Fraud & Embezzlement – stay alert, stay safe, report.

  by Sheila Blackford   ©2009   I spoke with an Oregon attorney who closely monitors the law firm’s trust account. This attorney was unpleasantly surprized to find an additional transaction posted to the trust account. A copy of the check showed an out-of-sequence check number and a poor approximation of the lawyer’s signature. Other details on the fraudulent check were accurate-name and address. Chilling! Though scams of pulling a box of newly printed checks out of a mailbox have happened, this is the first time I’ve heard this particular scam. How did it happen? Obviously someone had access to the attorney’s trust account number and the name on the account. Because it was a small amount of money, it is believed that the fraudster was sending up a trial balloon to see if it would be noticed. Happily, it was.

The lawyer promptly contacted the bank and subsequently closed the trust account and contacted the PLF, reaching me. As a precaution, the lawyer also called the Bar’s General Counsel office and was referred to an attorney on call in Discipline. Since there was no overdraft, there was no need to make a formal report according the Disciplinary Counsel. The bank replaced the money in the trust account.

However, the next day, the bank sent a notification that the transfer instrument was presented against insufficient funds. Yes– the funds were already transferred to the new trust account so they were no longer in the former trust account. There must have been some delay in the bank’s system to account for this unusual situation which prompts a lot of head scratching. Nonetheless, to be safe and in compliance with Oregon Rule of Professional Conduct 1.15-2 IOLTA Accounts and Trust Account Overdraft Notification (i) the lawyer made the written notification to the Disciplinary Counsel talked to the previous day. I repeat the rule segment here: “Every lawyer who receives notification from a financial institution that any instrument presented against his or her lawyer trust account was presented against insufficient funds, whether or not the instrument was honored, shall promptly notify Disciplinary Counsel in writing of the same information required by paragraph (i). The lawyer shall include a full explanation of the cause of the overdraft.”

On a similar note, in tougher economic times, more attorneys catch acts of embezzlement. According to those in the forensic accounting business, incidents aren’t so much increasing as greater awareness of incidents. When you think how long an embezzler usually embezzles, this makes sense. To protect yourself, read this article I wrote with David Debenham a partner with Lang Michener in Ottawa in the June 2009 issue of Law Practice Magazine: “Thinking About the Unthinkable: How to Guard Against Fraud and Embezzlement in Your Firm” and see the accompanying checklist: “How to Prevent Fraud and Embezzlement: A Checklist” Or catch the great article in Law Practice Today July 2009 Your Practice Management Advisor column, “Protect Yourself from Fraud” by Deborah E. Gillis, Q.C.

You’ll also find a helpful practice aid and form, “25 Ways to Protect Your Firm from Embezzlement” on the PLF website in the Trust Accounting group of aids.