In this issue:
• New Trust Safety Program in Effect Jan 1, 2011
• Rule Approvals Launch Trust Safety Initiative
• Important Information about Trust Safety Program
• How will the New Rules Affect me as a Practitioner?
• Trust Safety Questions Answered
|
New Trust Safety Program in Effect Jan 1, 2011
New rules for Trust Safety have been approved by the Benchers. These come into effect January 1, 2011.
Law firms with a December 31, 2010 year-end will follow reporting requirements under the current rules.
Law firms with year-ends in 2011 will follow reporting requirements under the new audit and accounting rules which come intro effect January 1, 2011.
These new rules are located in Part 5, Divisions 2-6, Duties of Law Firms. They are found in Rules 119.
Specific transitional provisions are provided in the new Rule 120.
Visit www.lawsociety.ab.ca to see the new rules.
|
Rule Approvals Launch Trust Safety Initiative
On November 26, 2010, the Benchers approved the Rule changes to formally launch the Trust Safety initiative. This program will be administered by the Trust Safety department, which will assume all prior audit functions in addition to the new elements of the trust safety program.
The Law Society has been committed to supporting lawyers in maintaining efficient and effective accounting systems to ensure trust funds held by Alberta lawyers remain safe from fraudulent schemes and losses due to weak internal accounting systems.
In the last few years, Alberta lawyers have brought numerous risks to our attention; the trust safety initiatives will enable lawyers to develop and maintain internal accounting systems to protect against those risks and will permit the Law Society to conduct timely and effective audits to confirm the adequacy of the accounting systems.
|
Important Information about Trust Safety Program
Please note the following:
Business as Usual for Dec 31, 2010 filers: Law firms with a December 31, 2010 year-end will be conducting business as usual. The Form S is due on February 14, 2011 and the Form T is due on March 30, 2011.
New Processes as of January 1, 2011:
The Law Society of Alberta has mailed an Application to Operate a Law Firm form and an Application for Exemption form to those law firms with year ends of January 31, 2011 and February 28, 2011.
These forms are being mailed to law firms based on year-ends. So those law firms with year ends from March 2011 and onwards can expect the forms and detailed information to be distributed to them at least two months prior to their year ends. Firms are encouraged to submit their applications in advance of the year end to permit early processing of applications.
Samples of the two application forms will be posted to the website shortly.
Education modules which are part of the application process are on the LESA website. Once the Law Society has received the application form (which designates a lawyer responsible for overseeing the Trust Safety program), the Law Society can set up access to the LESA education modules for the law firm.
|
How will the New Rules Affect me as a Practitioner?
For most lawyers, the rule changes may have little impact on their day to day operations. Lawyers in Alberta have maintained a high level of vigilance over trust property and have experienced few difficulties. The new program will support these lawyers through an education program, risk management tools and regular audits with timely feedback to ensure the continued safety of trust money. While there are some new mandatory requirements with respect to trust property, these requirements reflect existing best practices. For these lawyers, key elements of the new Trust Safety program include the following:
- Every firm will have to designate a “responsible lawyer” who is accountable for overseeing the internal accounting systems and all firm filings. A LESA program has been designed to fully inform the responsible lawyer of his or her obligations.
- While there is no requirement to have computerized accounting software, firms with approved accounting software will have the option to participate in automated audits in place of annual external accountant trust audits.
If lawyers have experienced difficulty in the past in complying with accounting rules or statutory obligations, have been involved in risky activities or have experienced losses or shortage of trust property, the new Trust Safety program will provide support and structure to ensure these lawyers have future success in complying with accounting rules and safeguarding trust property. Conditions may be imposed on these lawyers or firms requiring computerized accounting software or other risk management systems to better ensure the safety of trust property held by these lawyers.
|
Trust Safety Questions Answered
1. When do the new Trust Safety rules come into force?
The rules relating to lawyer obligations regarding the receipt, payment and recording of trust funds and related Law Society filing requirements will come into force on January 1, 2011.
The rules relating to responsible lawyer and trust account approval come into force on the law firm’s designated filing date. As all law firms are required to complete the Application to Operate a Trust Account prior to the end of their current filing year, those firms with a January 31, 2011 year end will make an immediate application while the other firms will have more time to remit their application.
2. What is the rationale behind the rule changes?
The Law Society has the mandate to protect the public and provide support to lawyers as they fulfill their duty to their clients. The new rules provide for control procedures to help lawyers and law firms avoid identified risks to trust money. These controls, in conjunction with the high levels of competence and ethics demonstrated by Alberta lawyers will enhance the profession’s ability to safeguard trust money.
3. What are the duties and obligations of a Responsible Lawyer?
The duties and obligations of the responsible lawyer are provided in Rule 119.3.
4. What are the minimum requirements for a lawyer to apply as a Responsible Lawyer?
The minimum requirements are provided in Rule 119.4. While any lawyer can apply to be the Responsible Lawyer, the expectation in a firm setting is that the applicant would be in a position of authority in the law firm.
As noted on the website each law firm must have a Responsible Lawyer approved by the Law Society, with this rule effective after each law firm’s year end commencing after January 1, 2011. Therefore, any law firm with January 31, 2011 year end must have a Responsible Lawyer in place by January 31, 2011. A law firm with a February 28, 2011 year end must have a Responsible Lawyer in place by February 28, 2011 and so on.
5. Can the Law Society opt not to approve an application for Responsible Lawyer?
Yes, but the preferred option is to work with the applicant and approve the application with conditions.
In rare circumstances where the applicant has a history that may call into question the applicant’s ability to safeguard trust money, the application for approval of responsible lawyer may be denied. In such cases, the law firm will be required to present another candidate for approval of responsible lawyer. If the firm is a sole practitioner, arrangements may be made with a law firm that has an approved responsible lawyer and trust account to handle any trust money. Such arrangements must be clearly explained to the clients.
6. Is there a right of appeal if my application for Responsible Lawyer is not approved?
Yes, there is a right of appeal see Rule 119.13. Specific guidelines exist for the appeal process and will be made available upon request.
7. What happens if the law firm I work with does not have an approved Responsible Lawyer?
Only a lawyer practicing with a law firm approved to operate a trust account is permitted to receive trust money. [Rule 119.2] A law firm that does not have both responsible lawyer approval and trust bank account approval may still practice law provided that no trust funds are handled by the law firm or any lawyer in the law firm.
A law firm that does not have approval of a responsible lawyer or approval to operate a trust account may make arrangements for a law firm that has a responsible lawyer and trust account approvals to process all of their trust transactions for them. Such arrangements must be clearly explained to the clients.
8. What is the process for filing an Application to Operate a Trust Account?
The Law Society will distribute the Applications to Operate a Trust Account to all existing law firms based upon their designated filing date. The due dates for the completed forms will be outlined in the letter from the Law Society.
The Law Society has already mailed out Applications to all law firms with January and February 2011 year ends and will contact the other year ends as 2011 progresses. The Application itself should be on the website shortly and if a law firm wishes to be proactive, the Applications can be submitted to the Law Society in advance of the due date. Any law firm commencing operations after January 1, 2011 will be able to download the application from the Law Society website.
9. If a law firm already has a trust bank account, does it still have to complete the Application?
Yes. The Application to Operate a Trust Account provides information regarding:
- The law firm’s Responsible Lawyer, and
- the law firm’s trust bank account.
10. What are minimum requirements for a law firm to apply for a Trust Bank Account?
The minimum requirements are provided in Rule 119.8
11. Can the Law Society deny applicants the right to operate a Trust Bank Account?
Yes, but only in the rare cases where the law firm has demonstrated an inability or unwillingness to comply with the current Law Society accounting rules.
Examples include continual inability to reconcile the trust bank account(s) monthly, trust shortages in client ledger accounts and NSF trust cheques. Denial would be a last resort as the preferred option is to work with the law firm in question through conditions such as monitoring of the trust account on a quarterly or even monthly basis.
12. Is there a right of appeal if the firm is denied the ability to operate a Trust Bank Account?
Yes, there is a right of appeal (Rule 119.14). Specific guidelines exist for the appeal process and will be made available upon request.
13. Did any of the detailed accounting rules change?
Yes, the basic concepts of the Rules remain intact such as monthly reconciliations and trust ledger accounts for each client, etc. but some changes were made. Additionally, some of the terminology has changed such as operating trust account is now called a pooled trust account. Some of the more significant accounting rule changes include:
- General bank accounts must be reconciled monthly.
- Books of original receipts for trust and general have been replaced with trust journals and general journals.
- A separate receipt book to record only cash receipts.
- Electronic payments can be made from the trust bank account provided the law firm uses a Law Society form and can obtain written confirmation from the financial institution of the destination account number and name.
- Undisbursable Trust Funds can be remitted using a simplified form, for amounts less than $50.
- Trust shortages on client files must be reported to the Law Society if the shortage cannot be corrected within 7 days. In addition, all trust shortages exceeding $2,500 must be reported to the Law Society regardless of how long it took to be corrected.
- Trust money received must be deposited into the law firm pooled trust account no later than the next banking day.
- The Law Firm Self-Report replaces the Form S and is now due 1 month after the law firm’s designated year end.
- The Accountant’s Report replaces the Form T and is now due 4 months after the law firm’s designated year end.
- Law firms have the option of electronically transmitting accounting information to the Law Society in lieu of retaining an outside accountant for an Accountant’s Report.
14. What is the Law Firm Self-Report and when is it due?
The Law Firm Self-Report is the replacement to the existing Form S (Form 5-1) and must be filed for any year ends AFTER January 1, 2011.
All law firms are required to file this Form even if they do not operate a trust bank account. The Self-Report has four different components, parts 1 and 2 are completed by all law firms, part 3 is completed by all law firms who have a trust bank account and part 4 is completed by law firms who do not remit their trust accounting data to the Law Society.
The Law Firm Self-Report is due 1 month after the law firm designated filing date.
15. What happens if I am behind in filing my previous Form S?
Law firms must still file any outstanding forms (in the old format). Any year ends after January 1, 2011 must be filed using the Law Firm Self-Report.
16. What is the Accountant’s Report and when is it due?
The Accountant’s Report is the replacement to the Form T (Form 5-2) and must be filed for any year ends AFTER January 1, 2011. However, there is the opportunity for a law firm to forego filing the Accountant’s Report and instead electronically remit trust accounting information to the Law Society. See questions 19 to 23 for additional details.
The Accountant’s Report is due 4 months after the law firm designated filing date.
17. What happens if I am behind in filing my previous Form T?
Law firms must still file any outstanding forms (in the old format). Any year ends after January 1, 2011 must be filed using the Accountant’s Report.
18. Is electronic filing of accounting information mandatory?
No. While electronic filing of accounting information is encouraged and it dispenses with the requirement to file an Accountant’s Report, there is no requirement for law firms to use computerized software or submit their accounting information electronically.
19. What is the electronic filing option in lieu of the Accountant’s Report?
Currently, two legal software vendors, PCLaw and Esilaw, have added a feature to their current software to enable users to transmit accounting information to the Law Society. If the data is transmitted, no Accountant’s Report is required.
Given the interaction between law firm fee billings and the trust bank account, the electronic filing feature will not be available unless both the trust and general transactions are recorded on the computer software. Typically a law firm general books and records are also maintained on PCLaw or Esilaw and this scenario only applies to the odd situation where the law firm’s trust books are recorded on software and the general books are maintained manually or on different software.
20. If I own PCLaw or Esilaw, do I have to electronically file the accounting information?
No. Since the electronic filing features were issued by PCLaw and Esilaw in 2010 you may require an upgrade of your software if you choose to electronically file. If the answer is no, uploading data is optional. If you own an older version and want to upgrade your software, contact your service representative.
21. I own software that is not PCLaw or Esilaw. Can I participate in the electronic filing option?
Currently, only PCLaw and Esilaw have the approved electronic filing option but we are working with approximately 7 other software vendors to produce an electronic filing feature for their products. We anticipate the electronic filing feature available to law firms from the other software vendors in their 2011 upgrades.
Please note we are only working with software vendors that produce software specifically designed for law firms and not generic business software programs that are designed for general use. If your law firm is considering the purchase of accounting software, please contact the Law Society via email or call Lisa Atkins at 403-229-4740.
22. What is the time period required for the electronic filing option?
The Law Society requires a full 12-month period of computerized data for a law firm to use the electronic filing feature. For example a law firm cannot have manual books and records for 6 months and then switch to computer software for the other 6 months and expect to participate in the electronic filing option.
23. If I am starting a new law firm, do I need to file a Form U (Form 5-3)?
The Form U has been replaced by a Start-Up Report which is now due 4 months after the new trust bank account has been opened. This Start-Up Report is completed by an external accountant and includes a review of the first two trust reconciliations completed by the law firm.
24. What is the process I follow if I want to practise law but not handle any trust money?
A lawyer/law firm must file an Application for Exemption from operating a trust bank account. Once approved, the law firm must then submit annually a Law Firm Self-Report within 1 month of the designated filing date.
25. Will random audits still be conducted by the Law Society?
Yes.
26. Do the new rules impact Government lawyers?
Rule 119.2 states that only a lawyer working with a law firm may handle trust money. Lawyers employed with the Government and handling funds in the course of their employment will not be impacted by these rules. However, if a government lawyer does practice law outside the scope of his/her employment then the steps identified in practicing either with or without a trust bank account apply.
27. Do the new rules impact Corporate Counsel lawyers?
Rule 119.2 states that only a lawyer working with a law firm may handle trust money. Lawyers employed as corporate counsel and handling funds in the course of their employment will not be impacted by these rules. If a lawyer operating principally as corporate counsel does practice law outside the scope of his/her employment or accepts trust funds personally or on behalf of their employer then the steps identified in operating a law practice would apply and all aspects of the rules such as operating a general bank account and reconciling a general account would apply.
28. My year end is December 31, 2010 do I file a new Form S and T?
The new Trust Safety Rules are effective January 1, 2011 so all law firms with December 31, 2010 designated filing dates (Law Society year ends) will still file the Form S and T as they have always done. For their December 31, 2011 year end, the revised filings will be required.
29. I heard the Responsible Lawyer has to pass an on-line LESA course, how do I get information on this course?
The Law Society in conjunction with the Legal Education Society of Alberta has developed two on-line courses that the Responsible Lawyer must take before or shortly after being approved by the Law Society. The courses are not pass/fail but rather educational in purpose.
The courses can be found on the LESA website under on line courses and then Practice Management. In order to sign on, however, LESA must provide access to each Responsible Lawyer and provide a sign-on and password. Currently this process is being facilitated by the Law Society once the Responsible Lawyer remits the Application.
30. I heard that estate funds for a client of the law firm cannot be held in a law firm trust bank account, is this true?
There is no requirement to remove estate funds from the law firm trust bank account UNLESS the law firm is not providing any legal services in regard to that matter. One example where this might occur is when the estate has been completed and the beneficiary requests that the law firm hold the funds in trust for either investment purposes or does not need the funds at this time. Another example would be if the lawyer is the personal representative and retains outside counsel to handle all of the legal matters. If a lawyer is not providing any legal services, a separate estate bank account should be opened. This bank account would then be captured under new Rule 119.26 – Representative Capacity (old Rule 132) provided the $20,000 threshold was reached.
|
|
|
|
December 2010 Advisory: Major Regulatory Work Accomplished
This issue of the Advisory highlights the regulatory work accomplished by the Law Society of Alberta.
It includes information and articles about:
- the Strategic Plan principles,
- Model Code of Conduct,
- Trust Safety program,
- Special General Meeting and Legal Aid Issue,
- New Executive Elected for 2011-2012,
- Client Identification Rules and Fraud Prevention,
- Risks Up Close,
- Lawyers at Risk Task Force,
- The Three "R's": Rural, Regional and Remote,
- Recipients of Long Service Awards (30, 50, 60 & 60 years) as well as scholarships and prizes,
- Candid Conversations with Women in Law
- Eulogy for Tom Mayson, QC, and
- a Summary of Disciplinary Matters.
Read the December 2010 Advisory online at www.lawsociety.ab.ca
To request a hard copy, please email: feedback@lawsociety.ab.ca
|
Amendments to Practice Notes Issued by Court of Appeal
The consolidated practice directions of the Court of Appeal have been amended.
It includes a new subpart 10 to Part A called: Time limits on oral arguments of motions.
As well, it includes an amendment to the end of Part G.3.
A copy of the Consolidated Practice Directions and Practice Notes can be found on the Alberta Courts' website at www.albertacourts.ab.ca
|
Interest Rate for Pecuniary Damages Under Judgment Interest Act Set
The Government of Alberta's Justice and Attorney General has set the interest rate for pecuniary damages under the Judgment Interest Act to 1.85% for the period January 1, 2011 to December 31, 2011.
|
|
