Paralegal News

Paralegal Practice Tip 1.3
Maintaining Financial Records

Maintaining financial records for your legal service practice is a requirement under the by-laws of the Law Society. Financial records must also be maintained for the purposes of the Canada Revenue Agency. In addition, having a current, complete and accurate set of records will enable you to measure and track the financial success of your practice over time. We receive many questions from paralegals who are unsure about what documents they must keep, and for how long.

Below are the records that would be present in a typical paralegal practice. For a complete list of the required records and a description of each, please refer to By-Law 9, section 18.

The following records must be maintained for a minimum of 6 full years, following the year to which they apply:

• A journal that records all funds received in, and disbursed from, your general (operating) account.
• A record of fees billed to clients (fees book) or copies of invoices rendered to clients in chronological order.
• Detailed duplicate receipt slips for all cash received in relation to client matters.

The following records are required to be maintained for a minimum of 10 full years, following the year to which they apply:

• Source documents - bank statements/other confirmations of account balances (both trust and general); cashed cheques (or cheque images); duplicate deposit slips; credit card receipts; purchase orders; delivery slips; e-mails, and other general correspondence that may support a transaction.
• A journal that records all funds received in, and disbursed from trust accounts.
• A ledger for each client indicating the date and amount of all funds received in trust, all funds disbursed and the cumulative balance remaining in trust for each client.
• Monthly trust comparisons for all trust accounts supported by bank reconciliations and client trust listings.

You can keep financial records in an electronic format, but you must be able to produce paper copies of your records for the Law Society for the time periods described above. You should print your journals and records monthly to ensure that no information is lost due to computer crashes, data corruption or software incompatibility. If you prepare any of your financial records by hand, they must be permanent, i.e., in ink.

If you have any questions concerning financial records, you can contact the Law Society's Resource Centre at 416-947-3315 or toll free at 1-800-668-7380 extension 3315. Additional resources are available online at the Law Society's website.

Paralegal Practice Tip 2.1
Trust Accounts - Questions and Answers

Q: Can I give a non-licensed employee signing authority over my trust account?

A: No. As an internal measure for the firm, it is acceptable to require the co-signature of a non-licensed employee (e.g. an office administrator or bookkeeper) on all trust cheques. That non-licensee must not have the ability to negotiate funds from the trust account unilaterally.

Section 11(b) of By-Law 9 requires that monies drawn on a trust account shall not be "signed by a person who is not a licensee except in exceptional circumstances, and except when the person is bonded in an amount at least equal to the maximum balance on deposit during the immediately preceding fiscal year of the member in all the trust accounts on which signing authority has been delegated to the person".

The Law Society has rarely found exceptional circumstances exist to allow a non-licensed employee to have signing authority over a lawyer's or a paralegal's trust account. Circumstances that have been held exceptional are death of the licensee, or where the legal services are being provided in an isolated location. Holidays and unavailability of members due to court commitments or other temporary constraints will not be considered "exceptional circumstances."

Q: Is it permissible for me to sign blank trust cheques when I am going to be away?

A: No. This is an inherently unsafe practice. By signing blank trust cheques, you have effectively given control over the trust account to a non-licensed employee and have breached your fiduciary obligation as a trustee to protect the trust.

Q: If I cannot have a non-licensed employee sign trust cheques, how should I deal with any planned or unplanned absences from my practice?

A: If you are the only individual with signing authority on your trust accounts, it would be prudent for you to make arrangements for another lawyer or paralegal who is insured and who is entitled to respectively practise law or provide legal services, to have signing authority over your trust accounts in the event of an unexpected emergency such as a serious illness or accident and for planned absences, such as vacations.

You can arrange this through your financial institution by means of a power of attorney. It may be advisable in such instances to arrange for co-signing by a person who is knowledgeable about your practice (e.g. a law clerk, accountant or bookkeeper) to give better assurance and assistance to the other individual who may be called upon to arrange for payment of funds from your trust account.

 Q: Am I permitted to use automated bank machines in operating my trust account?

A: No, you may not use automated bank machines (ABMs) to withdraw or transfer funds from trust when reimbursing yourself for disbursements paid on behalf of your client, or paying your fees for services performed and for which a fee billing has been delivered to the client. Funds drawn from trust should only be by cheque or by use of electronic trust transfer systems that meet the record keeping requirements of section 12 of By-Law 9.

However, it may be acceptable for you to arrange for deposits into trust by use of ABMs. To do this, you must arrange to have all banking cards that will be used to access the trust account encoded to allow for deposits only. Before making arrangements to use ABMs for trust deposits, you should review the banking agreement related to automated banking machines carefully and discuss it with your banker to ensure that funds deposited at an ABM are at no greater risk than if deposited with a teller.

Once you have satisfied yourself concerning the above, you must still use and maintain your deposit book. Complete the deposit slip with the required details: date, source of funds, related client and amount. The receipt generated by the bank machine must be stapled to your copy of the deposit slip and maintained in your deposit book as a source document required by section 18(10) of By-Law 9.

Paralegal Practice Tip 2.2

Q:   How can I manage my client's expectations?

A:  Communication is the key to managing your client's expectations. At the start of the paralegal-client relationship, you should discuss the following:

• the client's goals and expectations
• the client's instructions
• advice you have given to the client
• course of action
• relevant limitation periods
• the potential risks and benefits associated with the matter
• fees and disbursements
• frequency and method of communication.

To avoid any misunderstanding, these and any other issues discussed and agreed upon with the client should be confirmed in writing, by way of a retainer agreement or engagement letter.

Q:  Is it sufficient to send my client an e-mail to inform them of the status of their matter?

A:  You should discuss what constitutes timely and effective communications with your clients. At the outset of a paralegal-client relationship, you should address the following:

• the primary method of communication (i.e. telephone, e-mail, mail, etc.)
• how you and your client will keep each other informed of the matter on an ongoing basis
• the frequency of reporting to your client, and the estimated time it will usually take for you to respond to client calls, e-mails, letters or other communications.

Practice Tip 2.3

Q: What should generally go into a retainer agreement?

A: The retainer agreement is a legal document, a contract between you and your client. The agreement should define the scope of your legal services, and describe the manner in which fees and expenses are to be charged and paid.
Each retainer is unique and may require different terms or considerations, but usually contains the identification of the client, a description of the services you will provide, and the method and frequency of communications you will have with the client. For further details on what should go into a retainer agreement, including tips on establishing the paralegal-client relationship, refer to the Knowledge Tree article, Establishing the Retainer.

Q: If an individual calls my office, only speaks to my receptionist and never retains the firm, is that person a "client"?

A: Individuals who call your office, communicate only with your receptionist and never retain, meet or even speak to you may be your clients. The paralegal-client relationship arises as soon as a potential client has first dealings with a paralegal's office for the purpose of obtaining legal advice; it arises before the retainer is established and even if no retainer materializes.* Once the relationship exists, paralegals must maintain client confidentiality and avoid conflicts of interest relating to the client.

To help manage these obligations, a record should be kept of calls from individuals seeking legal services. These measures will assist the paralegal in complying with professional obligations to all of his or her clients.

* See Descôteaux v. Mierzwinski [1982] 1 S.C.R. 860 at 876, 141 D.L.R. (3d) 590, 44 N.R. 462, 70 C.C.C. (2d) 385, 2 C.R.R. 3188.

Practice Tip 3.1

Q: In the course of acrimonious litigation, your client has instructed you in advance to refuse to grant the other side any extensions of deadlines or "any breaks" at all. Can you accept those instructions?

A: While their duties to clients are often paramount, lawyers and paralegals also have duties to others that might temper the zeal with which they are permitted to act on behalf of their clients. The lawyers' Rules of Professional Conduct and the Paralegal Rules of Conduct require lawyers and paralegals to be courteous and civil and to act in good faith when dealing with other persons in relation to his or her law or legal services practice. See subrule 6.03(1) and subrule 2.01(2), respectively.

In particular, lawyers and paralegals must agree to "reasonable requests concerning trial dates, adjournments, the waiver of procedural formalities and similar matters that do not prejudice the rights of the client." [subrule 6.03(2) and subrule 7.01(2), respectively]. Therefore, you may not accept these instructions from your client and must advise them of this.

Q: I am having difficulty working with the other side of rather acrimonious litigation. I have decided to record my conversations with her. Can I do this?

A: Even if permitted by law, both lawyers and paralegals are prohibited from recording a conversation with a client or another lawyer or paralegal, unless the client or the other lawyer or paralegal is first informed that they will be recorded. See subrule 6.03(4) of the lawyers' Rules of Professional Conduct and subrule 7.01(7) of the Paralegal Rules of Conduct.

Though the other party does not need to consent to being recorded, advising the party allows him or her to refuse to talk under those circumstances. Neither lawyer nor paralegal may surreptitiously record another lawyer, paralegal or client.

When representing a client in a contentious matter where oral communication between opposing sides may, or has become difficult, lawyers and paralegals may wish to consider advising the client, and obtaining their agreement, that it would be best to use written communications (e.g. via mail, email or fax) to limit hostility, misunderstanding and cost.

Practice Tip 3.2

Q: My client has complained to the Law Society of Upper Canada about my service. The Society has written to me requiring me to explain my conduct. I can only do so if I disclose confidential information about the client to the Society. Can I divulge this information?

A: Paralegals are permitted to disclose confidential client information in these circumstances. Per clause 3.03(6)(c) of the Paralegal Rules of Conduct (Paralegal Rules), you may disclose confidential client information to The Law Society of Upper Canada to defend yourself against allegations that you are guilty of malpractice or misconduct. However, you shall not divulge more information than is necessary to defend against such allegations. In addition, you must respond to the communication from The Law Society of Upper Canada promptly, per subrule 9.01(1) of the Paralegal Rules.

Practice Tip 3.3 — Preparing for a Paralegal Practice Audit: Part 1

What is a practice audit?

Practice audits for paralegals began in November 2008 and are a proactive tool to identify and correct deficiencies in practice management. These deficiencies, if neglected, could have an adverse effect on the quality of legal services offered to the public. The audits also identify areas where paralegals can enhance efficiencies, resulting in better management and more effective practices.

Any licensed paralegal may be randomly selected for a practice audit. Lists of candidates are computer-generated by licensee number.

How are they scheduled and how do I prepare?

Practice audits are usually scheduled three to six weeks in advance, at a time that is mutually convenient for you and the auditor. Once the audit is booked, you will receive details about the information and documentation required.

The most crucial step in preparing for a practice audit is the completion and return of the Paralegal Basic Management Checklist (Word) . The checklist is a useful self-assessment tool that identifies the different practice management areas that will be assessed during the review. It also provides you with the opportunity to consider the systems that are not yet in place in your practice, or those that may need improvement.

In completing the checklist, you will identify the systems in which others play an important role (such as a legal assistant, tech support or accountant). Those individuals should be available on the day of the review, in person or by telephone, so they can be interviewed by the reviewer if necessary.

Returning the checklist in advance gives the reviewer the chance to see a “snapshot” of your practice and enables them to focus on key areas.

The Day of the Practice Audit

The practice audit usually takes a full day to complete, but may be rescheduled to continue on a second day if extra time is needed. Practice audits are conducted by practice reviewers who have practised law for a number of years prior to joining the Law Society.

There are three main components to the practice audit process:

First, you and the reviewer will have a detailed discussion of the topics covered in the Paralegal Basic Management Checklist. The reviewer will usually ask you to demonstrate the various management practice procedures in place, and may ask to see any standard documents or software used as part of these procedures.

Second, the reviewer will conduct a high-level review of your or the firm’s financial records to confirm they are being maintained according to By-Law 9. The reviewer will also review your firm’s billing procedures, cash handling policies and procedures, and the overall financial management of the practice.

Third, the reviewer will conduct a review of five to seven files that reflect the nature of the work that you do at various stages – from recently opened to closed files. If you offer legal services in more than one practice area, files from each practice area will be reviewed.

During the audit, the reviewer will advise you of any recommendations that he or she intends to make, and will typically summarize these recommendations at the end of the audit.

The reviewer may also highlight any “action items” that require urgent attention. The reviewer’s recommendations will be included in a Practice Management Review Report that will be delivered to you approximately two months after the audit.

Wherever a recommendation is made, the report will include the reviewer’s actual observations, the rationale for any proposed changes, and a specific recommendation for the action required. The report also includes a listing of resources that you may refer to for additional information or assistance in implementing the recommendations.

Possible Outcomes

Possible outcomes of the practice audit process can include:

• Closing the file, where there are no significant deficiencies;
• A follow-up letter to request that you submit proof that deficiencies have been addressed;
• Re-audit to ensure that deficiencies have been remedied;
• Consent proposal orders to remedy deficiencies within a set time, with a follow-up audit; and
• Referral to Professional Regulation if misconduct is found.

Whatever the outcome, except in very rare circumstances, you will be given approximately six months to implement the recommendations made in the reviewer’s report.