Client account reconciliations are one of the few truly prescriptive controls left in the Accounts Rules. For a busy COFA they can feel routine, even a bit dull, but the panel’s starting point was deliberately blunt: a reconciliation is there to answer a fundamental question – if every client turned up tomorrow asking for their money back, is there enough in the client account to meet the firm’s liabilities to those clients?
That framing shifts the reconciliation from “a finance report” into a consumer protection control. Errors happen in every firm. The reconciliation’s purpose is to identify those errors, force investigation, and make sure they are corrected quickly, recorded properly, and reported where required. Done well, it protects clients and it protects the COFA. Done badly, it creates false comfort and can allow serious issues to drift for months.
The session was led by Sean Hankin and Liz Bond, both former SRA forensic investigators. Between them they have spent decades walking into firms, asking for the last month-end reconciliation, and then doing what the best COFAs do: looking past the headline “balanced” position and interrogating what is really going on. A recurring point from their time in investigations was that many reconciliations look fine on their face, but when you dig into the detail, problems appear – often hidden in reconciling items, “temporary” adjustments that never clear, or gaps in what is actually included in the reconciliation pack.
The COFA’s role: you do not have to be the cashier, but you do have to understand what you are signing
Most firms have a finance function and it is usually the cashiering team who prepares the reconciliation. The panel stressed that this can be a good thing: it supports segregation of duties. But it only works if the COFA can properly understand how the document has been prepared and can satisfy themselves that what they are being asked to sign is complete, compliant, and credible.
Two patterns came up repeatedly from the forensic perspective.
First, the “sign and forget” risk. The cashier prepares the reconciliation and hands it to the COFA who signs it off without reviewing it fully or without really understanding what it shows. That is a high-risk position for the COFA, because in practice it is the COFA who “carries the can” if something has been missed.
Secondly, over-reliance on the reporting accountant. The panel were clear that it is not uncommon for firms to receive a clean bill of health on the annual accountant’s report even where there have been significant issues in the books and reconciliations during the year. A clean report is not a substitute for active COFA oversight.
The three-way reconciliation (Rule 8.3)
One of the most useful parts of the webinar was a reminder of the mechanics of a compliant reconciliation. Rule 8.3 requires three elements, all at the same date:
- The client matter listing balance (the total of client ledger balances – what you owe to clients).
- The client cash book balance (sometimes called the day book / day ledger, or linked to the trial balance depending on the system).
- The reconciled client bank balance (not simply the bank statement balance).
The distinction between “bank statement balance” and “reconciled bank balance” is where many misunderstandings sit. A reconciliation is trying to show what money is actually available to clients at the relevant date. That means adjusting for timing differences: items posted in the accounting records that have not yet cleared the bank (and sometimes the reverse). In real life, the “raw” bank statement balance and the reconciled bank balance are often not the same.
The panel also gave a practical warning from reviews of firms: they frequently found reconciliations with only two of the three required elements. That is both a compliance issue and a risk issue, because you are missing a key cross-check.
Frequency: the five-week discipline
The Accounts Rules are specific about timing: reconciliations must be carried out at least every five weeks. The panel’s practical advice was to treat this like a diary control. COFAs are busy. Reconciliations slip when nobody is watching. If you diarise when the next reconciliation is due (and you chase it if it does not arrive), you reduce the risk of this key control quietly falling through the cracks.
Format and the “one page on your desk” trap
The panel used a scenario many COFAs will recognise: the long-serving head cashier leaves a neat sheet of paper on the COFA’s desk to sign. Everything appears to balance. No reconciling items. No questions raised. The panel’s response was simple: they would not sign it.
Even if the headline figures match, the COFA needs to see how those figures were derived and what sits behind them. A “clean” looking reconciliation is often a warning sign in itself. Timing differences usually exist. The COFA should expect to see source documentation and supporting reports, not just a summary.
A good reconciliation pack should typically include:
- Evidence of the bank balance at the reconciliation date (bank statement / online banking print).
- The detailed working that gets you to the reconciled bank balance, including listings of reconciling items (unpresented payments, uncredited lodgements/receipts, and any other adjustments).
- The client matter listing at the same date.
- The client cash book at the same date.
- Any exception reports that highlight red flags (overdrawn client ledgers, credits on office ledger, residual balances, suspense ledgers, etc).
- A sign-off record showing who reviewed it, when, and what actions were taken.
The panel also recommended a very COFA-friendly assurance step: re-work the reconciliation into your own format. You do not need to rebuild the accounting system. The point is to test whether you understand it and can cross-reference each figure to supporting documentation. This is exactly what investigators do when they arrive on site.
The reconciled bank balance: where risk tends to hide
The reconciled bank balance should clearly show the adjustments made for timing differences and other reconciling items, with enough detail for the COFA to spot patterns. The panel suggested that for each reconciling item, the report should capture (as a minimum) the client/matter name, reference, matter type, date of entry, description, and amount. That enables the COFA to ask the right questions: how long has this been outstanding, why is it outstanding, and does it clear shortly after month end?
Unpresented payments are a common category. They can be perfectly legitimate (for example, a cheque sent to a client but not yet banked), but the risk is in long-standing items that reappear month after month. Ongoing adjustments can indicate a poor control environment, problems with the books of account, or (in the worst cases) an attempt to “manage” the reconciliation into balance.
Uncredited items are particularly sensitive. The panel gave a clear set of questions COFAs should be asking:
- Why are they uncredited?
- How long have they been outstanding?
- Have they cleared shortly after month end?
- What is the true position on the underlying client ledger?
- Would the client ledger be overdrawn if this item is removed?
The panel’s experience was that repeated uncredited items can be used to mask significant and ongoing client account shortages, sometimes without the COFA realising. That is why the COFA has to interrogate them rather than accept them as a normal reconciling item.
Shortage and surplus
The most serious outcome a reconciliation can reveal is a shortage: there is less money in the client bank account than the firm owes to clients. Shortages should be rectified on discovery. Where they cannot be rectified, intervention becomes a real risk.
The panel also touched on surplus positions. A surplus can arise from errors (posting mistakes, overpayments into client account, poor accounting systems). It is obviously better than a shortage, but it still requires corrective action and a breach assessment.
The client matter listing is more than a balancing figure
The client matter listing is a complete breakdown of the money the firm holds on behalf of clients, and it should be at the same date as the other reconciliation elements. The panel encouraged COFAs to tailor this report so it becomes an oversight tool, not just a ledger extract.
Alongside the basics (client name, matter reference, matter type, balances on client and office ledger), consider adding columns such as last movement date, WIP, date created, and date closed. Those additions make it far easier to spot residual balances and other items that need explanation.
The matter listing is also where many breaches show up first. The panel flagged several red flags that should trigger investigation:
- Overdrawn (debit) client ledgers.
- Credits on the office ledger.
- Sundry/miscellaneous/suspense ledgers.
- Residual balances (often visible via “last movement”).
- Accounts in partners’/managers’ names.
Overdrawn client ledgers are a classic example. Some systems will not allow posting that creates an overdrawn ledger, but the bank payment may already have been made. The question then becomes: how is that reflected in the system (suspense/unallocated items), and what is the true position? Sometimes the position is only apparently overdrawn because there are other related matters for the same client with credit balances and an inter-ledger transfer will correct it. Sometimes it is a genuine overpayment and the firm is in shortage. If it is a shortage, the panel’s message was clear: replace it immediately, update the breaches register, and consider whether the breach is material and requires reporting.
Office credits can be equally telling. They can arise because money has been transferred from client to office when it should not have been, client money has been paid into the office account in error, or there is an issue with raising and/or recording bills properly. The panel gave an example of a common underlying cause: a bill raised but not entered into the accounting records (not necessarily a breach if the client has written intimation of the bill, but still a control weakness).
A practical tip here was to use exception reports. A good legal accounts package will allow exception reports for overdrawn client balances, office credits, residual balances, and particular ledger types. The panel suggested making those exception reports part of the standard reconciliation pack, so the COFA sees problems quickly without having to scan a very long matter listing.
Residual balances and suspense ledgers also featured. Residual balances are a live topic (and linked to broader policy debates about client money and interest). The monthly reconciliation is a natural moment to run a “stale balances” report (for example, items with no movement for three months) and require fee earners to justify why money is still held. The panel also mentioned waivers: if a balance is over £500, firms can apply to the SRA for a waiver to pay it to charity, so it is best practice to keep on top of those balances rather than letting them accumulate.
On suspense ledgers, the message was pragmatic. There is nothing inherently wrong with having them, but they must be used properly and not treated as a dumping ground.
A quick but important aside was made about “general ledgers” and file hygiene: a straightforward, non-transactional file set up a while ago should not quietly become a transactional matter that bypasses client onboarding and file opening controls. That creates obvious Accounts Rules risk and can also take you into AML risk very quickly.
The client cash book: often forgotten, genuinely useful
The third element of the reconciliation is the client cash book, and the panel recognised it often causes confusion because of terminology. Some firms call it the day book or day ledger; some only know it through their trial balance. If you cannot find it, speak to the cashier or your software provider.
Even where systems “automatically” keep the client matter listing and the cash book in agreement, the cash book must still be included in the three-way reconciliation. Beyond compliance, it is an excellent diagnostic tool.
The panel gave several practical uses:
- Breaking down bulk transactions to see individual payments and the matters they relate to.
- Identifying patterns in transfers from office to client (which can sometimes be legitimate corrections, but can also mask a shortage).
- Spotting large overseas payments/receipts for further checking.
- Watching for regular round-sum transfers from client to office. The panel’s view was that properly calculated bills rarely land as neat round figures repeatedly, so a pattern of round-sum transfers linked to a particular fee earner is worth investigating.
How to document oversight properly
When it comes to signing the reconciliation, the panel’s approach was to only sign when you are happy that the everything has been investigated. If there are adjustments, record them in the pack, allocate action points, and diarise a follow-up check (for example, a week later) to ensure each item has been addressed.
This is good practice, and it preserves the audit trail of what information was present at the time of sign-off and what decisions were taken. The panel also noted that reporting accountants will want to see this pack when they do their work, and it is exactly what would be requested early in any on-site visit.
Where next: going deeper in the COFA Masterclass
The webinar was designed as a bite-size tour: why reconciliations matter, what they look like, the COFA’s responsibilities, the key elements, basic red flags, and when to sign. But as the panel acknowledged, there is far more that COFAs need if they are to feel genuinely confident interrogating reconciliations, rather than relying on the accounts package or (however capable) the cashiering team.
That is the focus of our upcoming COFA Masterclass (London, 25 March 2026 10am-4pm). It is practical, small-group, and built around the real-world questions COFAs ask: how to look behind the figures, how to spot the risk patterns, and how to challenge what does not feel right. We will go beyond the “what” into the “how”: constructing and deconstructing reconciliations, identifying red flags, working through real-life case studies, and understanding the implications of getting it wrong. If you have specific Accounts Rules queries from your own firm, the format allows time to explore them properly. Contact us for a booking form (places very limited).
We also offer client account health checks for firms that want independent assurance that their reconciliation process and supporting controls are working as they should.
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