In the intricate world of legal practice, safeguarding client trust accounts is paramount. Client trust Accounts (CTAs) hold the funds entrusted by clients to attorneys. In keeping client funds secure, there are many potential threats to be wary of. Many of which are external. Surprisingly, an equal amount of threats to client trust accounts are likely to occur internally. Here are things to look for to prevent internal and external threats to your client’s held funds and what to do if you fall prey to internal or external scams, threats, or other hazards.
External threats to Client Trust Accounts can come in many forms. Ranging from individuals acting as people they are not, an orchestrated scam involving deposits, or even frauded checks.
Check scams are intended to defraud lawyers and firms. Often beginning the scam, they make an attempt to engage a firm on false legal matters aiming to issue a counterfeit check via a legitimate client trust account to cash. At this point, these scams can provide settlement documents, IDs, and other counterfeit documents that appear to be real. Scammers use these documentation to prove legitimacy to legal firms as they claim to need services processing a divorce settlement, debt collection, real estate transaction, etc.
By following these simple steps, attorneys and their firms are more likely to avoid external fraud.
A more likely threat is that of staff and employees of a firm. While this could be conceptually hard to believe, considering most people want to believe the best in trusted team and staff workers. This scenario is logically and statistically more likely to occur simply due to time and exposure. Team members have access to passwords, and are added to trust accounts as signatories. In an article by a California State Bar principal program analyst for the Division of Regulation, the author states that internal fraud most often occurs when three specific opportunities are met. These are opportunity, motivation, and rationale. Extended period of time and knowledge of secured information is opportunity enough, motivation can range from being on hard enough times financially to consider fraud. Rationalization goes hand and hand with motive. Sometimes when staff members commit fraud, they use the rationalization that they will pay it back or tell themselves that the action could never be traced back to them.
While the main form of fraud committed by employees is a direct withdrawal from a bank account there are other ways team members could misappropriate funds. This may include giving secured information such as passwords to third parties, cashing client checks, or making counterfeit accounts to deposit stolen funds into their own accounts.
In the event your firm falls victim to a scam, know that it has happened to even established firms and you can recover from it. Know that the steps you take to address the situation will be determined by the nature of the scam. However, the standard steps include:
Report: If your firm falls victim to fraudulent activity in trust accounts, you must make certain reports immediately. One report must go to the bank, the next to the authorities. When informing law enforcement, be sure to prepare a timeline and gather all documentation that will assist the investigation. When speaking with the bank. it is very likely that they will suggest the trust account be closed and a new one be opened.
Contact: Next, you must reach out to your client. Lawyers are required to inform clients if any confidential information or funds were breached. it is also mandatory to reach out to the State Bar in the event that your trust account was overdrawn by the fraudulent activity, as it is a requirement to inform them of any changes happening under the CTAPP regulations.
Our goal at SmartBean® is to help firms remain in compliance with client trust accounting rules and regulations. If you are searching to work with a team of dedicated, knowledgeable bookkeepers so you can focus on your clients, call SmartBean® today for a consultation!
