The prior month’s ending balance is the starting point and those times are added or deducted to arrive at the current month’s ending balance. To perform three-way reconciliations, the lawyer first maintains a “check book register” tracking all deposits, disbursements and service charges. Unlike other types of businesses, lawyers need to keep trust ledgers for each client or matter in order to do three-way reconciliations. It is more important today that the bank statement is carefully reviewed to timely catch any instances of fraud. It is admittedly rare that a bank will make a mathematical error today but because humans are involved, it is not impossible. Not everyone today compares their personal check register with their bank statement or even keeps a check register, but this is an important practice for the lawyer’s business accounting records and required practice for trust accounting. Normal two-way reconciliation of the checking account is where one compares the bank statement with the check register. RECORDKEEPING AND THREE-WAY RECONCILIATION As a matter of fact, a lawyer or small firm should review their online statement each month and, if they still receive their bank statement by paper, they should require it to be delivered to them unopened so the lawyer can review it personally. 5 These types of stories make it clear that a lawyer must be active in reviewing and reconciling their trust accounts. When the smoke cleared, the lawyer divorced her husband, lost her license to practice law and had to pay back the embezzled funds and $8,261 in costs. The lawyer also apparently never bothered to check her trust account for over a year. If the lawyer would have run a background check, she would have found out her new bookkeeper was a convicted felon for theft. The lawyer’s husband referred a new bookkeeper to her and so she trusted his judgment and did not run a background check. More recently, The Florida Bar suspended a lawyer for three years when a bookkeeper she hired embezzled $150,000 out of her trust account from April 2016 through June 2017. “Simple oversight and minimal diligence would have prevented this lawyer’s problem.” 4 The lawyer spent over $250,000 in restitution and legal fees to remedy the situation but was still suspended by the bar. Finally, when she was unable to fake his appearance at a deposition, she agreed, on his behalf, to resign and forged his signature on the resignation. She was so efficient that she kept him unaware of client complaints and bar disciplinary proceedings by intercepting phone calls, filing responses and requesting delays. An investigation revealed his trusty and loyal secretary had embezzled $265,000 from his trust account over a five-year period. The on ly problem is that he never resigned. One memorable story is where a California lawyer received notice from the State Bar of California accepting his resignation from the bar. Lawyers need to realize they are responsible for their trust accounts. Simple negligence accounts for many trust account violations. Lawyers failing to properly safeguard the funds entrusted to them by their clients could adversely affect their license to practice law. When it comes to trust accounts, the math is no joking matter. As a matter of fact, it’s quite common to hear lawyers joke that they went to law school because they couldn’t do math. Frequently, lawyers go into private practice thinking more about their representation of clients rather than the business side of the practice. It is very important for lawyers to maintain accurate records and to balance their trust accounts monthly. Because of this, one of the requirements under Rule 1.15 (l) is that financial institutions must report any overdrafts of IOLTAs to the Oklahoma Bar Association’s Office of General Counsel. The fiduciary nature of the attorney-client relationship and the need for public confidence in the legal profession require lawyers to maintain trust accounts with the utmost accuracy. 2 The interest earned on IOLTAs are pooled and transferred to the Oklahoma Bar Foundation. These funds are required to be deposited in an interest on lawyer trust account (IOLTA). 1 This means retainers and flat fees, filing fees, deposition and expert witness expenses as well as settlement proceeds should go into a trust account until distribution. The Oklahoma Rules of Professional Conduct require a lawyer to hold property of clients or third persons separate from the lawyer’s own property.
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