Financial Management Policy
1 Introduction
1.1 The aim of this policy is to set out the firm’s approach to financial management, to report on the firm’s financial status, and to ensure the secure management of both firm and client funds.
2 Our approach to financial management
2.1 We produce an annual business plan setting out our core business and financial objectives. This includes an annual income and expenditure budget, cashflow and balance sheet forecast.
2.2 Monitoring financial risk and stability is a regulatory requirement as well as sound business practice. We have processes for:
2.2.1 monitoring the firm’s financial stability and business viability;
2.2.2 monitoring and controlling risks to money and assets entrusted to us by clients and others; and
2.2.3 identifying and monitoring financial risks.
2.3 Identifying and mitigating matters that pose a higher financial risk is a major factor in our overall risk management arrangements.
3 Who is responsible for financial management?
3.1 The Compliance Officer for Finance and Administration (COFA) is committed to achieving effective financial management and will ensure adequate resources are available to meet financial management needs.
3.2 While the Solicitors Regulatory Authority (SRA) Accounts Rules state that the COFA is not required be a qualified solicitor, it’s noteworthy that our COFA, Lucy Tarrant, holds a solicitor qualification.
4 Financial management processes
4.1 We use a number of financial management tools including:
4.1.1 setting an annual income and expenditure budget, an annual cashflow forecast and a balance sheet forecast, each of which is broken down on a monthly basis;
4.1.2 monitoring the value of work we have done on our clients files (work in progress or WIP) against any payments on account of costs that our clients have made;
4.1.3 producing a monthly report of outstanding client invoices—an aged debtors report;
4.1.4 taking a proactive approach to invoicing clients; and
4.1.5 taking steps to identify and manage high financial risk matters and clients.
5 Accounting
5.1 A monthly financial management report detailing our financial status is prepared by our Accountants and presented to the COFA.
5.2 All accounting reports and procedures are prepared and followed in accordance with the SRA Accounts Rules.
5.3 We retain all accounting records for as long as is required by relevant legislation. No financial record is destroyed before the statutory period has expired.
5.4 We currently hold Professional Indemnity Insurance with Endurance Worldwide Insurance Limited. We also hold Cyber Liability Insurance with Lloyd’s of London.
6 Audit
6.1 Regular internal audits of our financial system and controls are carried out by our COFA and Accounts Manager.
6.2 An annual external audit to review our finances is carried out by Just Audit Limited, in accordance with the SRA Accounts Rules.
7 Banking Arrangements
7.1 The bank/building society that we use is National Westminster Bank (“NatWest”).
7.2 Natwest currently holds a Fitch Long-Term Rating of A+.
7.3 All client funds are securely held in a dedicated instant access bank account under the name of Cognitive Law Limited Client Account. This account is entirely separate from our business account, providing an added layer of security and ensuring the complete protection of client funds.
7.4 All transactions are agreed and authorised by a Director of this firm.
7.5 In cases where one of our solicitors has been appointed as a Deputy (Court of Protection) or Attorney (under a Power of Attorney), the solicitor will have access to the client’s own account and will make/receive payments directly from/into that account. There is no need for the client’s money to be transferred into our client account. In respect of these cases, we do the following:
7.5.1 Keep a central register of the client own accounts that we operate;
7.5.2 Keep a separate record of the transactions carried out by the solicitor in respect of the client’s own account; and
7.5.3 Keep a record of our bills and other notification of costs relating to that client’s matter.
8 Annual budget and other forecasts
8.1 We set our income and expenditure budget, cashflow forecast and balance sheet forecast annually.
8.2 On occasion, we may amend or update the budget or forecasts during the course of the financial year, due to events that were not anticipated at the time they were set.
9 High financial risk matters
9.1 We have identified the following factors as presenting a higher financial risk:
a) an insolvent or bankrupt client;
b) where there are indicators suggesting a high risk of money laundering or terrorist financing, eg large cash payments;
c) matters funded by conditional or contingency fee agreements—we will not be paid if the matter is not successful;
d) clients who do not have assets in England and Wales—it may be difficult to enforce payment of the bill via the courts;
e) where there are indicators that the client may be in financial difficulties, eg they cannot meet their tax liabilities;
f) where there is a high risk of an adverse costs order—this may affect the client’s net ability and/or willingness to pay our invoice; or
g) clients who have a history of not paying their bills promptly or unreasonably failing to provide payments on account.
10 Notifying the SRA
10.1 We must notify the SRA promptly:
10.1.1 of any indicators of serious financial difficulty relating to the firm;
10.1.2 if a relevant insolvency event occurs in relation to the firm; or
10.1.3 if we intend to, or become aware that we will, cease operating as a legal business.
10.2 We are also required to notify the SRA of any serious breach of the SRA Accounts Rules.
Monitoring and review
11.1 The COFA is responsible for this policy.
11.2 This policy was last updated in December 2023.