How can we prevent fraud with our trust accounting?
It’s easy to think fraud won’t happen to you – until it does. Fraud occurs in a variety of ways, but it boils down to someone using deception to illegally take someone else’s assets.
Trust account fraud is especially concerning for lawyers. Not only are attorneys personally liable for any money that goes missing from a trust account, but they may also face professional repercussions – including the risk of being disbarred.
Not being the one to commit or know about the fraud doesn’t protect a lawyer from repercussions. With such serious outcomes, it pays to take steps to proactively prevent fraud from occurring.
Create a culture of awareness
Train your employees on how to spot and prevent fraud. You may also want to consider setting up a hotline for anonymous reporting.
And always lead by example – take fraud seriously and have clear policies, with clear definitions.
Make fraud harder to commit
Don’t create situations where one employee has access to trust accounts and can adjust the books that would show a problem. Instead, require a signature from a partner for checks. And personally review bank statements and reconciliation every month.
The fewer people who have signature access to a trust account, the better. And it’s worth mentioning that employees – on any level – usually work at a company for years before committing fraud.
Set up your accounting for easier overnight
Having oversight of financial matters is crucial – after all, failure to notice fraud could cost you your license – but it also helps if the oversight is easy to do. Leverage tools to make reviewing financials more accessible.
Use a practice management system that lets you quickly see trust account balances. Check for weird transactions. And take advantage of integrated billing and accounting, which can help expedite three-way reconciliation.
Safeguarding your clients’ money is your responsibility – even if someone else commits the fraud. Don’t risk a scenario that could lead to disbarment or damage to the firm’s reputation. Train your employees, create systems of oversight within the firm, and leverage accounting tools to make your involvement in firm financials less of a chore.