The role of a COFA (Compliance Officer for Finance and Administration) has now existed for eleven years and whilst we have issued previous guidance at that time, we felt that a refresher of the role was needed, given the COFA role has never been more important. Mark Crosson of the Menzies legal team takes us through the role itself and some tips for these holding the position.
So, who can be a COFA?
A COFA must be an individual who:
- Is an employee or Manager (owner) of the practice;
- Is of seniority, and in a position of sufficient responsibility to fulfil the role. Typically for many firms the COFA role sits with the Finance director, practice manager or very occasionally a senior cashier. To be in a position to undertake the main responsibilities for smaller firms it will be more appropriate for the managing partner or finance partner, whereas for larger firms, the finance director often takes the role;
- Is approved by the SRA;
- Has consented to undertake the role; and
- Is not disqualified from acting as a Head of Finance and Administration.
Main responsibilities
The key role of a COFA is to:
- Ensure the firm, managers and all employees’ compliance with the SRA’s Accounts Rules
- Record any failures to comply;
- Report to the SRA any serious breaches of the Accounts Rules;
- Ensure the firm has systems and controls in place to ensure compliance with SRA Standards and Regulations.
Top recommendations to implement
The responsibilities placed on a COFA are broad, and whilst responsibility ultimately rests with the managers of the firm, COFAs may also find regulatory action taken against them if they fail to meet their responsibilities. Whilst not an exhaustive list, the following would be seen as a useful checklist to assist the COFA in carrying out their role effectively:
Training
The COFA will need a good understanding of the Accounts Rules applying to the finances and accounts of solicitors, particularly if the COFA has not historically been involved in the day to day running of the finance team. Consider booking yourself on a training course.
All employees and managers should have a strong knowledge of the Rules, especially new employees and your cashier team. Any training, whether onboarding or refreshers, should be recorded in a training register.
Accounting systems
The COFA should review, on an annual basis, the accounting systems for compliance and ensure they are appropriate, up to date, documented and available to all members of the team. This is particularly important as firms needed to update their systems notes to reflect the Rules issued on 25 November 2019. These Rules are much less prescriptive in terms of timescales, with the word “promptly” used in a number of places instead.
Up to date systems notes will assist your employees and managers and in particular any new legal cashiers. Your normal Menzies contact will be able to assist with matters to be included within your accounting system notes.
File Reviews
The COFA should be ensuring that all fee earners and managers files and work are reviewed, and this should be documented (in a central register) to highlight any breaches and trends arsing. Ideally the COFA should arrange for a review of at least one file from each fee earner annually, or more if there are any concerns over performance.
Breaches
A breaches register should be maintained and reviewed by the COFA. It should include all breaches, whether trivial or not, and added to the register as discovered. It is important to determine whether the breach is considered material or not, documenting why this conclusion was reached. Any material breaches will need to be reported to the SRA.
It’s not always easy determining whether a breach is a “material breach or series of breaches”, but the COFA should consider:
- The detriment to the clients (any loss to the client);
- Scale of the issue – materiality;
- Whether the breach leads to a loss of confidence in the firm or profession;
- Whether breach is isolated or repeated; and
- Whether breach has been rectified upon discovery.
As part of our Accountant’s Report review, we would expect to review a copy of the register. Despite a breaches register requirement being in place for a number of years, many firms should perhaps more greatly populate their registers.
Please ensure your fee earners and cashier team are aware of the register requirement and the register is reviewed on a regular basis, at a minimum every quarter. In many respects, a breaches register should be seen as an advertisement of a firm with a positive culture of openness, and breaches are rectified promptly and the benefit that arises from risk mitigation will follow.
Regular control procedures should not be overlooked
Bank reconciliations – Especially when some finance teams adopting hybrid working, it is more important than ever to ensure all monthly office and client bank reconciliations are reviewed by the COFA each month (and before the next reconciliation is due), with the reconciliation being signed and dated. DocuSign works very well for this, but ensure all supporting papers, schedules are attached.
Residual balances – Residual balances are a common breach. We would recommend that the client ledger balances are reviewed on a regular basis (say every three months) to ensure client monies are returned promptly at the conclusion of the matter. Attempts should be made to return the monies to the client where possible and if not, where below £500, payments made to a charity. Again, any breaches should be recorded. Too many residual balances are indicative of poor file closing procedures, so should be a focus not simply due to the fact it is an SRA hot topic.
Emergency COFA
Consider having a deputy COFA (not a requirement or recognised by the SRA) or an emergency plan to cover any unforeseen circumstances such as long-term illness, leave, incapacity or ceasing to be employed.
Not having a COFA is a breach of Rule 8.1 of the SRA Authorisation of Firm’s Rules. A temporary approval of a COFA must be made to the SRA within seven days of the previous COFA ceasing to be in the position and can be done via the firm’s MYSRA portal.
Financial Stability
And perhaps, most importantly assess the firm’s financial COFA position. If the firm is in financial difficulty, this needs to be reported to the SRA. This is why the position needs to be held by someone of appropriate seniority and with that understanding to not just spot the signs at that point in time but hopefully put remedies in place before that eventuality.
It is important that the COFA is properly equipped and supported by the practice to deal with the challenge of maintaining compliance. If you would like to discuss any aspects of compliance, please give your Menzies contact a call.
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