How to Survive a Random Compliance Audit: Some Real World Tips


Over the years LEAP has assisted several thousand firms around the world with their compliance obligations.

A wise person once said to me, “If a firm doesn’t steal money or do dumb stuff, they will naturally meet their compliance obligations.”  Sage, simple advice, but what constitutes ‘dumb stuff’?  What has been proven throughout history is that anyone can avoid making mistakes by putting good systems in place. 

Attorneys who run their own business are courageous.  They take on more than just being a lawyer.  They are a leader, a manager, a bookkeeper and a confidant.  All this with the added pressure of being held to higher standards in their professional life than an ordinary person.  While juggling all these things, an audit can be the last thing they are thinking about. 

The good news is that by being organized and implementing great systems an audit can become an administrative procedure, like going to the bank.  Becoming obsessive about your day to day administration, being vigilant about following processes and having one source of truth for your accounts will mean you know longer have to fear your auditor.

  1. Bill Regularly

By implementing a frequent billing regimen, a firm will remain on top of its finances.  Knowing how much money is in the bank means that the temptation of overspending or overdrawing bank accounts can be eliminated.  Most firms who get into trouble in this regard do so accidentally.  They have the clients, they have the work, they are just lazy when it comes to billing.

  1. Receipt and Bank Money Immediately

When money is collected it should be receipted and banked as though it has a 24-48-hour expiration date.  Over the years I’ve seen checks left in drawers for months.  This practice can only get you into trouble.  Implement an office policy and allow time for daily banking.

Modern systems allow for this to be automated by offering your clients the option of ACH and credit card payments.  These systems also provide an automated receipt.  In the modern world, this means you are likely to get paid quicker and more regularly.  It also reduces the potential for human error.

  1. Separate Retainers from Your Operating Account

It is both permissible and common practice to place retainers into an operating account in some U.S. states.  Many law firms accommodate this in their retainer agreement.  There is, however, an inherent risk.  If the money is spent and a refund is required, this can sometimes be the difference between having a positive and negative bank balance.

Many jurisdictions around the world mandate that retainers should be banked into a trust account.  They can only be transferred to an operating account upon the rendering of an invoice.  Although this is not mandatory in New Jersey, it is viewed widely as best practice.

The common concern is that there are more rigid record keeping and compliance requirements associated with a trust account.  This was a valid concern when trust accounting was performed on paper ledgers.  Today, there are many software providers that make the recordkeeping requirement as simple as it is to keep an operating account.

  1. Keep Your Bank Deposit Records

Whenever you bank a check or cash be sure to keep your deposit receipt.  This is important to be able to reconcile your accounts later.  If you have an electronic system, ensure it accommodates the generation of such a receipt.  It will make it easier to find and in the event of a problem, reproduce for your auditors.

  1. Trust Account Audit Trail

Any time trust account data is updated, it is good practice to record what was updated and when.  For example, this can be by manually recording a change to client address in a trust audit book or ledger.

Most legal accounting providers today record audit information in the background.  When you are audited you can print off the audit report and hand it to your auditor.

  1. Reconcile Your Account Regularly

Bank reconciliations are the most common form of angst during an audit.  I have seen firms race to create bank reconciliations dating back a year in advance of an audit.  This need not happen.  By reconciling at least every month, there is no need for an audit to cause disruption to your business.


By making these 5 real-world tips part of your daily routine, you will successfully pass a random compliance audit. Not only will you survive that random audit, but you will also create one source of truth for your firm’s accounts. Having one version of the truth for your accounts will help your firm meet its long-term goals. For more information on how you can optimize your practice, visit



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