Solicitor had “massive holes” in accounts knowledge

A law firm owner who admitted having “massive holes” in her knowledge of the accounts rules has been fined £5,000 after letting a £41,000 shortfall build up on client account.

Danielle Louise Shawcross accepted her wrongdoing before the Solicitors Disciplinary Tribunal (SDT), but explained that if she spotted a shortfall, her bookkeeper “would explain why it was short”.

Ms Shawcross told the Solicitors Regulation Authority (SRA) that the bookkeeper, who came into the office “once a week for a few hours”, had worked at DLS Legal Services in Alderley Edge, Cheshire, since the firm was set up in 2016, but had never worked for solicitors.

The SRA said Ms Shawcross was “relatively inexperienced, just three years’ qualified, when she set up the firm and she admitted that she did not fully understand the firm’s accounting system and the process of reconciling client ledgers”.

Approving an agreed statement of facts and outcome, the SDT said: “There was clearly harm to the reputation of the legal profession but no harm or even inconvenience to clients.

“There were no aggravating factors. There were no allegations of dishonesty or lack of integrity and there had been no previous disciplinary matters before the tribunal.”

Ms Shawcross had “taken steps to rectify the issues identified, including instructing external accountants to rewrite the books and had undergone training to fill the gaps in her own knowledge”.

The tribunal heard that the solicitor, admitted in 2013, had been sole director and owner of DLS and held all the compliance roles.

A qualified accountant’s report in 2018, which found “significant weaknesses” in the firm’s accounting systems, triggered the SRA investigation.

Ms Shawcross admitted permitting a shortfall of just over £41,000 to exist in the client account by the inspection date of 30 September 2018. It was almost totally rectified by office to client account transfers within the following two months, but it took until June 2019 to fully replace the money.

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The shortfall was made up of incorrect client to office account transfers totalling over £33,800, holding over £3,000 of client money incorrectly in the office account and making incorrect payments from client account of over £4,100.

The solicitor also admitted failing to prepare adequate client account reconciliations. The SRA said that, before October 2018, these reconciliations were carried out by her bookkeeper and Ms Shawcross would check them against the bank account.

“She kept electronic copies of the reconciliations but not the client matters reports. She raised queries on the reconciliations with the bookkeeper who always had an explanation. She was aware of debit balances and raised these with the bookkeeper who reassured her that everything was fine.”

Ms Shawcross said she was aware of the accounts rules in relation to reconciliations but her knowledge “had massive holes in it”.

Following the qualified report, Ms Shawcross appointed accountants to undertake her bookkeeping and reconciliations and she has undergone training.

In mitigation, the solicitor said the issues identified by the SRA arose “through inadvertence and placing trust in a third party who regularly assured [her] that the accounts were properly managed”.

She described the bookkeeper as “a trusted professional with whom [she] had worked before, albeit in the context of general accounts rather than solicitors’ accounts”.

The SDT said Ms Shawcross “had shown insight into how the problems had arisen”. She was fined £5,000 and ordered to pay £10,000 in costs.