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welcome to maintaining a trustworthy trust account if you downloaded this seminar online there are handouts that go with it including the rules regarding trust accounts a trust accounting workbook and a copy of the notes slides let's begin first of all we want to talk about what goes wrong with a trust account the course will cover both the record-keeping requirements and and the rules and some other issues that are important to you most importantly in adequate training the lawyer is responsible for providing training and it this often does not occur in adequate record-keeping not knowing what records are required and how long to keep them in adequate internal controls and safeguards never auditing your internal controls or how the trust account is managed and maintained within the law firm and finally no written confirmation with the client on how trust funds will be accepted held and dispersed so that the client understands why you're holding the trust funds we're going to go over rules relating to trust accounts starting with four - five point one the responsibilities of partners managers and the Supervisory attorney rule 4 - 1.5 covers fees and costs for legal services rule 4 - one point one five is the rule that covers safekeeping property and it's a very important rule because it instructs lawyers to follow the trust accounting rules when safekeeping property rule four - eight point four covers misconduct and the consequences of not adequately or incorrectly or improperly managing the trust account and of course chapter five all of chapter five of the rules regulating the Florida Bar cover trust accounting there are two Florida statutes that have Nexus to trust accounting one is covering title agents and their escrow accounts and that's Florida Statutes six twenty six point eight four seven three and we will cover that later in the course and the other is Florida statute seven one seven and that regards how to treat abandoned property or if you have an amount in your trust account and you cannot find the client although that should never happen we do understand that occasionally it will happen don't overlook ethics opinions the ethics opinions offer guidance they help you develop the proper processes and procedures to effect compliance with the rules they're important tools in in understanding the rules the Florida Bar ethics opinions relating to trust accounts they include ethics opinion 60 - 2663 - 14 70 - 13 and 0 - - 8 these all are regarding relationships with banks and investment houses ethics opinion 61 - 15 regards when you're in a situation where you cannot locate your client 63 - 3 is also addressing missing clients and and also file retention 73 - 5 is misappropriation of funds by a partner it's a serious circumstance and everyone that has a trust account should read all of these ethics opinions including 88 - 11 reconsidered on file retention and and other aspects of maintaining files inside a lawyer's files are often the supporting documentation - transactions within the trust account and finally ninety 3-2 which covers a treatment of retainers and advance fee deposits and cost deposits often under lawyers bank will offer a good banking arrangements for the law firm and its partners if the law firm moves its banking business to that particular Bank this is fairly common practice but lawyers should be very careful when approached by a bank for special banking arrangements and and it involves also moving the trust account to that particular bank a lawyer may not gain a favor or take advantage of the fact that he has a lot of money for instance in the trust account that perk that privilege belongs to the client and we have to ethics opinions that address that first is ethics opinion 63 - 14 and I will read from it no attorney is permitted to make a secret Commission on placement of a client's funds to obtain commissions from an outside source without the full knowledge approval and consent of the client the other ethics opinion is 70 - 13 an attorney may receive a fee for referring a client to a financial institution provided that the client consents after full disclosure and the client receives the benefit of the referral fee so please note these two ethics opinions and add them to the list of ethics opinions that should be reviewed when managing a trust account managing a trust account is the lawyers personal and fiduciary responsibility and it cannot be delegated the lawyer is responsible for the acts of its employees and the lawyers agents the law firms agents the lawyer is responsible for providing adequate sufficient training and supervision regarding the trust account so if there's a mistake in the trust account it's the lawyers responsibility it's the if the fault lies with the lawyer and the rule there is 4-5 point one responsibilities of a partner managers and supervisory lawyers and I will read an excerpt the lawyer shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers therein conform to the rules of professional conduct when the bar is talking to members or we visit a members office we look for the the institutional lack of control in other words are there proper procedures processes policy in place so that the law firm is safe a law firm doesn't get into trouble lawyers have a duty to report misconduct it is a very important concept to remember when managing a trust account are all trust accounts iota accounts and know oftentimes practice management advisors talk to members and they have all their trust funds in one iota account even though they may have been holding certain portions of it for a very long time and and then afterwards when the matter related to these trust funds comes to fruition or comes to a close it's going to be completed the client asks for their interest not all funds are destined for the iota account when money is not short-term it's not nominal and doesn't have to remain liquid that money should be put into a separate interest bearing trust account for the benefit of the client using their tax ID number not not the Bar Foundation but the clients tax ID number these funds must be held in an eligible institution and we'll talk about the definition of an eligible institution just a little while or or if the client wants the funds held elsewhere outside of FDIC and FS LIC protection you must get written directive from the client as to where they want those funds held an eligible institution is an FDIC or FS LIC insured bank or NC you sif insured credit union the investment company must be registered to do business in Florida it has to have offices in Florida and must be registered with the SEC the bank must offer the highest rate of interest is offered to non iota accounts meeting minimum balance requirements so what is an iota account and what goes into it it's a trust account that's enrolled with the Florida Bar Foundation which is headquartered in Orlando Florida the iota program is is the interest on trust accounts program the money that goes into an iota account is nominal amounts of money as I mentioned before held for short periods of time or where the amount it's not practicable to invest it the lawyer must use their own discretion their own best judgment as to whether or not an amount of money should be separately invested on behalf of a client or deposited into the iota account opening a trust account what is specifically required first the naming of the account is very important the rules say that it must clearly state that it is a trust account and use the words trust account so escrow account is not correct costs account settlement accounts although settlement might be used in the title it has to say trust account it doesn't have to say iota but also using the words iota account is also not correct we have to use the word trust in there so for instance John Smith attorney trust account the Smith Jones and brown PA trust account those are correct to say brown and white escrow account is not correct and it is a violation of the rule continuing with what is specifically required when opening a trust account you must instruct the banking institution in writing to notify the Florida Bar if a trust account check is returned non-sufficient funds and we have a form letter on the lomas website as well as the other iota forms for opening the account there is no ATM access on a fiduciary account ever so that is not absolutely prohibited no ATM access and also because trust accounts are fiduciary accounts there is no automatic overdraft protection that that cannot be allowed at the bank and sometimes banks have we know that they do this the banks have have asked lawyers when opening trust accounts do you want overdraft protection do you want a debit card with this do you want this chain to your operating account all for the purposes of overdraft protection and and debit card access and the answer is always no to all of those no ATM access and no overdraft protection finally you have to start the the account with an initial deposit sometimes this is referred to as seed money but the initial deposit is is the lawyers own money the firm's own funds and it's usually about a hundred dollars or an amount necessary to take care of bank charges housekeeping expenses of the account such as ordering new checks or deposit books when the account is open and and you set up your first set of books on this trust account the first ledger that will show this first deposit is called the firm's miscellaneous ledger and it can be replenished from time to time as that small amount of money is exhausted this bears repeating when opening a trust account please remember an FDIC or FS LIC approved institution unless you have permission to place the funds say for instance with a stock brokerage or you know in that other investment house you must have that permission in writing this is rural regulating the Florida Bar 5-1 point 1 G 1 D please remember that the bank must also be in the state of Florida additional precautions when opening your trust account where wherever your office may be the banks are not necessarily responsible or or do in-depth training on lawyers trust accounts so one of the things that can happen to you is is that your trust account could be opened incorrectly in fact the bar often says that the two people most often to get a lawyer in trouble with their trust account would be the banker or their accountant because it's likely that the banker and the accountant and the firm's account haven't read the rules of trust accounting make sure that they understand those rules and probably should take a copy of those rules with you the first time you open your trust account open the trust account downtown in the main branch of the bank you choose where downtown where there's a high concentration of law offices so likely the banks staff is accustom to properly opening a lawyer's trust account later if you should choose to use a branch in a maybe a suburban area or outside of town that's okay because the account has already been set up and set up properly the bar recommends that you use different color of checks so one color for operating and one color for the trust account in late in the afternoon when everyone's tired and everyone's busy it is very easy the hand is quicker than the eye to grab the wrong set of checks and then result in a violation so be sure to use different color checks never get a stamp of your signature it's it's convenient and but it's it's very dangerous and it could lead to theft never a lawyer actually should never make a stamp of their signature at all I'm who can be a signer on the trust account is actually in our rules it's anyone the lawyer designates and who should be a signer should be the owners of the law firm the owners of the law firm should be the signatories this is not always practicable for solo practitioners though so be very careful about who you authorized to sign on the trust account be sure that when you're opening the trust account that you take the forms with you and as I said before the forms are on website the forms are also at the Florida Bar Foundation website one of those forms is a w-9 which has the Florida Bar Foundation's tax ID number on it make sure that the that tax ID number is used when opening the trust account and not yours which is actually a very common mistake the bar recommends that you notify the bank in writing that there'll be no disbursements or transfers or wires without your specific written permission this is very important the bank often encourages lawyers to enroll in online banking so they are you know conducting live transactions and this is a this is very dangerous anyone who gets your password is off to the races there are other banks here in Florida that have restricted that ability with fiduciary accounts including lawyers trust accounts in other words you can have online access to view transactions and to check your balance and to see if a check has cleared but you can't make a live transaction online several banks have pulled back that ability because after all it is a fiduciary account when holding client property remember that the same rules that govern the money govern the property please refer to the rule of safekeeping property for - 1.15 where instructs the lawyer that when holding client property to follow the trust accounting rules so this means no commingling we have to keep the law firm's property separate from the clients property securities must be held in a safe deposit box a bar recommends that any valuable client property property that could be stolen for a profit or valuable property should also be locked up in a safe deposit box where practicable if you can't lock it up in a safe deposit box because of its size or the volume of it find other very safe storage secure storage for this client property and also when taking in client property remember that to get a notary get an appraiser take photographs have descriptions protect the law firm when we are handling trust account funds first of all we take money in first thing that happens is we must give the client a receipt and that many lawyers will tell me well isn't their receipt the canceled check or well they they you know they they know that we're taking the money in I'd say no the rules say give the client a written receipt so incorporate that that part of the rule into your procedures so that you know that the client is getting the written receipt when you take in a trust account deposit make only those disbursements that your client authorizes well of course it's in saying well they know what I'm going to spend the money on and we tell them is it in your fee agreement or your letter of representation do we spell out how we're going to make disbursements to why we're going to make these disbursements and when we're going to make these disbursements and finally promptly return the trust account funds when requested by the client I will refer you back to your intake process look at the way you intake new work and if that new work has Nexus to the trust account do we just describe all of this do we say you know if what will happen if the client asks for the money back I mean doesn't work we'll stop for instance what what are the repercussions of that action we discuss what disbursements we're going to make we discuss how we take the deposit in and where that deposit is held and the fact that is in our trust account I'll probably say this several times during the presentation when when handling trust account funds remember no commingling keep the lawyer's property the law firms property separate from the clients property disputed fees cannot be withdrawn if part of the money that was taken into trust was to pay your fee and and the work is done and you take the money out to pay the law firms fee and then later or soon after the client disputes this you have to put the trust funds back from operating back into the trust account disputed fees cannot be withdrawn until the dispute is resolved provide a written accounting to clients when requested if the client says I don't understand what you did with my money that I gave to you or the client just asked for a routine accounting or any kind of an accounting of the money that you're holding in trust you must provide it timely withdraw earned fees immediately you can't have the firm's earned fees in the trust account with the client funds because that is commingling it also could potentially be evading taxes so when when the firm has earned the fee they must remove it from the trust account there are some fees that the client may give you that never go into the trust account and these include non-refundable retainers flat fees and of course a true retainer a true retainer is when a client pays a lawyer for the right to hire them in the future all of these in fact the word retainer itself means that it's earned it is a payment when it when you receive it it is already earned these retainers go into operating they never go into trust now on the other hand a client may give you a payment that includes both earned fees and it and an advance fee payment and it cost deposit so for instance the client gives you $7,500 and the fee agreement is that 2,000 of it is non-refundable and earned upon receipt and 5,000 is an advance fee payment after a certain point in time in the case and that finally $500 is an advance cost deposit the single payment would be put into the trust account and as soon as that check clears that you would write a $2,000 check out of the trust account back over to operating because that was the portion that was earned upon receipt when must you make disbursements from the trust account well immediately upon the clients request so again let's go to our intake process and how did we describe how we're going to make disbursements with the money that we're going to hold and did we adequately explain that it we should have a written agreement with the client when we are going to hold money and Trust if you're handling several matters for one client to have a ledger for each matter never transfer money from one clients ledger say the client has multiple matters and you have a ledger for each matter and you're short some funds on one matter and you want to transfer it over you know from another ledger you shouldn't do that without verifying the funding source to make sure that it is all you know that particular clients funds and I'll explain that if you have a software system for managing your finances as most of us do and you open up a new client client comes to you and it's the first matter and you open up that matter and you're going to hold trust funds and the work is done and then the client comes back after the work is done with yet another matter except this time they come with someone else who's also going to be your client and perhaps it's a joint venture for example in your bookkeeping office they may see that in take and and they may even be instructed to do this but they'll look at this intake and perhaps open a second matter under the first client instead of looking at it as a new joint venture and a new client over here client number two led your ledger number one client one ledger one client two ledger one so instead what they'll see is they'll see this returning client an open open up a second ledger in the trust account when in fact that's a completely different funding source this is a common mistake made in in a law office and care must be taken to avoid it leans and garnishments are permitted in a trust account and I will read from the rule rule 5 - 1.1 C liens permitted this subchapter does not preclude the retention of money or other property upon which the lawyer has a valid lien for services nor does it preclude the payment of agreed fees from the proceeds of transactions or collections frequently the bar is contacted telling a bar representative they have a amount of money in their trust account and they they cannot find their client or a check is is not cached or other reasons when this happens and although it shouldn't happen but when it does happen the law firm under certain circumstances can is sheet these funds back to the state of Florida's unclaimed property office the procedure is for omitting the these unclaimed funds are outlined in Florida Statute sub-17 and are detailed on the Department of Financial Services website the website address is on your notes slides but it is w w FL treasure hunt org and this is the bureau of unclaimed property as well their telephone number is eight eight eight two five eight two two five three and their email address is florida unclaimed property at my florida CFO comm back to the subject though of having amounts in your trust account that that that are you can't return to the client because you can't find the client go back to the reconciliation process and we'll talk more about that later but in the reconciliation process you you should have a procedure in place so that we're we were verifying why funds are still on a ledger every month every month if we have funds on the ledger and and we know we know why so that's appropriate but then we go to the next ledger and we have funds on this ledger and the funds you know we're disbursed or they shouldn't be there it's time at that point to contact the client and make sure we have fresh contact information far too often the law firm personnel wait months and months and sometimes even years before deciding well what are we going to do with this amount of money that keep you know is remaining on the ledger that should not be there ACH transfers are not prohibited in our trust accounting rules but care should be taken when using an ACH transaction or any kind of other electronic payment system what is an ACH this is an electronic payment that goes through the automated Clearing House it's a process whereby the account holder is authorizing a third party access to the account so right there you can see it's a little scary and care should be taken I'm going to read to you an excerpt about using ACH transactions in conjunction with the trust account there are concerns about using an ACH in conjunction with a trust account while not prohibited ACH transactions will not provide adequate documentation about disbursements so while it is permissible to remit for instance our court eport 'el filing charges via ACH from the lawyer's trust account a safer way is to run the e-filing charge through the lawyers operating account as a client cost advance then the lawyer can reimburse the firm from the client funds in the trust account after the payment of e portal charges is completed from the operating account more about ACH transfers and using other electronic payment systems please be aware that an ACH transaction can be reversed so again great care should be taken however it is an ACH transaction that is used when paying for filing fees through the courts you filing a portal system the II portal system you can use either an ACH transaction or a credit card the lawyer can pass along the e filing charge to the client and note that this a filing charge is treated as an ACH transaction third party access to the trust accounts is not prohibited as we mentioned previously but it does raise these concerns the Florida Bar auditors are aware of the e-filing portal fees via ACH and at this time are not necessarily troubled by the arrangement as it is with the court the bar recommends at the law firm open an additional low balance operating account or a low limit credit card to handle efiling our other ACH transactions in this way accounts holding large sums of money such as your trust account are not exposed to the cloud Florida Statutes six to six point eight four seven three on title insurance agents I'm going to read the excerpt from the statute an attorney shall deposit and maintain all funds received in connection with transactions in which the attorney is serving as a title or real estate settlement agent into a separate trust account that is maintained exclusively for funds received in connection with such transactions and permit the account to be audited by its title insurers unless maintaining funds in the separate account for a particular client would violate applicable rules of the Florida Bar so how many iota accounts or how many trust accounts does a law firm or lawyer need and it's really a matter of you need as many trust accounts as necessary to efficiently operate the law firm the bar recommends that you have a trust account for each title company and for wit for whom the lawyer is an agent in this way when the title company comes to do their audit or if they do their audit electronically of this of the trust account you are only giving them the records for the closings in which the title in which this title company provided the title insurance and in and in doing so you will not have to expose other trust account records to the copying and redacting and the possible mistakes of releasing information that the title company should not see so to repeat that if for instance the law firm is an agent for two different title companies then they should have a trust account for each of those title companies and then there will be records for just that title company and and it's much easier to go through the audit in that manner what happens when you have insufficient funds in your trust account well it's a it's a tragedy to be sure but as previously mentioned the bank is required to report non-sufficient funds NSF situation to the Florida Bar absent a bank error the lawyer if they should have insufficient funds or have an overdraft in in the trust account is required to report the situation to bar staff counsel if the client if client funds go missing from the trust account the event of course must be reported to the Florida bar's staff counsel however you should also immediately seek guidance from our bar staff auditors in summary ask the trust account thefts there are things that lawyers should do immediately first to call the to call the bank and freeze the account notify the police and file a report notify Florida Bar staff Council and then the law firms general liability and insurance carrier because often there is coverage for a and then next the firm's professional liability insurance carrier and then the client and these these steps should be done immediately one right after the other a trust account management plan for the law firms trust account is a requirement as of June 1st 2014 the requirement is discussed under rule regulating the Florida Bar v - one point to see this rule requires all law firms with more than one lawyer to have in place a written trust account management plan for each of the firm's trust accounts this applies to both iota trust accounts and separate interest-bearing trust accounts the trust account plan must be disseminated to each lawyer within the firm the plan must include the full names of all firm personnel who are authorized to sign on the trust account and the names of all the lawyers who review and approve trust account disbursements and deposits and the names of all lawyers who have oversight of the trust account reconciliation process one of whom must be a partner or shareholder or a member of the law firm and the names of all the lawyers in the law firm who serve as a point of contact for the other lawyers in the firm who may have questions about the firm's trust accounts in a small law firm these duties may fall to just two lawyers note that solo practitioners are not required to maintain a trust account management plan but it is a best practice so in firms of two lawyers or more there must be at least two lawyers responsible for oversight of the trust account in a large law firm some of these duties may fall to the law firm administrator controller or independent CPA firm nonetheless all law firm staff outside agents such as the firm's CPA firm and the supervising lawyers must be named in the plan why is this rule necessary why must law firms maintain an up-to-date trust account management plan one reason is because each lawyer with managerial or supervisory responsibilities and/or an ownership interest in the law firm is responsible for his or her own actions relating to the trust account another reason is that if the trust account plan is circulated to all the firm's lawyers as required by the rule this should help lawyers spot irregularities so they can be corrected and reported each time there is a material or significant change in the trust account management plan a new plan must be prepared and distributed to all of the law firms lawyers an example of a material change would be the removal or addition of a signatory to the trust account the trust account management plan must include the name of an owner of the law firm who is ultimately responsible for the firm's trust accounts and the trust account management plan or any part of the plan the requirement to have in place a trust account plan applies to all law firms with a Florida office including interstate law firm partnerships there is a rule of six in in all trust accounting rules from from State Bar to State Bar and including the ABA and this rule of six to help people remember the rules and remember their record-keeping requirements is first we must have a journal the cash receipts and disbursements journal must be maintained there must be Ledger's that apportion the money that's held in the account to the clients it belongs to we must have a monthly bank statement cancelled deposit slips or detailed records of these deposits proofs of wires and canceled checks or bank made copies of these checks for we must have a monthly reconciliation of the bank statement we must have a monthly comparison and we must hold the records and the supporting documentation for six years and I will explain each one of these as we proceed whether your trust account records are digital or whether the lawyer prefers to keep a paper accounting method the bar recommends that you can recreate these records during the entire six year retention period it is critically important lawyers change software systems and then discard the old software and don't import the data into the new software lawyers and can misplace paper records or they can be damaged or destroyed or lost so it in the in the law firms tenshun policy on files be sure to remember the trust account and that we have that six year retention period on all the bank records the other records requirements and the supporting documentation the six year retention period is not six calendar years the six year retention period is six years from the date of the last transaction on any one ledger on every ledger it is important to make sure that this trust accounting retention period coincides with the retention period on client files if the lawyer keeps routine files for only three years but in fact there was Nexus to the trust account they may have lost some of their reporting documentation now having said that most lawyers keep their records far longer but it is worth noting here that that supporting documentation may be in the client files and therefore need a six year retention period the bar recommends that you gather all the documentary support the copy it scan it and keep it with keep a copy with the monthly bank reconciliation in this way if the lawyer has ever challenged or questioned our audited there won't have to go looking through hundreds possibly thousands of files looking for the supporting documentation so at the time of the transaction at the time of the disbursement we provide an extra copy whether electronic or paper and keep it with that month's reconciliation package examples of supporting documentation include disbursements and deposits so it could be vendor invoices law firm invoices copies of the deposit slip itself signed internal check requests all of these are good examples of supporting documentation there are additional record-keeping requirements on electronic disbursements the record of electronic disbursement must be the same as if it were a check I'll now read an excerpt from that we must maintain other documentary support for all disbursements and transfers from the trust account including records of all electronic transfers from the client trust accounts as well as the name of the person authorizing the transfer the name of the recipient confirmation from the banking institution confirming the number of the trust account from which the mo ey is withdrawn and the date and time the transfer was completed all of this information is required as supporting m4a supporting documentation to an electronic transfer wire transfers in particular are Co now covered by rule 5 - 1.2 D authorized electronic transfers from a lawyer or a law firms trust account shall be limited to money required to pay a client or a third party on behalf of a client expenses properly incurred on behalf of a client such as a filing fee or payment to third parties for services rendered in connection with the representation money transferred to the lawyer for fees which are earned in connection with the representation in which are not in dispute or money transferred from one trust account to another trust account these are the restrictions the this is what is allowed for wire transfers to continue with record-keeping requirements the cash receipts and disbursements journal is a record a chronological record of the transactions within the trust account so it would include the the date and of the payee and and the reason the amount to to which ledger it belongs to the client matter and then the extended you know new balance and usually a cash receipts and disbursements journal also has another area for notes involving the transaction a checkbook stubs the stubs a checkbook or a simple checkbook register are not sufficient oftentimes when we open a separate interest-bearing trust account for the benefit of a client it's not an iota account that the bank will give us a temporary checkbook and that may be all we ever use for that account because we're going to hold it for such a short period of time perhaps and that is insufficient you must have the cash receipts and disbursements journal for every trust account that the firm holds we must have client ledgers not just for each client but also for each matter when when that is applicable the client Ledger's and the cash receipts and disbursements journal should show the beginning balance for the month and the ending balance of the month the cash receipts and disbursements journal whereas it's showing you the chronological history of what of the transactions within the entire trust account the ledgers show you the chronological activity of that matter for trust account transactions concerning that matter we show all the transactions for each client's matter and the balance owed to each client on each matter this is critical show the month in and the beginning of the month totals on both the ledgers and the journal here is a depiction a simple depiction of the cash receipts and disbursements journal and the client Ledger's so you show the journal has $3,100 and then it shows the four Ledger's and the the amount showing recorded on to the ledgers must equal the amount that's showing on the cash receipts and disbursements journal a trust account reconciliation is a three-way balancing first we do the monthly bank statement and we reconcile it to the monthly cash receipts and disbursements journal the monthly comparison is a total of the list of all the ledgers and their month end balances and that is compared and must agree with the adjusted ending balance for the month for the cash receipts and disbursements journal and the reconciled bank balance reconcile bank balance the adjusted month in total of the cash receipts and disbursements journal and the total of the monthly comparison must all agree another record-keeping requirement is the annual listing the annual listing of all the ledgers is an additional monthly comparison the 13th monthly comparison within a year it is not a copy of any one of the 12 monthly comparisons it's a 13th comparison we call it the annual listing and again we list every one of the of the Ledger's and their month end balance you can pick any month of the year to do the annual listing but it must be done record-keeping requirements include the that you have the original monthly bank statement and I emphasize monthly because the bar has received calls over the years from members and their staff and they say well the bank told me since I don't have much activity in my trust account maybe I should just have a bank statement every six months don't let the bank talk you in to anything other than receiving a monthly bank statement because it is required it must be the original now it can be a bank made copy sent to you electronically but but it has to be sent from the bank you have to have a detailed record of your deposit slips years ago the bank would give you canceled deposit slips now they just list the deposits on the actual bank statement so it's up to you to keep a detailed record of your deposits that match the information on the bank statement this information that's required on your deposit history records is the the date of the deposit the source of the deposit for instance the Acme corporation the source of the deposit the type of funds the name of the client matter and finally a copy of the check that was given you know to the firm to deposit or a copy of the cash receipt you must have original canceled checks or bank made electronic copies in other words copy sent to you from the bank some people prefer to get their original canceled checks and even pay a small fee for that but if their electronic copy sent from the bank that is sufficient however it has to include both the front and the back I'll repeat that it has to include both the front and the back of the check the rules state that the canceled checks must include all information of on endorsements and that is on the back of the check that's where all the endorsement information is make sure the bank usually will not do this without you asking them to do it it's not their current practice today to give you canceled checks of the back they'll just show you the front so make sure that you're getting the front and the back what we see here is a simplified example of the monthly bank reconciliation process so for instance if you're using accounting software to do this this is one of the standard reports in your accounting software if you prefer to keep paper records or use Excel if you're that that will work if using paper records then you should have Journal paper some people prefer to use Excel and the bar has Excel forms on its website templates that you can use for trust account reconciliation those are free so first we start with the balance for the bank statement what does the bank say that we have it month in and we put that down and then next we list any of our deposits in transit what that means is the bank closed out activity before printing the bank statement at the end of the month from what they could see so you on the other hand say made a deposit on the last date of the month and it did it didn't catch when the bank closed out to print your bank statement so it's a deposit in transit so it's outstanding so we have to add that deposit to what the bank says that we have or any other deposits in transit next we're going to list and deduct outstanding checks these are checks that we know that we've written and are pure in our journal but they're not showing up as cleared on the bank statement so we list each of those checks with the check number in the day and the amount and we deduct those from what the bank is showing we have in our trust account this should give you a reconciled bank balance there could be some other items it's neither a check nor a deposit for instance the bank charged you a wire transfer fee and you failed to record it so at this point you would make an adjustment to your cash receipts and disbursements journal for example for the amount of say this this wire transfer and now you have an adjusted month in balance for your cash receipts and dispersed in journal and agree with the bank statement this should agree with the month-end balance of the cash receipts and disbursements journal and the total of the client ledgers again it's a three-way balance the reconciled bank statement the adjusted month end balance of the cash receipts and disbursements journal and the total of all your client matter Ledger's that's the monthly comparison the monthly comparison here is an example it's a simplified example but for discussion purposes and it shows the first being our law firm miscellaneous ledger has a small amount of money on it we have four clients client a B C and D and the total of this monthly comparison should equal the cash receipts and disbursements journal month in adjusted balance and the reconciled bank statement balance one two three credit card transactions are allowed with both the operating account and the trust account however when taking in a credit card payment into the trust account there is a merchant card fee for the transaction credit card merchant transaction fees may be passed on to the cardholder when handling retainers and advance fee and cost deposits knowing the difference between a retainer and advance the payment or a cost deposit is very important and I refer you to a thix opinion 93 - - and if you need more clarification on that ethics opinion I urge you to call the Florida bar's ethics hotline first of all to understand the types of retainers a true retainer as we mentioned earlier a true retainer is when the client pays the lawyer an amount of money for the right to hire them in the future in the legal marketplace this is also sometimes called a conflict retainer the client pays a law firm to ensure that a potential opposing party will not hire the same law firm the true retainer is considered earned the moment that is received by the law firm and so therefore it goes into the operating account and not the trust account earned fees are never put into the trust account next our flat fees and non-refundable retainers those are also considered earned the moment that they're put into the lawyers hand and they go into the operating account they never go into the trust account advance fee and cost payments to be applied to fees and costs incurred in the future some people also call this a refundable retainer which is actually an incorrect term the advance fee and cost deposits that though that do go into the trust account those are refundable on demand by the client I would refer you back to your intake process make sure that your retainer agreement fee agreement representation letter whatever that document is that you use to win in taking new work that it goes over this information if it's applicable so that the client has a full understanding of what the money will be used for how how it's being taken in whether or not it's refundable and guess what type of retainer you have if you don't have a fee agreement if the client comes back later and says I want you two to stop what you're doing and give me back my money and you say well it's non-refundable if there's no written agreement its refundable disbursements against uncollected funds our rules tell us to wait until the funds are collected and and it gives us certain exceptions upon which a lawyer in their own discretion and their best judgment can disperse when they know the funds have not yet been collected but the rule says may disperse it does not say shall disperse so be very very careful because if if you should decide to disperse on uncollected funds under one of the six exceptions and that goes south on you you're holding the back you have to make it good it's your it's your error it's your responsibility and having said this it's a good time to talk about scam artists there are lots of criminals out there that actually know this part of our rules and so therefore they're going to try and scam lawyers so what they do is you may get an email saying would you accept a collections matter for me and in the outline outline the various collection details and then a few days later or week or so later they say oh not sure what you did but our customer paid and and we're just you know thrilled we're going to send you the cashier's check that they sent us instead of to you and we prefer that you go ahead and run it through your trust account and withdraw your fee and then wire us the balance this is a scam the cashier's check is not real it's a good fake beware of these type of scams because advancing funds on an uncollected instrument such as a cashier's check is one of the six exceptions which I will show you each each one in just a moment so you deposit the cashier's check you then wire the so-called clients share and retain the agreed-upon fee and ten to twenty days later your bank comes back and said this was a fraudulent cashier's check and you have to make it good and this could be a huge sum of money that you've released based on one of the six exceptions because it's almost always a cashier's check be very careful when in taking a client verifying their identity verifying their location getting you know getting getting all of the bonafide so that you know who you're dealing with and not ending up with a potential scam situation on your hands now on to the six exceptions the six exceptions that allow for immediate disbursement on uncollected funds include of course the cashier's check or the certified check if you take in a cashier's check or certified check and deposit it into your trust account you can then disperse on it if in your best judgment it's a good check loan proceeds from a bank or institutional lender is the second exception you receive proceeds from a loan from an institutional lender or bank doing business in the state of Florida then you can disperse on on that the third exception are bank checks official checks money orders and within the state of Florida credit union checks so be very careful though with bank official checks oftentimes they're written outside of the state of Florida so the bank is when this is within the state of Florida and you receive an official check it'll say official check sometimes it's also referred to as a money order but doesn't say money order it says official check and then you look at the maker of the official check and it's a subsidiary of your bank but it's in another state altogether note that the clearance time is going to be longer than if it were an in state or local check the fourth exception are federal or state government checks if you take a federal or state government check into the trust account and you feel that this is a good check then you can immediately disperse the bar recommends that you beware of forgeries number five or checks on another Florida lawyers trust account or the escrow account of a licensed real estate broker in the state of Florida if you receive either one of those instruments and deposited into your trust account and you believe this is a good instrument then you may disperse on it before the funds are actually collected and finally our sixth exception is checks issued by insurance companies licensed by the state of Florida to do business within the state of Florida lots of caution here because insurance companies have been known to actually issue a draft to the lawyer and not a check and there's a difference between a check and a draft a check is a demand to pay and a draft is a request to pay if the insurance company should give you a draft they don't have to pay on it until they're ready to they could put make you wait months before they actually pay on it so be careful that that if you are receiving this instrument from an insurance company that is in fact a check because if you do want to disperse on it before it is collected you want to make sure it's a check and not a draft in summary on the six exceptions that allow immediate mediate disbursements from the firm's trust account if you're a new lawyer and you have a new trust account that may not have any funds in it and you disperse on a deposit under one of these six exceptions you could be putting yourself into an NSF situation also remember if you should disperse based on one of these six exceptions and it should go south in summary you're the guarantor you're that you're responsible and it's going to end up at your doorstep trust accounting in your employees we we kind of covered this earlier but we're gonna go into detail now there's a who should sign checks who is allowed to sign on the trust account currently it's the lawyer and anyone t e lawyer designates in in a law firm it should be just the owners but for a sole proprietorship they may that may not be practicable and they may have to ask another person to be a co signatory or a say or a full signatory but it should be the owners of the law firm who are the signatories on the account in huge firms really really huge firms often the controller is a cosigner on the account for large sums of money in small to mid-sized firms the bar recommends that an employee never should be a signer on the trust account you should consider two signers for large sums of money as an internal control policy it's usually not something that the bank will honor but that's not the purpose of having the two signature lines with the fine print saying two signatures required for amounts over ten thousand or twenty five thousand or fifty thousand that's an internal control policy so that everyone knows that the cheque shouldn't leave the office until there are two authorized signers on the cheque thereby releasing the funds trust accounting in your employees the bar recommends that you run a criminal background check on all perspective employees the Florida Department of Law Enforcement can run this criminal background check at a low cost you should notify the employee that you're going to run the criminal background check and you should never hire anyone before running the check however some firms may want to give a contingent offer of employment saying you know but for the results of this criminal background check we would like to offer you that the job the firm should check with their general liability insurance carrier to be certain that they're carrying enough coverage it's usually a standard Rider the fraud and theft coverage on in general liability insurance policies but make sure that it's adequate to cover a theft in the trust account you should review your firm's internal controls the bar has a self audit on its website that includes a trust accounting section so that you can in the privacy of your office look at your internal controls however we're going to cover some internal controls now additional precautions in maintaining control of the firm's trust account is never right a blank check never sign a blank check don't release blank checks store checks in a secure location oftentimes a firm will will go through its internal controls only to find that the one thing that they're doing that's risky is that the blank check supplies are in an open location check supplies bank statements bank records they're all should be under lock and key preprint checks with void after 90 days is always good advice and sequentially number checks now when you're reordering checks on the main iota account of course they're going to be numbered but when you're opening a separate interest-bearing trust account again the bank may give you a temporary checkbook and the checks are not numbered if that's the case stop before you leave the bank and ask them to number the checks because they have the printer there on-site that they can number those checks for you additional precautions include as we mentioned earlier never allow a stamp to be made of your signature this is dangerous never make checks payable to cash so no blank checks and no checks payable to cash the requirement is always there the IRS requirement to report large sums of cash cash sums of $10,000 or greater must be reported to the IRS and always remember to receive your trust account unopened if that's not possible because you're a solo practitioner you can have a copy of the bank statement mailed to your accountant but but someone not in the reconciliation process should receive the bank statement unopened and inspect it before it is handed over for the monthly reconciliation work don't create invitations to steal separate duties it just takes two people if there are just two people in the office there are many internal controls that we can implement at least two people one person makes the deposits and another person posts the deposits one person writes the check and another person signs the check one person makes journal and ledger entries and another person reconciles the bank statement just takes two people and always remember cross train your staff so that you have extra pairs of ears and extra pairs of eyes who know how a trust account should be managed watching out for the firm red flags of embezzlement include personality changes a family crisis among anyone on the law firms staff sudden unemployment of household members desperate people will do desperate things extravagant living overprotective someone an employee's overprotective of their work an employee who won't take a vacation addictions discovered it's discovered someone on the staff as a gambling addiction drug addiction alcohol addiction this is very dangerous and this person should be cut out of any Nexus to the firm's money or the clients money law firm owners that do not receive their bank statements unopened or do not review their account reconciliations that's actually considered a red flag of embezzlement if you're not reviewing your statements thoroughly every month that's an opportunity for theft in summary of our presentation today of maintaining a trustworthy trust account ask questions remember that the key words in proper trust account management are personal oversight if a lawyer or legal administrator does not understand the bank statement reconciliation documents supporting materials the trust account management plan or any step in the processes relating to the handling of the law firms trust account demand answers from the persons responsible never hesitate to contact the bars ethics hotline thank you [Music] you [Music]