The possibility of being selected for a random trust account audit can be stressful, but understanding how the process works can alleviate some of the anxiety.
Receiving notice. Typically, notices for audits are mailed, and the amount of notice given varies by state. In New Jersey for example, audit notices normally arrive ten days to two weeks before the scheduled date. In the case of a random audit, a firm can be audited multiple times or never be audited at all – it’s impossible to predict the likelihood of an audit based on your firm’s size, performance, or audit history.
Documents required. In New Jersey, random audits will typically cover a two year period preceding the scheduled date. Auditors will want to see:
- Recent bank statements
- Any canceled checks
- Receipts and disbursements journal
- Individual client ledgers
- Check register
In addition to bookkeeping documents, an audit may require access to important case documents from the last seven years.
Audit Process. Or receiving an audit notice, a firm should make the above items readily available for auditors. Failure to disburse records or to appear for the audit can result in disciplinary action.
The audit itself may take several days. Some audits are mail-in, which means that you are required to send all of your information to the auditor, and others occur in person. For in-person audits, the attorney is not required to be present, but someone with knowledge of the bookkeeping and the ability to assist in the audit must be available.
On arriving, the auditor will complete a brief questionnaire to gather information about the firm’s accounting and record keeping practices. During the audit, the auditor will maintain a list of record keeping deficiencies to be filed with the client after the close of the audit.
In the case of minor deficiencies, an attorney will typically have 45 days to make changes to his or her procedures. Major deficiencies will trigger a referral to the office of attorney ethics.