Bar Associations as the “IOLTA Police”

Published July 16, 2013

Trust account violations continue to be an issue between lawyers and state bar associations. The Bar likes to characterize itself as the knight on a white horse, protecting the public – meaning it rarely accepts human error as an excuse for trust account violations. There generally never is a “technical violation” when talking about the trust account. Lawyers MUST keep accurate records of trust account funds. Every State imposes a fiduciary duty to properly account for clients’ funds to prevent misappropriation (theft) or negligence. Banks are required to notify the Bar of any such defalcations, and a bounced check from an IOLTA account brings the Bar into the lawyer’s office almost instantly.

I, personally, chastise the mandatory (or “integrated”) Bar for failing to properly represent lawyers and focusing primarily on other goals such as public “protection” and access to justice – goals that the Bar often fails to achieve, even as it makes things harder for lawyer-members. For example, in California the state bar has expressed interest in a limited-practice licensing program that would create a new class of professionals who could give legal advice … and thus compete against licensed lawyers … all under the guise of creating more “access” to legal services. The net effect really would be to make it tougher for the sole and small firm practitioner while at the same time not assuring that more Americans will receive the legal representation they need. And the Bar does not require practice management courses that would help lawyers address the largest cause of complaints before disciplinary boards across the nation. In other words, the Bar generally takes positions that are adversarial to the interests of its members.

When it comes to trust accounting, however, I agree with the Bar. Violations, “innocent” or not, should not be permitted. Lawyers should make it their responsibility to review state Bar provisions and take the needed accounting steps to be accurate. That includes even “innocent” mistakes. For example, an employee in the law office makes an erroneous or incomplete bookkeeping entry in trust account records, which is not found until long after the employee takes a new job. Now the lawyer, who did not make the entry, has funds whose owner’s identity is no longer clear. Even here, the onus on making sure the money goes to the right place is on the lawyer, even if it means engaging a forensic accountant to track it down. After all, these monies belong to the clients, not the lawyer.

To do less than use an effective software accounting program or an outside accountant to reconcile trust and bank account records each month is to invite error, inquiry and trouble. Lawyers, also, should note that once a client complains sufficiently to cause the Bar to open a file and investigate the lawyer’s practices, the lawyer will face a “fishing” expedition. In other words, the Bar will look at all the practice’s processes, not limited to the trust fund accounting. The stakes are high, indeed. Error is no excuse and one’s professional license is at stake.

Categorized in: Ethics, Management

Audience type: Administrators, Associates, Large Law Firms, Small Law Firms, Sole Practitioners