Trust Safety Update Central Alberta Bar Society Red Deer June 3, 2015
Today s Presentation Fraud Schemes & Lawyer s Trust Accounts Risk Mitigation strategies Examples etransactions and Trust Accounts Trust Safety Rules update
Types of Fraud involving your Trust Account Fraudulent Trust Cheques Computer, internet & email fraud Staff theft Lawyer theft
Summary of Fraudulent Reporting in Alberta From January to March 2015 Type of Fraud Fraud Characteristics Amount Number of Law Firms Employee Theft Legitimate signatures $14,000.00 1 Fraudulent Bank Draft Bank draft appeared legitimate $128,000.00 1 Fraudulent Trust Cheque Trust cheques out of numerical sequence, fraudulent signatures, forgery $245,829.24 7 Total $387,829.24 9
Cheque Theft Stolen cleared cheques Used for Alteration; or Order new cheques Stolen blank cheques/cheque stock
Cheque Fraud Forged signature Counterfeiting & Alteration Paperhanging phony cheque or bank draft passing edeposit fraud
Recent Trends and Examples Counterfeit cheques/bank draft Good quality Out of numerical sequence Slightly different font Excellent signature forgeries and/or legitimate signatures Deposited in other towns/cities or US Most over $25,000 Several reported every month
What to do Contact: Bank Police Law Society of Alberta
Contact your bank: Banking Follow their instructions/advice Know their policies! Close your trust account and open a new one Complete a reconciliation of your trust account to date to identify: What should be on your client trust listing What are the outstanding trust cheques
Police Contact the police and provide the following: Copy of fraudulent cheque Date of occurrence Location of occurrence Details that are fraudulent on the negotiated instrument Any details that the bank can provide: description of fraudster, etc.
Law Society of Alberta Contact the LSA and provide the following Rule 119.24(7): Copy of fraudulent cheque Copy of bank statements Copy of bank reporting Copy of police reporting reported to the police or information Advise how & when the $ is to be replaced
Trust Defalcation If external fraud: bank will usually reimburse the trust account Check your bank s policy!
Computer, internet & email fraud Requests for information emails direct you to a website Collection schemes ensure you allow sufficient time for deposits to clear Watch your online security Rule 119.42 guidelines
Staff theft Issue cheques from trust usually clients with dormant trust $ Issue to CRA, bank or family members Internet banking to pay bills Produce a fraudulent invoice Frequent, small withdrawals Lapping Frequently trusted employees that have access to all parts of the banking and financial records
Trust Defalcation If employee fraud: the law firm will have to reimburse the trust account. Consider: What information has your staff member had access to including: your general account firm credit cards Client information All are potentially compromised Report details to Law Society
Trust Defalcation If lawyer theft: the law firm will have to temporarily reimburse the trust account and then can make an Assurance Fund/Trust Safety Insurance claim NOTE: The law firm must always reimburse the trust account if there is any delay in the trust account being made whole.
Managing Your Risk: Duties and Best Practices
How to Protect Yourself Monitor bank accounts daily or at least weekly Review negotiated cheques daily or weekly for anything unusual Reconcile the bank accounts faithfully in accordance with the Rules Oversee even very trusted staff
How to Protect Yourself Know Your Client Rules 118.3 When retained, obtain client identification information If receiving, paying or transferring funds, verify the identity
Adequate Accounting Systems Key Controls Use approved accounting software Have proper control documents Ensure adequate accounting procedures Proper training and delegation
Accounting Software Use approved software Utilize the built in functions for Rule compliance Invest in proper training
Accounting Procedures Segregation of duties Timely recording of information and Timely deposits Staff trained in accounting Know the Rules of the Law Society of Alberta REMEMBER: DON T FALL BEHIND!
Responsible Lawyer: Oversight Procedures Trust Bank Account Reconciliation General Bank Account Reconciliation Accounting Journals Review Regular Review of Control Documents Segregation of Duties Key Agreements Review File Monitoring Trust Property Audit
etransactions Electronic deposits Credit and debit card transactions Direct deposits vs electronic transfers PayPal and methods of transferring funds Print to pdf
Changes to The Rules of the Law Society of Alberta Part 5 June 7, 2014 Rule 119.30 (11) Law firms can now be exempted from the mandatory filing requirements in Rule 119.30 by the Manager, Trust Safety: Start Up Report Law Firm Self-Report Accountant s Report Trust Safety Accounting Upload
Changes to The Rules of the Law Society of Alberta Part 5 July 1, 2014 Trust Safety Insurance introduced (replacement for previous Assurance Fund) Benefits: More timely response and resolution of claims Annual aggregate coverage limits, policy exclusions and limitation periods provide improved certainty re: protection available Ensure long-term sustainability of fund
Changes to The Rules of the Law Society of Alberta Part 5 September 18, 2014 some Rule changes to allow the Trust Safety department to enable electronic filings and verification of information using technology Require law firms to file required forms in a prescribed method. Require law firms to provide required annual financial filings electronically. Require law firms to grant authorization to the LSA to obtain law firm banking records directly from a law firm s financial institution.
Trust Safety - Statistics Currently approximately 1750 Responsible lawyers approved to operate trust accounts 1010 (61%) filed the Trust Safety Accounting Upload 650 (39%) filed Accountant s Reports
Questions?