By Leanor Hodge, NC State Bar
The State Bar has seen an increase in reports of employee embezzlement from law firms. This is an issue of concern for the State Bar, and of concern, angst and heartache for the lawyers whose accounts and trust have been breached by their embezzling employee. Let’s go over a few tips that might help safeguard against employee theft.
Maintain physical control of your trust account records. Your trust account records should not be maintained by your staff. You can give your staff access to your account records in the office as needed in support of your obligations under Rule 1.15, but staff should not be permitted to take your account records off site.
Review your bank records, including bank statements and canceled checks, making sure to review the canceled checks for forged signatures. Many cases of employee theft would have been discovered if the lawyer reviewed bank statements and canceled checks.
Reconcile your trust account promptly. It is the lawyer’s responsibility to reconcile his or her trust account. If this responsibility is delegated to a non-lawyer staff person then the lawyer should review and sign off on each reconciliation monthly and quarterly (three-way reconciliations).
Review all trust account activity regularly. Random spot checks of the bank records against documentation from the client file helps deter theft.
What should a lawyer do if he or she discovers that an employee has embezzled from the trust account? The Winter 2015 edition of the North Carolina State Bar Journal will include an article authored by Trust Account Compliance Counsel, Peter Bolac that outlines his “Top Tips on Trust Accounting.” Let’s preview Bolac’s tips for action after embezzlement has been discovered:
Actions the lawyer must take:
Replenish any known deficit; and
Report the embezzlement to the North Carolina State Bar.
Actions that the lawyer is strongly encouraged to take:
Terminate the employee;
Call the police;
Question other employees; and
Consider opening a new trust account.
Make sure to read Peter Bolac’s article in the Journal later this winter for more detailed information on this subject.
*Any opinion or views expressed in blogs posted on this site are those of the identified author and not the Committee as a whole.