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TRUST ACCOUNTING

THE NORTH CAROLINA STATE BAR'STRUST ACCOUNT HANDBOOKIntroduction

On a daily basis, a lawyer in private practice receives, holds and disburses money that belongsto the lawyer's clients and to third parties in conjunction with the representation of clients.Millions of dollars flow through the hands of lawyers while serving clients, making thehandling of client funds one of the most significant fiduciary obligations of lawyers to theirclients. To reduce the possibility of theft, misappropriation or mishandling of client funds, theNorth Carolina State Bar established trust accounting standards in Rules 1.15-1, 1.15-2, and1.15-3 of the Rules of Professional Conduct and implemented a program of random audits oflawyers' trust accounts. This handbook explains the requirements for segregating, safekeeping,and record keeping for client funds, and how the random audit program works. The purpose ofthe handbook is to answer questions about establishing a trust account, deposits anddisbursements from a trust account, record keeping for a trust account, and what to expect whenyou are selected for audit by the State Bar auditor. If the handbook fails to answer your specificquestion, please contact the State Bar for further assistance.

Lawyer's Trust Account Handbook (revised December 2014)

Please note: The Lawyer’s Trust Account Handbook is being revised to reflect the amendmentsto Rule 1.15, which were approved by the North Carolina Supreme Court on June 9, 2016. Therevisions should be completed in August 2016. For information about the new rules and how tostay in compliance, you can read an article on page 10 of the Summer 2016 Journal.

Reconciliation - Read Bruno's Top Tips for Tip Top Trust Accounting on reconciliation (fromthe Fall 2010 Journal)

ADDITIONALRESOURCES

Trust Account Handbook

Trust Account ReconciliationSheet

Monthly Trust Account Report

Quarterly Trust Account ReviewReport

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in the Summer 2015 Journal. Based on com-ments received after the second publication,additional changes were approved and therules were published a third and final time inthe Fall 2015 Journal. No adverse commentwas received after that publication and theamendments were adopted by the council.

Explanation of Amendments to Rule1.15

(Items in bold marked with *** wouldrequire action in order to remain compliant)

Rule 1.15-1 DefinitionsRule 1.15-1(a): Adds credit unions to the

definition of “bank.” This change allowslawyers and law firms to maintain trustaccounts at credit unions. Credit unions wereremoved from the definition in 2008 due toconcerns about whether deposit insuranceapplied to individual clients in a trust accountmaintained at a credit union in the same wayFDIC insurance applied to trust accountsmaintained at banks. The deposit insuranceconcern was addressed, and credit unions arenow eligible to offer IOLTA accounts to NorthCarolina lawyers.

Rule 1.15-1(k): Adds language excluding“professional fiduciary services” from the def-

inition of “legal services.” The converse of thisexclusion already exists in Rule 1.15-1(l).Lawyers who provide “legal services” have dif-ferent requirements than lawyers who onlyprovide “professional fiduciary services,” so aclear distinction is important.

Rule 1.15-2 General RulesRule 1.15-2(f): This rule change clarifies

that lawyers may not hold funds for third par-ties in the trust account unless they werereceived in connection with legal services orprofessional fiduciary services.

Rule 1.15-2(g): This one-word change of“may” to “shall” clarifies that a lawyer mustpromptly remove funds to which the lawyeris or becomes entitled.

Rule 1.15-2(h): This amendment clarifiesany confusion caused by the old language,but does not change the substance of the rule.Any item drawn on the trust account mustidentify (by name, file number, or otherinformation) the client from whose balancethe item is drawn. The identification must bemade on the item itself, not on a stub or otherdocument.

Rule 1.15-2(i): The amendment prohibitscash withdrawals by any means, not just debitcards.

Rule 1.15-2(j): The amendment moves thedebit card prohibition from the end of Rule1.15-2(i) to a standalone paragraph.

(All subsequent paragraphs in Rule 1.15-2are relettered)

Rule 1.15-2(k): An amendment to the titleof the rule clarifies that entrusted funds shouldnot be used or pledged for the personal benefitof the lawyer or a third party.

Rule 1.15-2(p): This is a substantiveamendment to the lawyer’s duty to reportmisappropriation or misapplication ofentrusted property. While confirming thatintentional theft or fraud must be reportedimmediately, this amendment removes thereporting requirement for unintentional andinadvertent misapplications of entrustedfunds if the misapplication is discovered andrectified on or before the lawyer’s next quar-terly reconciliation. The amendment alsoclarifies that to satisfy the lawyer’s duty toself-report, the lawyer may reveal confiden-tial information otherwise protected by Rule1.6. Comment [26] further explains thelawyer’s duty to report misappropriation ormisapplication of entrusted funds, and acomment to Rule 8.3, ReportingProfessional Misconduct, clarifies that a

11THE NORTH CAROLINA STATE BAR JOURNAL

SUMMER 201612

lawyer has a duty to report misappropriationor misapplication of trust funds regardless ofwhether the lawyer is reporting the lawyer’sown conduct or that of another person.

***Rule 1.15-2(s) – This amendmentrequires that checks drawn on a trustaccount must be signed by a lawyer, or by anemployee who is not responsible for recon-ciling the trust account and who is super-vised by a lawyer. Further, any lawyer oremployee who exercises signature authoritymust take a one-hour trust account manage-ment CLE course before exercising suchauthority. The rule also prohibits the use ofsignature stamps, preprinted signature lines,or electronic signatures on trust accountchecks. As Comment [24] explains, “[d]ivid-ing the check signing and reconciliation

responsibilities makes it more difficult forone employee to hide fraudulent transac-tions. Similarly, signature stamps, preprintedsignature lines on checks, and electronic sig-natures are prohibited to prevent their usefor fraudulent purposes.” ***

(Note: To ease the burden of the CLErequirement, the State Bar has partneredwith the North Carolina Bar Association toproduce an online trust accounting trainingCLE series that will be available for free to allNorth Carolina lawyers. More informationon the CLE program will be provided as itbecomes available.)

Rule 1.15-3 Records and AccountingsRule 1.15-3(b) and (c): Lawyers can now

electronically maintain images of cancelledchecks and other items instead of hard copiesbecause new Rule 1.15-3(j) allows lawyers tomaintain records electronically provided cer-tain requirements are met. Rule 1.15-3(b)also amends language to mirror the clarifica-tion in Rule 1.15-2(h).

***Rule 1.15-3(d): Explains how a quar-terly reconciliation should be performed andadds the requirement that a lawyer mustreview, sign, and date a copy of all monthlyand quarterly trust account reconciliations.***

***Rule 1.15-3(i): The new rule requiresthe lawyer to 1) review bank statements andcancelled checks for each trust account andfiduciary account on a monthly basis, 2) atleast quarterly, review a random sample of aminimum of three transactions (statement ofcosts and receipts, client ledger, and cancelledchecks) to ensure that disbursements wereproperly made, 3) resolve any discrepanciesdiscovered during the reviews within tendays, and 4) sign, date, and retain a copy of areport documenting the monthly and quar-terly review process, including a descriptionof the review, the transactions sampled, andany remedial action taken. ***

The monthly review will disclose: a)forged signatures, b) improper payees orchecks to cash, and c) unexplained gaps incheck numbers indicating checks may havegone missing. The lawyer can verify thatchecks from the general trust account prop-erly identify on the face of the check theclient from whose balance the check isdrawn. The lawyer can also examine the backof cleared checks to ensure proper endorse-ments were made.

Random review of ledgers and settlementstatements helps to ensure that the ledgers

and statements accurately reflect the transac-tion. This type of review can uncoverimproper disbursements, incorrect deposits,and substituted or unissued checks. Whilethe random review requirement may notuncover any improper activity, it will mostdefinitely act as a deterrent to employeemalfeasance.

Rule 1.15-3(j): The new rule provides forthe retention of records in electronic formatprovided 1) records otherwise comply withRule 1.15-3, including any signature require-ments, 2) records can be printed on-demand,and 3) records are regularly backed up by anappropriate storage device.

Rule 1.15-4 Alternative Trust AccountManagement Procedure for Multi-MemberFirm

This new rule permits, but does notrequire, a law firm to designate a trustaccount oversight officer (TAOO) to overseethe administration of the firm’s general trustaccounts. This is an optional rule; firms arenot required to designate a TAOO. However,if the firm would like to designate a TAOO,it must follow the following guidelines.

Rule 1.15-4(a): permits a firm to desig-nate a partner as the firm’s TAOO. A partneris defined as a member of a partnership, ashareholder in a law firm organized as a pro-fessional corporation, or a member of anassociation authorized to practice law. Thedesignation must be in writing, and signedby the TAOO and the managing lawyers ofthe firm. A law firm may designate morethan one partner as a TAOO. Comment[27] explains the supervisory requirementsfor delegation under Rule 5.1, and states that“delegation consistent with the requirementsof Rule 1.15-4 is evidence of a lawyer’s goodfaith effort to comply with Rule 5.1.”

Rule 1.15-4(b): Lawyers remain individu-ally responsible for the oversight of any ded-icated trust account and fiduciary accountassociated with a legal matter for which thelawyer is primary legal counsel, and mustcontinue to review disbursements, ledgers,and balances for any such account.Comments [28] and [29] further explain thelimitations on delegation.

Rule 1.15-4(c): Explains the initial andannual training requirements of a TAOO.Comment [29] further explains thisrequirement.

Rule 1.15-4(d): Sets forth what must beincluded in the written agreement designat-ing a lawyer as a TAOO.

AMENDMENTS TO THE RULES OFPROFESSIONAL CONDUCT OF THE

NORTH CAROLINA STATE BAR

The following amendments to the Rulesand Regulations and the Certificate ofOrganization of the North Carolina State Barwere duly adopted by the council of the NorthCarolina State Bar at its quarterly meeting onOctober 23, 2015.

BE IT RESOLVED by the Council of theNorth Carolina State Bar that the Rules ofProfessional Conduct of the North CarolinaState Bar, as particularly set forth in 27N.C.A.C. 2, be amended as follows (additionsare underlined, deletions are interlined exceptwhere noted):

27 N.C A.C. 2, North Carolina Rules ofProfessional Conduct

Rule 1.15 Safekeeping PropertyThis rule has three four subparts: Rule

1.15-1, Definitions; Rule 1.15-2, GeneralRules; and Rule 1.15-3, Records andAccountings; and Rule 1.15-4, Trust AccountManagement in Multiple-Lawyer Firm. Thesubparts set forth the requirements for preserv-ing client property, including the requirementsfor preserving client property in a lawyer’s trustaccount. The comment for all three four sub-parts as well as the annotations appear after thetext for Rule 1.15-3 1.15-4.

Rule 1.15-1 DefinitionsFor purposes of this Rule 1.15, the follow-

ing definitions apply:(a) “Bank” denotes a bank, or savings and

loan association, or credit union charteredunder North Carolina or federal law.

(b) ...(k) “Legal services” denotes services (other

than professional fiduciary services) renderedby a lawyer in a client-lawyer relationship.

Rule 1.15-2 General Rules(a) Entrusted Property....(f) Segregation of Lawyer’s Funds. Funds in

Accounts. A trust or fiduciary account mayonly hold entrusted property. Third partyfunds that are not received by or placed underthe control of the lawyer in connection withthe performance of legal services or profes-sional fiduciary services may not be depositedor maintained in a trust or fiduciary account.Additionally, No no funds belonging to a the

lawyer shall be deposited or maintained in atrust account or fiduciary account of thelawyer except:

(1) funds sufficient to open or maintain anaccount, pay any bank service charges, orpay any tax levied on the account; or(2) funds belonging in part to a client orother third party and in part currently orconditionally to the lawyer.(g) Mixed Funds Deposited Intact. When

funds belonging to the lawyer are received incombination with funds belonging to theclient or other persons, all of the funds shall bedeposited intact. The amounts currently orconditionally belonging to the lawyer shall beidentified on the deposit slip or other record.After the deposit has been finally credited tothe account, the lawyer may shall withdrawthe amounts to which the lawyer is or becomesentitled. If the lawyer’s entitlement is disputed,the disputed amounts shall remain in the trustaccount or fiduciary account until the disputeis resolved.

(h) Items Payable to Lawyer. Any itemdrawn on a trust account or fiduciary accountfor the payment of the lawyer’s fees or expensesshall be made payable to the lawyer and shallindicate on the item by client name, file num-ber, or other identifying information theclient from whose balance on which the itemis drawn. Any item that does not include cap-ture this information may not be used to with-draw funds from a trust account or a fiduciaryaccount for payment of the lawyer’s fees orexpenses.

(i) No Bearer Items. No item shall bedrawn on a trust account or fiduciary accountmade payable to cash or bearer and no cashshall be withdrawn from a trust account orfiduciary account by any means of a debit card.

(j) Debit Cards Prohibited. Use of a debitcard to withdraw funds from a general ordedicated trust account or a fiduciary accountis prohibited.

(j) (k) No Personal Benefit to Lawyer orThird Party. A lawyer shall not use or pledgeany entrusted property to obtain credit orother personal benefit for the lawyer or anyperson other than the legal or beneficial ownerof that property.

(k) (l) Bank Directive....[Relettering intervening paragraphs.](o) (p) Duty to Report Misappropriation.

A lawyer who discovers or reasonably believesthat entrusted property has been misappropri-ated or misapplied shall promptly inform the

trust account compliance counsel (TACC) inthe North Carolina State Bar Office ofCounsel. Discovery of intentional theft orfraud must be reported to the TACC imme-diately. When an accounting or bank errorresults in an unintentional and inadvertentuse of one client’s trust funds to pay the obli-gations of another client, the event must bereported unless the misapplication is discov-ered and rectified on or before the next quar-terly reconciliation required by Rule 1.15-3(d)(1). This rule requires disclosure of infor-mation otherwise protected by Rule 1.6 ifnecessary to report the misappropriation ormisapplication.

(p) (q) Interest on Deposited Funds....(q)(r) Abandoned Property. ….(s) Signature on Trust Checks.(1) Checks drawn on a trust account mustbe signed by a lawyer, or by an employeewho is not responsible for performingmonthly or quarterly reconciliations andwho is supervised by a lawyer. Prior toexercising signature authority, a lawyer orsupervised employee shall take a one-hourtrust account management continuinglegal education (CLE) course approved bythe State Bar for this purpose. The CLEcourse must be taken at least once forevery law firm at which the lawyer or thesupervised employee is given signatureauthority.(2) Trust account checks may not besigned using signature stamps, preprintedsignature lines on checks, or electronic sig-natures.

Rule 1.15-3 Records and Accountings(a) Check Format...(b) Minimum Records for Accounts at

Banks. The minimum records required forgeneral trust accounts, dedicated trustaccounts, and fiduciary accounts maintainedat a bank shall consist of the following:

(1) ...;(2) all cancelled checks or other itemsdrawn on the account, or printed digitalimages thereof furnished by the bank,showing the amount, date, and recipient ofthe disbursement, and, in the case of a gen-eral trust account, the client name, filenumber, or other identifying informationof the client from whose client balanceagainst which each item is drawn, provid-ed, that:...(c) Minimum Records for Accounts at

14 SUMMER 2016

Other Financial Institutions.(1)...;(2) a copy of all checks or other itemsdrawn on the account, or printed digitalimages thereof furnished by the depository,showing the amount, date, and recipient ofthe disbursement, provided, that theimages satisfy the requirements set forth inRule 1.15-3(b)(2);(d) Reconciliations of General Trust

Accounts.(1) Quarterly Reconciliations. At leastquarterly, the individual client balancesshown on the ledger of a general trustaccount must be totaled and reconciledwith the current bank statement balancefor the trust account as a whole. For eachgeneral trust account, a reconciliationreport shall be prepared at least quarterly.Each reconciliation report shall show all ofthe following balances and verify that theyare identical:

(A) The balance that appears in the gen-eral ledger as of the reporting date;(B) The total of all subsidiary ledger bal-ances in the general trust account, deter-mined by listing and totaling the posi-tive balances in the individual clientledgers and the administrative ledgermaintained for servicing the account, asof the reporting date; and(C) The adjusted bank balance, deter-mined by adding outstanding depositsand other credits to the ending balancein the monthly bank statement and sub-tracting outstanding checks and otherdeductions from the balance in themonthly statement.

(2) Monthly Reconciliations. ...(3) The lawyer shall review, sign, date, andretain a record copy of the reconciliationsof the general trust account for a period ofsix years in accordance with Rule 1.15-3(g).(e) Accountings for Trust Funds....(i) Reviews.(1) Each month, for each general trustaccount, dedicated trust account, andfiduciary account, the lawyer shallreview the bank statement and cancelledchecks for the month covered by thebank statement.(2) Each quarter, for each general trustaccount, dedicated trust account, andfiduciary account, the lawyer shall reviewthe statement of costs and receipts, client

ledger, and cancelled checks of a randomsample of representative transactions com-pleted during the quarter to verify that thedisbursements were properly made. Thetransactions reviewed must involve multi-ple disbursements unless no such transac-tions are processed through the account,in which case a single disbursement isconsidered a transaction for the purposeof this paragraph. A sample of three repre-sentative transactions shall satisfy thisrequirement, but a larger sample may beadvisable.(3) The lawyer shall take the necessarysteps to investigate, identify, and resolvewithin ten days any discrepancies discov-ered during the monthly and quarterlyreviews.(4) A report of each monthly and quarter-ly review, including a description of thereview, the transactions sampled, and anyremedial action taken, shall be prepared.The lawyer shall sign, date, and retain acopy of the report and associated docu-mentation for a period of six years inaccordance with Rule 1.15-3(g).(j) Retention of Records in Electronic

Format.Records required by Rule 1.15-3 may be

created, updated, and maintained electroni-cally, provided

(1) the records otherwise comply withRule 1.15-3, to wit: electronically createdreconciliations and reviews that are notprinted must be reviewed by the lawyerand electronically signed using a “digitalsignature” as defined in 21 CFR11.3(b)(5); (2) printed and electronic copies of therecords in industry-standard formats canbe made on demand; and(3) the records are regularly backed up by

an appropriate storage device.

Rule 1.15-4, Alternative Trust AccountManagement Procedure for Multi-MemberFirm [NEW RULE: bold, underlined font isnot used]

(a) Trust Account Oversight Officer(TAOO).

Lawyers in a law firm of two or morelawyers may designate a partner in the firm toserve as the trust account oversight officer(TAOO) for any general trust account intowhich more than one firm lawyer depositstrust funds. The TAOO and the partners ofthe firm, or those with comparable managerial

authority (managing lawyers), shall agree inwriting that the TAOO will oversee theadministration of any such trust account inconformity with the requirements of Rule1.15, including, specifically, the requirementsof this Rule 1.15-4. More than one partnermay be designated as a TAOO for a law firm.

(b) Limitations on Delegation.Designation of a TAOO does not relieve

any lawyer in the law firm of responsibility forthe following:

(1) oversight of the administration of anydedicated trust account or fiduciaryaccount that is associated with a legal mat-ter for which the lawyer is primary legalcounsel or with the lawyer’s performance ofprofessional fiduciary services; and(2) review of the disbursement sheets orstatements of costs and receipts, clientledgers, and trust account balances forthose legal matters for which the lawyer isprimary legal counsel.(c) Training of the TAOO.(1) Within the six months prior to begin-ning service as a TAOO, a lawyer shall,

(A) read all subparts and comments toRule 1.15, all formal ethics opinions ofthe North Carolina State Bar interpretingRule 1.15, and the North Carolina StateBar Trust Account Handbook; (B) complete one hour of accredited con-tinuing legal education (CLE) on trustaccount management approved by theState Bar for the purpose of training alawyer to serve as a TAOO; (C) complete two hours of training (live,online, or self-guided) presented by aqualified educational provider on one ormore of the following topics: (i) financialfraud, (ii) safeguarding funds fromembezzlement, (iii) risk assessment andmanagement for bank accounts, (iv)information security and online banking,or (v) accounting basics; and(D) become familiar with the law firm’s

THE NORTH CAROLINA STATE BAR JOURNAL 15

accounting system for trust accounts.(2) During each year of service as a TAOO,the designated lawyer shall attend one hourof accredited continuing legal education(CLE) on trust account managementapproved by the State Bar for the purposeof training a TAOO or one hour of train-ing, presented by a qualified educationalprovider, on one or more of the subjectslisted in paragraph (c)(1)(C).(d) Designation and Annual Certification.The written agreement designating a

lawyer as the TAOO described in paragraph(a) shall contain the following:

(1) A statement by the TAOO that theTAOO agrees to oversee the operation ofthe firm’s general trust accounts in compli-ance with the requirements of all subpartsof Rule 1.15, specifically including themandatory oversight measures in para-graph (e) of this rule;(2) Identification of the trust accounts thatthe TAOO will oversee; (3) An acknowledgement that the TAOOhas completed the training described inparagraph (c)(1) and a description of thattraining; (4) A statement certifying that the TAOOunderstands the law firm’s accounting sys-tem for trust accounts; and(5) An acknowledgement that the lawyersin the firm remain professionally responsi-ble for the operation of the firm’s trustaccounts in compliance with Rule 1.15.Each year on the anniversary of the execu-

tion of the agreement, the TAOO and themanaging lawyers shall execute a statementconfirming the continuing designation of thelawyer as the TAOO, certifying compliancewith the requirements of this rule, describingthe training undertaken by the TAOO asrequired by paragraph (c)(2), and reciting thestatements required by subparagraphs (d)(1),(2), (4), and (5). During the lawyer’s tenure asTAOO and for six years thereafter, the agree-ment and all subsequent annual statementsshall be maintained with the trust accountrecords (see Rule 1.15-3(g)).

(e) Mandatory Oversight Measures.In addition to any other record keeping or

accounting requirement set forth in Rule 1.15-2 and Rule 1.15-3, the firm shall adopt a writ-ten policy detailing the firm’s trust accountmanagement procedures which shall annuallybe reviewed, updated, and signed by theTAOO and the managing lawyers. Each ver-sion of the policy shall be retained for the min-

imum record keeping period set forth in Rule1.15-3(g).

Comment [to follow Rule 1.15-4][1]…Responsibility for Records and Accountings[16]…[17] The rules permit the retention of

records in electronic form. A storage device isappropriate for backing up electronic recordsif it reasonably assures that the records will berecoverable despite the failure or destructionof the original storage device on which therecords are stored. For a discussion of storagemethods not solely under the control of thelawyer, see 2011 FEO 6.

[17][18] Many businesses….[Renumbering the following paragraphs.]Fraud Prevention Measures[23] The mandatory monthly and quar-

terly reviews and oversight measures in Rule1.15-3(i) facilitate early detection of internaltheft and early detection and correction oferrors. They are minimum fraud preventionmeasures necessary for the protection offunds on deposit in a firm trust or fiduciaryaccount from theft by any person withaccess to the account. Internal theft fromtrust accounts by insiders at a law firm canonly be timely detected if the records of thefirm’s trust accounts are routinely reviewed.For this reason, Rule 1.15-3(i)(1) requiresmonthly reviews of the bank statements andcancelled checks for all general, dedicated,and fiduciary accounts. In addition, Rule1.15-3(i)(2) requires quarterly reviews of arandom sample of three transactions foreach trust account, dedicated trust account,and fiduciary account including examina-tion of the statement of costs and receipts,client ledger, and cancelled checks for thetransactions. Review of these documentswill enable the lawyer to verify that the dis-bursements were made properly. Althoughnot required by the rule, a larger samplethan three transactions is advisable toincrease the likelihood that internal theftwill be detected.

[24] Another internal control to preventfraud is found in Rule 1.15-2(s), whichaddresses the signature authority for trustaccount checks. The provision prohibits anemployee who is responsible for perform-ing the monthly or quarterly reconciliationsfor a trust account from being a signatoryon a check for that account. Dividing thecheck signing and reconciliation responsi-bilities makes it more difficult for one

employee to hide fraudulent transactions.Similarly, signature stamps, preprinted sig-nature lines on checks, and electronic signa-tures are prohibited to prevent their use forfraudulent purposes.

[25] In addition to the recommendationsin the North Carolina State Bar TrustAccount Handbook (see the chapter onSafeguarding Funds from Embezzlement),the following fraud prevention measures arerecommended:

(1) Enrolling the trust account in anautomated fraud detection program;(2) Implementation of security measuresto prevent fraudulent wire transfers offunds;(3) Actively maintaining end-user securi-ty at the law firm through safety practicessuch as strong password policies and pro-cedures, the use of encryption and secu-rity software, and periodic consultationwith an information technology securityprofessional to advise firm employees;and(4) Insuring that all staff members whoassist with the management of the trustaccount receive training on and abide bythe security measures adopted by thefirm.Lawyers should frequently evaluate

whether additional fraud control measuresare necessary and appropriate.

Duty to Report Misappropriation orMisapplication

[26] A lawyer is required by Rule 1.15-2(p) to report to the trust account compli-ance counsel of the North Carolina StateBar Office of Counsel if the lawyer knowsor reasonably believes that entrusted prop-erty, including trust funds, has been misap-propriated or misapplied. The rule requiresthe reporting of an unintentional misappli-cation of trust funds, such as the inadver-tent use of one client’s funds on deposit in ageneral trust account to pay the obligationsof another client, unless the lawyer discov-ers and rectifies the error on or before thenext scheduled quarterly reconciliation. Alawyer is required to report the conduct oflawyers and nonlawyers as well as thelawyer’s own conduct. A report is requiredregardless of whether information leadingto the discovery of the misappropriation ormisapplication would otherwise be protect-ed by Rule 1.6. If disclosure of confidentialclient information is necessary to complywith this rule, the lawyer’s disclosure should

16 SUMMER 2016