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With Staff, Trust But Verify because it’s Not Your Money!

I continue to be surprised at the number of times during a firm visit, be it with a solo attorney or in a small firm setting, I learn that complete oversight of client property has been turned over to an employee. More often than not, this individual has been employed at the firm for years and is always viewed as someone worthy of a high level of trust. While I do believe the development of trusting work relationships is a good thing, there can be a downside if the trust is left unchecked for an extended period of time. One problem is that excessive trust can easily lead to the deterioration, if not complete abandonment, of accountability mechanisms and sometimes trouble follows. One story that has stayed with me for years involved a trusted firm administrator who eventually came to be treated by her boss, a solo attorney, as a member of his family. This individual even played a role in helping to raise the attorney’s children. Everything came crashing down when the attorney eventually discovered this trusted employee had been embezzling him for years managing to take well in excess of $100,000. Suffice it to say the attorney never saw it coming and was crushed by this individual’s deceit.

Before going further, allow me to say that I do value the professional and personal relationships that can and do arise in a work setting. I believe that placing trust in employees is not only appropriate but a necessary practice. My purpose here is not to advocate a modicum of distrust. Rather it is to encourage and underscore the importance of creating and maintaining appropriate mechanisms of accountability for client property. Why? Because, unfortunately, even long-term trusted employees sometimes make really bad decisions. To add insult to injury, should such an unfortunate event ever occur in your firm and adequate safeguards were not in place, you might end up on the wrong side of a disciplinary action and/or malpractice claim. You cannot and should not delegate total and complete responsibility for all accounting functions to non-lawyer staff. Simply put, as an attorney you have an ethical duty to oversee the safekeeping of client property.

With all this in mind, here are a few ideas to help you avoid such problems and, if followed, can help demonstrate that an appropriate level of attorney oversight of client property was in place should a theft ever occur.

  • Promptly identify items of value received on a short-term or long-term basis. Label them as client property and place them in a secure place as soon as possible. For example, immediately deposit client funds into the trust account. Place valuable papers or other small tangible items in a safety deposit box or a fireproof safe. Large items may require safekeeping in secure commercial storage space. When maintaining client property long-term keep an inventory of the property, catalogue the property as onsite or off-site, and update this inventory as called for. Diamond rings have disappeared and client x-rays unintentionally destroyed for want of this kind of basic safekeeping practice.                                                                            
  • When hiring administrative, accounting, or bookkeeping staff verify reported employment history and personally speak with references. You might also review the publically available social media presence of any prospective hire. 
  • Have your books reviewed by an outside auditor once a year. Typically this audit would occur during a mandatory two week vacation you should require any long-term employee who is in a position of trust, such as a bookkeeper, to take. 
  • Require two signatures on all checks written in excess of $500 or $1000. This can help assure an attorney personally sees and reviews all checks being written for a significant amount.
  • Make certain that all checks and cash received are kept in a locked drawer, cabinet, or safe until it’s time to take them to the bank. In addition, all checks should be restrictively endorsed upon receipt and either copied or recorded in a log of checks received in order to make identification and replacement easier if a check is ever lost or stolen. 
  • Separate check preparation responsibilities from account reconciliation responsibilities. Allowing one person to sit in both roles is asking for trouble. In a perfect world, the account reconciler would also never have access to the trust account check stock as those checks should be kept in a locked drawer or safe. 
  • Trust account checks should be physically different from the operating account checks to lessen the likelihood that a check will be written on the wrong account. Consider different sizes or colors or perhaps even maintaining the accounts at different banks. Periodically take a look at both check stocks to make certain that the checks at the back are still there. Sometimes forged checks turn out to be checks taken from the back of the check stock done with the hope that the stolen checks will not be missed. 
  • The use of signature stamps should be forbidden as these things have been misused too many times. If you have any signature stamps lying around in your office, destroy them. For similar reasons, never leave signed blank checks lying around.
  • An attorney should regularly review the bank statement for the trust account and the corresponding reconciliation report so that any discrepancies can be addressed immediately. Require the bank statement to be delivered to the reviewing attorney unopened or consider having them sent directly to the attorney’s home. Not only does this attorney need to see and understand all activity in the trust account but he will also want the opportunity to make certain no forged checks were written. In part, this is about trying to catch small thefts before they become something more. 
  • Watch for the warning signs and never ignore them once present. Although not foolproof, there are certain warning signs that should warrant careful attention. These would include your becoming aware that the trusted staff person is having financial problems, you witness the demonstration of addictive behaviors, realize this person is living beyond their apparent means, or learn that the individual never takes any extended amount of time off.

Related Posts:

Remember, It's Not Your Money!

Who’s Steering the Ship? Managing the Business Side of Your Firm

Why You Don’t Want to Take Business Planning Completely Off the Table

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As a Risk Manager for ALPS, Mark Bassingthwaighte. Esq. is responsible for developing and delivering new risk management and CLE products and services, risk management consulting, law firm risk evaluations, and writing content for the ALPS 411 blog at www.alps411.com. In his tenure with the company, Mark has conducted over 1,000 law firm risk management assessment visits, presented numerous continuing legal education seminars throughout the United States and written extensively on risk management and technology. Mark received his J.D. from Drake Law School. He can be contacted at: mbass@alpsnet.com
 

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