The statutory provision regulating the handling of client's monies are covered in the advocate's act.

Purpose of the rules:

• To require a lawyer to keep client's money separate from his own money;

• To ensure that a lawyer keeps adequate records of his transactions so that his books show money received and paid and balance held on account of each client;

• To ensure that one client's money is clearly distinguished from that of other clients and from any other money passing through the lawyer's accounts.

Broad effects of the rules:

• That money received by a lawyer which does not belong to him should be dealt with through the client account;

• That his own money is kept in an office account

The Accountant's Role

Every year a lawyer who handles client's money is required to produce to the Law Society of Kenya a report by a qualified accountant that he has complied with the rules in the advocate's act. This report is required once every year, however, a complete audit is not required nor is there a requirement for the preparation of the profit and loss account or balance sheet. For the purpose of giving his report the accountant must:

1. Ascertain from the lawyer particulars of all bank accounts kept or operated by the lawyer in connection with his practice.

2. Examine the book keeping system in every office of the lawyer to see that the system complies with the following requirements:

• That there is a ledger account for each client
• The ledger accounts show separately particulars of all client money received, held or paid on account of each client
• Transactions relating to clients money are recorded in the lawyers books so as to distinguish them from transactions relating to any other monies
• Test check postings to client's ledger accounts from records of receipts and payments of client's money
• Make test checks of casts of such accounts
• Compare a sample of lodgements and payments as shown in the bank statement with the lawyer's records of receipts and payments of client's monies
• Enquire into and test check the system of recording costs and of making withdrawals in respect of costs from the client account
• Satisfy himself by test examination that financial transactions are in accordance with the rules and that any entries in ledger accounts reflect the transaction in a manner which complies with the rules
• Extract all client's ledger balances at least two dates in the year and reconcile the cash book balance with that confirmed direct to the accountant by the bank
• Make test examination to ascertain whether payments from client account have been made on any individual account in excess of the money held on behalf of that client
• Peruse the office ledger, cash accounts and bank statements to see whether client money has not been paid into a client account

The accountant is not required

1. To extend his enquiries beyond the information contained in the relevant documents as supplemented by such information and explanations as he may obtain from the lawyer.

2. To enquire into stocks shares other securities or documents of title held by the lawyer on behalf of clients.

3. To consider whether the books of accounts of the lawyer were properly written up in accordance with the rules at any other time than at which his examination took place.

Pension Funds

Pension funds are set up by companies or other organizations:

(a) To administer the pension payable to retired employees and

(b) Ensure that funds are available to pay pensions even if the sponsoring organization goes into liquidation. The auditors duties include:

i. Examining the trust deed that set up the fund and ensuring that its provisions have been correctly carried out;

ii. Verifying that there is proper control over the transactions of the fund;

iii. Verifying the portfolio of investments. All changes should be authorised by trustee minutes and all income must be received;

iv. Verify that the funds are sufficient to meet its future commitments. These are usually determined actuarially, preferably annually. Many schemes incorporate an undertaking by the sponsor to make good any deficiency.

Co-operative Societies

An audit in this case is carried out as a normal audit except you should note that the auditor is appointed by the Commissioner of Co-operatives and although he reports to the members the accounts must be registered with the Commissioner. Of special note is that he is required to carry out special investigations on the bad debts provision to determine its adequacy and on the good debts he has to confirm their recoverability.