, which should take less than 10 minutes to complete. The survey is voluntary, and your responses will be anonymous.  

This is your opportunity to feed into an evaluation of our work and identify how we can make improvements for EEs, the profession and consumers of legal services.  

The survey is only open to External Examiners in Victoria, and is open from now until 2 May 2025.

Complete the survey now

Find out more about why the VLSB+C undertakes surveys and how we use the results. 

Annual External Examiner survey

In addition to the survey mentioned above, we will also invite you to take part in a short, voluntary survey when you submit your EE report. It will include questions about how you conduct your EE activities and engage with law practices.

While the survey is voluntary, we encourage you to complete it at least once to make sure we continue to tailor our communications and activities to best meet your needs, ensuring a smooth end of trust year period. 

Risk Outlook

The VLSB+C's Risk Outlook spotlights key risks currently facing the profession that we, as the legal regulator, are most concerned about.

These risks are as follows: 

• Cybersecurity breaches 
• Improper use of artificial intelligence
• Non-compliance with Uniform Law obligations 
• Failure to comply with fundamental ethical duties
• Money laundering
• Inadequate supervision of law practices and employees

We encourage you to familiarise yourself with the Risk Outlook, and to recommend your assigned law practices do the same. Cybersecurity breaches, money laundering and failing to comply with Uniform Law obligations – including in relation to trust money – are all vital topics to consider when ensuring trust records are properly maintained.

Canaries in the coal mine video

Canaries in the coal mine 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 your report
• 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
• which ‘red flags’ to watch out for and when to tell us if there are problems
• what support is available to help law practices.

We hope this video answers all of your questions, and we welcome feedback about further guidance that would help you conduct your examinations. To share your feedback or suggestions, or to ask us any questions, please contact us via our dedicated EE enquiry form.

More information

If you have any concerns about a law practice – for example, where a sole practitioner is very ill or otherwise not coping – don’t wait until it’s time to lodge your report to let us know. Please notify us immediately by emailing edp@lsbc.vic.gov.au.

Further guidance

Our website has a wealth of helpful and up-to-date information, including on how to appoint an EE and tips for completing your examination. If you’re unsure about anything, our website should be the first place you look. 

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. If you think a lawyer needs more support, please remind them of these services. 

You can also contact the LIV’s Marco Zanon with any questions about trust-related matters that aren’t regulatory concerns. He can be reached on (03) 9607 9447 or at trustconsult@liv.asn.au.

Networking with your peers

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

Contact us

Our dedicated EE enquiry form makes getting in touch with us easy. You can also upload documents when you submit an enquiry. We recommend using the form when you need our help with:

• registering as an EE
• asking about an interstate accounting firm
• clarifying something in an examination report or end of trust year report
• transferring an EE to a new entity
• telling us if you have changed your address or other details 
• reporting any issues with LSB Online.