Bank reconciliation
Reconcile each trust bank account to the bank statement and investigate timing differences.
Financial management for South African legal practices
A law firm needs more than ordinary bookkeeping. The practice must separate client money from firm money, account by matter, recover fees and disbursements, control work in progress and maintain records that support tax, management decisions and regulatory processes.
Orion Moon provides business-accounting, payroll and tax support for attorneys and legal practices. Where a firm operates a trust account, the legal practitioners remain responsible for compliance with the Legal Practice Act, LPC Rules, Fidelity Fund requirements and the annual trust-account assurance engagement. Orion Moon’s role and access must be agreed clearly and must not be confused with the independent auditor’s role.
Trust money and business money must remain separate
Money received for or on behalf of a client is not the firm’s income merely because it appears in a bank account. Trust money must be recorded against the correct client and matter and may only be transferred or paid according to the mandate, legal work performed and applicable rules.
Maintain separate trust and business bank accounts and ledgers.
Allocate every trust receipt and payment to the correct client and matter.
Identify the trust creditor supported by every amount held.
Prevent trust balances from being used to fund business expenses or another client’s matter.
Transfer fees from trust only after the required billing, authority and accounting entries are complete.
Investigate unidentified deposits, stale balances and debit balances immediately.
Trust funds are subject to strict professional duties. Legal practitioners cannot abdicate responsibility for the control of trust money merely because bookkeeping is outsourced.
Trust-account reconciliations
Trust creditors
Compare the total of individual client trust balances with the trust cash and investment position.
Matter ledgers
Review receipts, payments, transfers and balances for unusual or unsupported movements.
Investments
Maintain separate records for section 86 investments, interest and related client instructions.
Exceptions
Escalate shortages, debit balances, dormant funds and unidentified items without delay.
Audit trail
Retain bank records, instructions, receipts, transfers and reconciliations in an accessible format.
Annual trust-account assurance preparation
The LPC requires the appointed auditor to report on trust-account compliance in the prescribed form. We can help organise the bookkeeping records and schedules required by the practice and auditor, while preserving the auditor’s independence.
Final trust bank reconciliations and client trust-creditor listings.
Section 86 investment schedules and interest records.
Supporting documents for receipts, payments and transfers.
Unclaimed, unidentified or dormant-balance schedules.
Accounting-system reports and matter-ledger extracts.
Prior-year findings and evidence of corrective action.
Matter-based billing and work in progress
Legal revenue should be understood by matter, fee earner and service type. Time recorded is not automatically revenue, and an invoice is not automatically cash.
Track chargeable time, agreed fixed fees and contingency arrangements where applicable.
Review unbilled time and disbursements before they become stale.
Separate fees, recoverable expenses and true client disbursements.
Record write-offs, discounts and fee adjustments with approval.
Monitor billed fees, collections and outstanding balances by matter.
Compare hours worked, fees billed and cash collected by fee earner or department.
Client disbursements and recoverable expenses
Not every amount paid during a matter has the same accounting or VAT treatment. Sheriff fees, advocates, correspondent attorneys, travel, searches and other costs should be linked to the matter and classified according to the contractual and tax facts.
Retain the supplier invoice and proof of payment.
Record whether the firm acted as principal or agent.
Identify whether the cost is recharged at cost or forms part of the firm’s own supply.
Apply the correct VAT treatment rather than labelling every cost a disbursement.
Reconcile unrecovered matter costs and obtain billing instructions.
Business bank and operating expense controls
Reconcile business bank accounts and credit cards monthly.
Allocate rent, subscriptions, insurance, counsel, correspondents and technology costs.
Review partner or director drawings, salaries and loan accounts separately.
Maintain fixed-asset schedules for furniture, computers, vehicles and equipment.
Control supplier approvals, payment releases and changes to banking details.
Separate private and non-deductible expenditure from practice costs.
VAT for legal practices
VAT should be assessed across fees, recoveries and disbursements using the actual arrangement and supporting documents. A valid tax invoice is required for input-tax claims, and the billing system must reconcile to the VAT201 return.
Reconcile fee invoices and credit notes to output VAT.
Review disbursements and recharged costs for correct VAT treatment.
Match input VAT to valid supplier tax invoices.
Separate trust movements that are not business income from taxable fee transactions.
Reconcile VAT control accounts to submitted VAT201 returns and payments.
Payroll and HR for legal practices
Legal practices may employ candidate attorneys, associates, secretaries, paralegals, receptionists, bookkeepers and support staff with different remuneration structures.
Employment contracts, job descriptions and confidentiality clauses.
Salaries, overtime, commissions, allowances and authorised deductions.
Leave, attendance, probation and performance records.
PAYE, UIF and SDL calculations and EMP201 declarations.
EMP501 reconciliations and IRP5/IT3(a) certificates.
Approved payroll journals allocated to departments or cost centres.
Income tax and provisional tax
The tax treatment depends on whether the practice operates through a sole proprietorship, partnership or incorporated entity and how owners are remunerated.
Annual individual or corporate income-tax returns.
First and second provisional-tax estimates.
Review of partner, shareholder or director loan accounts.
Asset and capital-allowance schedules.
Reconciliation of tax payments and credits to assessments.
Confidentiality, POPIA and access control
Financial records can reveal client identities, matter descriptions, settlements and banking information. Outsourced accounting should use the minimum information needed and maintain strict access controls.
Limit user access to the records required for each function.
Use secure transfer methods for bank, payroll and client information.
Avoid unnecessary matter detail in general-ledger descriptions.
Remove access promptly when staff or service providers change.
Maintain confidentiality undertakings and documented operator responsibilities.
Monthly law-firm management reporting
Fees billed, cash collected and debtor age analysis.
Work in progress and unbilled disbursements.
Revenue and collection by department, fee earner or matter type where available.
Payroll, occupancy, counsel, correspondent and technology costs.
Trust cash, trust creditors and reconciliation exceptions for responsible practitioners.
VAT, PAYE and provisional-tax liabilities and deadlines.
Operating profit, cash flow and owner accounts.
How Orion Moon supports legal practices
We can review the current accounting structure, matter coding, business bank, payroll and tax records and define a controlled monthly process. The service may include business bookkeeping, billing reconciliations, debtor reporting, payroll, VAT, tax and management accounts. Trust-account bookkeeping support is only undertaken within a clearly defined scope and does not replace practitioner oversight or the required independent assurance engagement.
Frequently asked questions
Can legal fees be transferred from trust whenever cash is available?
No. A transfer must be supported by the client matter, work performed, proper billing or authority and the applicable trust-account rules.
Does Orion Moon perform the LPC trust audit?
No. The prescribed assurance engagement must be performed by an appropriately appointed independent auditor. Orion Moon can help prepare and organise accounting records for the engagement.
Are all client expenses VAT-free disbursements?
No. The VAT treatment depends on whether the firm acted as agent or principal and on the nature and documentation of the cost.
Can a legal practitioner delegate all responsibility for trust accounting?
No. Staff and service providers may assist with bookkeeping, but practitioners retain professional responsibility for trust-account control and compliance.
This page provides general business-accounting information. Legal practices must apply the Legal Practice Act, LPC Rules, Fidelity Fund requirements, tax law and their auditor’s recommendations to their specific circumstances.