There have been several recent news reports of municipal and county court clerks here in Alabama embezzeling fees and fines that they handled in the course of their work. Theft in the workplace goes on all the time, but it’s likely gotten worse as a result of the recession. And it’s not just confined to public offices – it’s just more likely to be discovered because of mandatory audit processes and publicized due to open records laws. So how safe are the funds that pass through your firm and, hopefully, fall to your bottom line and get swept into your pocket? There are several things you can do to discourage the five finger discount among your employees and improve the likelyhood that you’ll get to keep all of the money you are working so hard to earn.
Here are a few suggestions for procedures you can put in place to prevent problems like this:
- Insist that all firm bank statements be delivered to a designated firm member (partner or shareholder) without being opened.
- Review each deposit ticket and check, including signatures and endorsements, for unusual erasures or corrections before the statement is reconciled. Make sure all staff members know you are doing this. This will greatly cut down on staff temptation to “borrow,” even temporarily, from your acounts.
- Always reconcile statements within two days of arrival in the office. Again, make sure the staff knows this is being done.
- If you don’t reconcile the statement yourself, always carefully review the reconciliation within a day or two. (Remember that a trust account must always balance in two ways. First, the amount in the trust account must balance with the amount in the bank. Second, the amounts held for all clients – including any firm monies that may ethically be deposited to cover bank charges or maintain a required minimum balance – must equal exactly the balance in the account.)
- Once the account has been reconciled, place the statement and canceled checks in secure storage where staff cannot gain access to them.
- Do spot audits of the trust account, including individual client ledgers. The total of all client ledgers should match the total in the trust account at any given time.
- Always use only sequentially numbered pre-printed checks. Periodically review your supply of checks to make sure that you don’t run out. Never, no matter what happens, use temporary checks or counter checks or make ATM withdrawals from a trust account. Even if you are a solo practitioner, it’s still a good idea to never use an ATM card for your firm account, either. Checks provide a better record.
- Never allow “cash back” from deposits. If a client brings you a paycheck or other third party check as a retainer or for payment of a fee due, deposit the full amount in the appropriate account and then write the client a check for the difference due to him or her.
- Always carefully review everything you sign, especially checks, and require that the appropriate documentation, such as settlement statements or bills, be presented with the checks or other documents for your signature. Don’t fall into the habit of unquestioningly signing anything even a highly trusted employee puts in front of you. If you’re too busy to review it right now, make the staffer come back later or set aside a special time each day to sign checks.
- Keep a running list of all outstanding checks and review it monthly. No check should ever remain outstanding for more than two months with out investigation and resolution.
- Give all employees who have responsibility for handling funds in your office at least two weeks of vacation every year and make sure that they take it all, preferably all at one time. This can be hard on a solo practitioner or very small firm, but it will almost always ensure that if there are any problems with bank accounts they will have time to surface. This is how banks protect themselves.
- If you allow employees to handle funds, always do a criminal background check before hiring, check references carefully, and obtain a fidelity bond from your local insurance agent.
If you’re interested in learning more about how to protect yourself and your firm from potential employee embezzlement, The ABA Center for CLE will present Preventing or Responding to Potential Employee Embezzlement at Law Firms on Thursday, September 17th. My friend Shelia Blackford, PMA with the Oregon State Bar Professional Liabilty Fund, is one of the presenters. The program is an hour and a half long telephone CLE, and will begin at noon Central time, so grab some lunch, put your feet on your desk, dial in and learn. Check it out, and hang on to your wallet!