1.0 ethics cle credit a/v approval #1114299 · 1.15b maintaining trust account records 3.2 failure...

1.0 Ethics CLE Credit – A/V Approval #1114299 Recording Date - April 10, 2019

Meeting Location Date Time Topic

King County Bar Association 1200 Fifth Avenue - Suite 700

Seattle, WA

Wednesday, April 10, 2019

12:00 PM to 1:15 PM

The Pitfalls in Handling Client Funds

AGENDA 12:00 PM Introduction 12:10 PM Presentation: ‘The Pitfalls in Handling Client Funds’, by Tracy Sambrano, WSBA

An overview of the common mistakes lawyers make in handling client funds. The emphasis will be on how to establish policies and procedures to ensure compliance with the trust account rules.

1:15 PM Adjourn

SPEAKER BIOGRAPHY Tracy Sambrano, WSBA – Tracy Sambrano is an Auditor, in the Office of Disciplinary Counsel at the Washington State Bar Association. Her duties include auditing Washington lawyers’ trust accounts. She educates lawyers about the trust-account rules and assists lawyers in establishing procedures and internal controls to bring their trust-account practices into compliance with the rules. Prior to joining the WSBA auditing staff in 2015, she worked as an Accounting Manager at a mid-size law firm in Snohomish County for 18 years. She managed all of the accounting functions for the firm, including managing the firm’s trust account.

HOW DO I EARN CREDIT FOR SELF-STUDY

OR AUDIO/VISUAL (A/V) COURSES?

For pre-recorded A/V (self-study) programs, although the sponsor should apply for

accreditation, lawyers need to report the credits earned for taking the course.

To add an approved course to your roster, follow the procedures below:

Go to the "mywsba" website at www.mywsba.org/.

Log in.

Click on the "Access MCLE" link in the "MCLE Info" box on your home profile

page.

Click on "Add Activity." Search to find the approved course in our system. (See

search suggestions on the screen.)

Adding a Recorded Course Select Recorded Course from the Add New Activity screen.

This will prompt you to search for the activity in case the activity has already been

accredited in the MCLE system.

You can search by Activity ID or by specific Activity Details. For the Activity Details

search, you can use keywords for the title, sponsor name and date.

After entering your search criteria and selecting Search at the bottom of the screen, a list

of possible activities will be provided.

You can select the correct one by clicking the Activity ID. This will take you to the

specific activity. Entered the date(s) on which you began and ending viewing this

recorded activity.

Then claim the correct credits for which you attended this activity in the Credits Claimed

fields and click the Submit button at the bottom of the page.

You will receive a confirmation message at the top of your screen stating, “The activity

has been added to your roster.

Avoiding the Pitfalls of Managing Client Funds

Optional Subhead or Presentation Date

trust accountdisburse trust accountdisbursements ments

trust accountdisbursements

Tracy Sambrano – Auditor II

Office of Disciplinary Counsel

Trust Account Overdraft Program

Random Examination Program

Grievance Investigations

Probations Program

AUDIENCE POLLING QUESTION

Who has had a trust account for the deposit of client funds?

Yes, currently have a trust account.

Yes, have had a trust account in the past.

No, never have had a trust account.

What not to do…

BAD RECORDS CASE

• Random Examination – Escrow: Business Sales

• High volume of closings.

• Millions of dollars deposited into trust account each month.

• Did not keep contemporaneous records.

• Did not reconcile the records.

• Transactions dated back to 1997!

How bad could it be?

• 240+ Inactive client balances: $500,000

• 50+ Outstanding checks: $70,000

• 10+ Outstanding deposits: $40,000

• 40+ Negative client ledgers: <$60,000>

• Total Shortage in trust acct: $100,000

• Lawyer had to replace the $100,000

• Lawyer had to hire an accountant to reconstruct 20+ years of records and to disburse funds accordingly.

• Lawyer escheated $50k to Unclaimed Property – DOR.

• Discipline pending

15.5%

13.2%

11.7%

9.8%

8.7%

6.0%

4.5%

3.8%

3.8%

2.6%

8.4 Professional Misconduct

1.15A Safeguarding Property

1.4 Communication

1.5 Fees

1.3 Diligence

1.16 Terminating Representation

1.15B Maintaining Trust Account Records

3.2 Failure to Expedite Litigation

1.8 Current Client Conflicts (Specific)

8.1 Bar Admission and Disciplinary Matters

TOP 10 ETHICS RULES VIOLATIONS - 2017

NOTE: The Ethics Rules Violations graph does not reflect multiple repeat rule violations in the same proceeding or reciprocal discipline matters.

MOST COMMON CAUSES OF OVERDRAFTS

• Using the wrong deposit slip or checkbook.

• Not waiting for a deposit to clear and be collected before disbursing the funds.

• Initial expense for check order.

• Maintaining records/bookkeeping in the brain only.

• Not reconciling the records.

Rules of Professional Conduct (RPC)

Client Funds

RPC 1.15A Safeguarding Property

RPC 1.15B Required Trust Account Records

AND

RPC 1.5(f) Fees (exceptions to RPC 1.15A)

Pitfall #1

Not knowing when you do or do not need a trust account.

What is the purpose of a client trust account?

What are client funds?

How do you open an IOLTA trust account?

www.legalfoundation.org

Look for your bank or credit union on the approved list @ legalfoundation.org

Flat Fee Agreement – RPC 1.5(f)(2)

Who can be signer on a trust account?

What must NOT be deposited into a trust account?

Disbursing Trust-Account Funds

• Earned fees

• Expenses

• Client funds

Pitfall #2

Not keeping trust account records per RPC 1.15B.

Recordkeeping Requirements

Why keep records?

Is online banking sufficient for tracking funds in the trust account?

• What records are required?• Check register• Individual client ledgers

• How do you maintain records?• Manual• Excel• QuickBooks• Legal software

Every transaction must be entered in a check register.

Every transaction that is entered in a check register must also be entered in a client ledger.

Pitfall #3

Not reconciling your trust-account records.

RECONCILING

Have you ever performed a bank reconciliation?

AUDIENCE POLLING QUESTION

Who has performed a reconciliation of their trust account?

I have reconciled a trust account.

I have delegated the responsibilities of reconciling the trust account to a non-lawyer.

No, I have never reconciled a trust account.

RECONCILE

Merriam-Webster: To check one financial account against another for accuracy; to

account for

RECONCILIATION- PART I

RPC 1.15A(h)(6)

The lawyer must reconcile the check register balance to the bank statement balance.

36

37

RECONCILIATION- PART II

RPC 1.15A(h)(6)

The lawyer must reconcile the check register balance to the combined total of all client ledger records required by Rule 1.15B(a)(2).”

39

40

Pitfall #4

Failure to engage. For example……..

• Failure to read and understand the rules

• Failure to keep records in a timely manner

• Failure to reconcile your trust account

• Failure to supervise staff and review their work

• Failure to correct errors in a timely manner

• Go to www.wsba.org

• Download the current trust-account booklet.

• Download and view a pre-recorded trust-account CLE.

• Go to www.legalfoundation.org

• Select a bank from the authorized financial institution list.

• Open your trust account (Keep records and reconcile!)

What to do…

WHEN YOU HAVE QUESTIONS:

• Call an auditor

• Cheryl Heuett (206) 733-5937

• Tracy Sambrano (206) 727-8327

• Or the Professional Responsibility Counsel/Ethics Line

• (206) 727-8284