Hello. Long time no blogging. I’d write that I’m glad to be back, but this isn’t one of the posts. Rather, I’m here to warn about trust account fraud and emphasize the role that timely reconciliation plays in protecting against it.
Last winter, I posted about two instances in which timely reconciliation had alerted firms to trust account fraud. The first involved fraudulent checks. The second involved unauthorized ACH disbursements made from a trust account.
The former has resurfaced. If it ever left.
A Chittenden County lawyer contacted me this morning. Reconciling the firm’s pooled interest-bearing trust account (IOLTA), the bookkeeper noticed multiple checks that looked exactly like the firm’s trust account checks, bore the proper account and routing numbers, and even included the bookkeeper’s signature. However, the bookkeeper knew that she had not issued checks to the named payees. The checks were fraudulent. Somehow and somewhere, someone accessed one of the firm’s actual checks, generated fraudulent facsimiles thereof, and expertly changed the payee. Upon being alerted to the fraud, the firm’s bank made good on the funds.
How the fraud occurred remains unclear. Here’s what’s clear.
Yes, trust account fraud is unrelenting and increasingly sophisticated. But regular and timely reconciliation can reveal fraud and help lawyers to safeguard funds that would otherwise be gone from trust.
In February’s post about the firm that discovered unauthorized ACH disbursements, I noted that the firm had “moved to a version of ‘positive pay.’” I encouraged others to consider doing the same. On the CLE circuit this spring, I learned that many have. You can read more about “positive pay” here. (Note: my sense is that most Vermont firms use “reverse positive pay.”) Anyhow, here’s an excerpt from February’s post that bears repeating:
“Nothing in this post should be read as me stating that the Vermont Rules of Professional Conduct require lawyers and law firms to enroll in a “positive pay” program. However, it’s worth considering. As I mentioned in A Lawyer’s Professional Responsibility to Learn to Identify Common Trust Account Scams, if trust funds go missing, the question will be whether the lawyer took reasonable steps to safeguard them. I could envision a disciplinary prosecutor asking, “did you ever check whether your bank offers a ‘positive pay’ or a similar service?”
As always, let’s be careful out there.
Trust Accounting Resources
- Don’t Fear, Simplify. (25 minutes)
- Basic Requirements(41 minutes)
- Contingent Fees, Referral Fees & Fee Sharing(22 minutes)
- Flat Fees, Misappropriation & Trust Account Scams(35 minutes)
- Collecting & Disbursing Funds(33 minutes)
- Vermont’s rules on fees labeled “non-refundable” or “earned upon receipt”
- Beware the severance payment scam
- Reconciliation (again) is a good thing! Plus, a tip to protect against check fraud
- Timely reconciliation alerts firm to trust account fraud
- A lawyer’s professional responsibility to learn to identify common trust account scams
- Lawyers aren’t Kramer: when it comes to trust accounting, there are no excuses
- Back to (trust account) school
- Safeguarding Client Funds: Tech Competence & Mobile Payment Apps
- Taylor Swift & Trust Accounts: Don’t Say I Didn’t Warn Ya
- Disbursing without Collected Funds
- Mobile Payments & Legal Fees
- Trust Accounting Tips
- Trust Account Scams Continue
- & Jack Torrance: an overview of the trust account rules
- Third-Party Claims against Client Funds
- With trust accounts, verify
- Misappropriation: Don’t.
- Misappropriation: Don’t.
- Trust Account Tuesday: Nonrefundable fees
- Teddy KGB on prompt notification and delivery
- When a third-party asserts an “interest” in funds held in trust
- Trust Account Tuesday: (generally) don’t disburse absent collected funds.
- Trust Accounting: Basic Requirements
- Trust Account Tuesday: Don’t Commingle
- Trust Accounts & ACH Transfers
- Trust Account Scams: Change in Wire Instructions? CAUTION!!!!
- Don’t overcomplicate trust accounting.