Client Status, Matter Status and know your client confirmation of compliance with firm policy

QUESTION: A client has the status of active-active, however it is also stating that the file did not clear conflict. Both the client and matter appear as open but they have this note. When we create a trust request, the note “NOT compliant with Firm Policy” appears within the Trust Receipt Confirmation. Can you please explain?

RESPONSE: The screenshots provided are for the client properties. When a new matter is opened for a new client, it is considered best practice to activate the client and reject the matter due to conflict. When this process is followed, the client would keep its status active, even though its first and only matter is rejected due to conflict. The screenshots provided seem to indicate that you are following this most often used process.

We cannot tell from the screenshots provided what the status of the matter is, or the steps taken to get there (the status change log for the matter). However, based on the note, it appears that the user intended to select the action to reject the matter and not activate it, to move the matter forward from status temporary. Based on the trust receipt confirmation screenshot it appears that the matter was not rejected as intended, this made it possible for the trust receipts to be accepted and posted. To correct the status of the matter from active to rejected, you will need to first close it – this will make sure you clear any unwanted entries that occurred in the meantime including reimbursing the trust funds back to the client. Once the matter is closed, you will be able to reject it.

The “Not compliant with firm policy” message included on the screenshot of the trust receipt confirmation report sent, indicates that the know your client requirements to meet firm compliance have not been confirmed. This is a separate decision point, as a result the firm can have a client with status active that has not been confirmed as compliant with know your client firm policy, because the first matter is rejected due to conflict so the firm will not be handling any funds (the trigger for the KYC confirmation requirements).

As a final note, the reason why many of our clients keep their clients active and reject the matters due to conflict, is because a client could be conflicted out on some matters but not all. As a result, they use the client status “Rejected” to indicate a client that had bad debt expense generating financial losses for the firm. If the client returns, then they have immediate visibility that it was due to previous losses so a business decision can be made before making additional investments.