Who wants to be a COFA?
Compliance officers for finance and administration have more on their plate than many believe – MHA’s SRA technical director Robert Blech explains how granular these duties can be.
Every Solicitors Regulation Authority (SRA) regulated law firm must have a compliance officer for legal practice (COLP) and a compliance officer for finance and administration (COFA). If you are a small practice, there may be little choice of who these are, and in larger firms, lines of reporting may make these roles clear and defined. Regardless of the structure you operate, understanding the obligation of each is critical. Looking at it from a financial compliance viewpoint, this article concentrates on the COFA.
A COFA has a range of duties that include (but are not limited to) taking reasonable steps to ensuring your firm, its managers and employees comply with any obligations imposed upon them under the SRA Accounts Rules – and a prompt report is made to the SRA of any facts or matters you reasonably believe are capable of amounting to as serious breach of the SRA Accounts Rules. The SRA must be informed promptly so that it may investigate whether a serious breach of the rules has occurred or otherwise exercise its regulatory powers (SRA Code for Firms para 9.2). The COFA must also report the practice if there are concerns as to its financial stability. Therefore, they must have access to all financial information and understand the indicators of financial difficulties, which is not always straight forward if the COFA is not from an accounting or finance background.
The COFA does not have to be a solicitor but needs to have a good practical knowledge of the SRA Accounts Rules. It is important that the COFA has access to all accounting records, carries out regular checks on the accounting system and carries out file and ledger reviews. It is effectively up to the COFA to decide whether a breach should be reported to the SRA and to monitor, review and manage compliance risks.
Much of the COFA’s duties are dependent on good systems and controls. This includes ensuring the appropriate people authorise payments, and that arrangements are made to ensure that any duties to clients and others are fully met even when staff are absent. Documentation of procedures is vital, even for small firms. This gives practices a framework to support the procedures in place and a basis for reviewing and managing risks.
Some COFAs do not realise the impact of their duties on a day-to-day basis, aside from a member of staff perhaps reporting an issue to assess if reportable or not. Rule 8.3 of the SRA Accounts Rules states in respect of preparation of the five-weekly client bank reconciliations, this must be ‘signed off by the COFA or manager of the firm’. Further to that, COFAs ‘should promptly investigate and resolve any differences shown by the reconciliation’. A COFA who signs the reconciliation therefore has a duty not just to sign it, but to check and resolve any discrepancies. If, for example, there are unposted items or errors on a reconciliation, and they are still in existence the following month, then the COFA has failed to ‘promptly investigate and resolve’.
The COFA is an important role and a formal point of contact with the SRA. There are risks attached to the role and the individual must be empowered with firm-wide responsibilities. They should not be used as ‘sacrificial lambs’ where there is a lack of compliance. But the COFA may face regulatory action personally and should therefore consider indemnity agreements and protection where applicable.
Where the COFA does not have relevant skills, it is imperative that they are trained or relinquish their role to another. A firm must have a COFA in place, including a stand-in for any COFA absences. So, if the individual is resigning or leaving the firm, a replacement must be in place for a seamless transition.
