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You Will Survive…the State Bar’s Random Audit Process

Posted By Colleen Glatfelter, Wednesday, September 17, 2014

By Leanor Hodge

NC State Bar

Approximately every five (5) years, lawyers from one of the thirty judicial district bars in North Carolina will be audited by the State Bar pursuant to 27 N.C.A.C. § 1B.0128(b).  The 10th judicial district bar’s number was called this past quarter (July 2014) when fifty-three 10th judicial district bar lawyers received a subpoena from the State Bar directing them to gather their trust account records in preparation for review on a date certain by Anne Parkin, the new State Bar auditor. 

When a lawyer receives a random audit subpoena, the responding lawyer should gather and review all of his or her trust account records from the most recent 12 month period and have these records ready to present to the auditor when she arrives.  The records and documentation that lawyers are required to maintain for their trust accounts are identified in Rule of Professional Conduct 1.15-3.  For most lawyers, identification of the records needed for the audit is practically intuitive:  bank statements, canceled checks, deposit slips, copies of deposited items, client ledgers, credit card payment receipts, wire transfer confirmations, etc.  However, for far too many lawyers, there are two important but often overlooked trust account records that are required to be produced and should be included in that list:   PRINTED or digitally saved (which means a copy has originally been printed and then scanned to create an electronic copy) copies of the reports of monthly and quarterly reconciliations of the trust account.  Rule of Professional Conduct 1.15-3(d)(3) states “[t]he lawyer shall retain a record of the reconciliations of the general trust account for a period of 6 years…”  It is not acceptable for a lawyer to fail to maintain the printed reconciliation record for the required 6 year record keeping period though the lawyer may have actually performed the reconciliations in accord with the requirements of the Rule.

After the auditor has completed her review of the trust account records, she will prepare the State Bar Auditor’s Report and provide a copy of it to the subject lawyer.  It is likely at this stage of the audit that the crescendo of angst associated with the audit process reaches its climax.   For most lawyers who are the subject of a random audit, any worry they experienced in anticipation of and during the audit dissipates at the conclusion of the audit.  This is because the majority of lawyers who are the subject of a random audit get an average result.  This means that at the conclusion of the audit they receive an audit report which outlines administrative changes that the lawyer needs to make to his or her trust account administration with an instruction to make the changes going forward.  In some instances, those lawyers who have received an average result are required to demonstrate to the Trust Account Compliance Counsel that they have made the changes listed in the audit report.  For an elite class of lawyers, the random audit process will end with what the State Bar auditor describes as an “A+ result”:  completing the audit process with little or no recommended changes to the lawyer’s trust account administration.   Will you be a part of that elite class of lawyers if you are among those subpoenaed when the 10th judicial district bar’s number gets called again…?

*Any opinion or views expressed in blogs posted on this site are those of the identified author and not the Committee as a whole.

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