The purpose of the newly created Client Trust Account Protection Program was to strengthen public protection and regulate lawyers' fulfillment of their accounting duties. The California State Bar seeks to educate lawyers to prevent CTA related misconduct.
The State Bar designed the CTAPP has a few phases. Phase one included the self-reported segment that must be answered annually. The registration of accounts has led the State Bar to multiple findings. A couple of the year-one big highlights included:
• Over $11 billion of clients’ funds were reported in more than 59,000 CTAs
• Although it is a requirement of the program, not all attorneys know how to complete three-way reconciliation.
While there appears to be success in the CTAPP program thus far, the data does suggest blind spots. Initially, the State Bar is missing the necessary information to verify attorney reported account information on attorney held trust accounts. The number of accounts with unverifiable information is upwards of tens of thousands–far too many for the State Bar to not continue to make changes to how the system works. This comes as an unexpected, though logical output of a large foundation overhaul. Upon discovering this In the 2023-2024 year, the California State Bar has begun working with stakeholders on a process to bridge the disconnected information. Some of the potential solutions are mentioned here.
Given the learnings of CTAPPs first year, the update also will include best practices, correctional measures, and if necessary, redirection to disciplinary programs. The next component of CTAPP consists of the creation of a team of forensic accountants. This team will serve to audit Client Trust Accounts on the basis of recordkeeping requirements, against the Rules of Professional Conduct and all rules associated with entrusted funds.
Compliance reviews and audits will be performed by this team, as a second step following another group of external CPAs. A compliance review will rate attorney compliance with the Rules of Professional Conduct regarding held funds as well as recordkeeping, prompt distribution of funds/settlements, and timely communication with clients. If a compliance review is needed, the State Bar’s team of external CPAs would review and attorneys would bear the cost of the reviews.
The forensic accountants would also conduct investigative audits when needed. The State bar defines an investigative audit as an audit of a licensed attorneys trust accounting performed in tandem with the findings of the above mentioned compliance review.
To this point, through the creation of the program, the State Bar has made fundamental changes and in order for them to be fully realized, the organization must offer resources for attorneys to remain educated and therefore in compliance. These resources include but aren’t limited to the ethics hotline which is available via phone and resources on the State Bar’s website. There is also educational training on compliance and reconciliation. Further resources are still required as it has become clear that many attorneys who do not do bookkeeping assume that they are not required to follow certain rules, such as Rule 1.15 of the Rules of Professional Conduct. This is a misconception as the Rules of Professional Conduct is applicable to all licensees. More importantly, of the licensees who do know and follow the CTAPP rules for record-keeping and three-way reconciliation, many do not know how to complete the three-way reconciliation.
Since these changes have been made and are enforced, it's imperative that the State Bar give its licensees the proper tools to continue to bolster public safety through legal services. Moving forward, the State Bar will continue to expand resources. The Practical Client Trust Account Reconciliation course will teach best practices for both lawyers doing their own trust accounting and for those who review the monthly reconciliations with a bookkeeper.
For California attorneys, there is a delicate balance to meet fiduciary duties, Maintaining bookkeeping, record-keeping and compliance regulations. Let SmartBean® be your financial partner when pursuing compliance and professional responsibility! With our experienced team managing your accounts, SmartBean® can help streamline your processes so you can focus on providing protection to the public. We offer free consultations, call to receive yours today!
