Effective trust (or escrow) account management has become an increasing concern as fraud strikes many law firms. Therefore it is essential to review and improve control measures to reduce the risk of fraud or innocent accounting errors that could endanger the survival and success of your firm.

You are responsible for the security of these funds. The importance of strong internal controls related to clients’ trust accounts cannot be overemphasized.

Are you sure that your trust accounts are secure?
Weak policies and procedures can lead to major problems for any firm. For example at one law firm the bookkeeper diverted cash receipts from trust. Then she’d have funds transferred from the operating account to the trust account saying that certain receipts had been deposited in the operating account in error rather than in the trust account. The reimbursement from the operating account to the trust account was actually a reimbursement of the fraud from the firm’s own funds.

The establishment of adequate accounting records and related internal controls should reduce the risk that trust funds are not properly safeguarded. These controls charge those individuals responsible for governance with operational efficiency the reliability of financial information compliance with laws and regulations and (perhaps most important to a law firm’s reputation and profitability) the reduction of the risk of asset loss.

In my experience helping attorneys assess and improve their controls I’ve become aware of weaknesses that could put their clients’ funds at risk. Often these weaknesses lead to fraud.

Your risk could be significant if trust funds are misappropriated.
This money doesn’t belong to you so you must pay extra attention to its security. Consider these eight questions carefully.

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