6 Things Your Firm’s Trust Account Officer Should Know

Here’s some free risk management advice: it’s wrong to steal money from your client trust account to pay for home renovations, landscaping and a party with a Hawaiian band.

Of course it’s wrong to steal from your trust account, period. It will get you disbarred. It may also land you behind bars.

But if you do it for the above reasons, your name is likely to make headlines in the ABA Journal and newspapers across the country.

It happened to a lawyer in Corvallis, Oregon who used money belonging to her clients – and her law firm – to pay past-due income taxes and fund a lavish lifestyle. She was sentenced to nearly four years in federal prison. She also lost her home and was ordered to pay almost $2 million in restitution and $470,000 in federal income taxes.

Details are available here and here.

NC Trust Accounting Rule 1.15-4

If you practice in a North Carolina law firm, you should know about Rule of Professional Conduct 1.15-4. Enacted in 2016, the rule establishes an “alternative trust account management procedure for multi-member firms.”

Under Rule 1-15-4, firms may designate a partner to serve as Trust Account Oversight Officer (TAOO) for any general trust account into which more than one lawyer deposits trust funds. The TAOO oversees the administration of the trust account and makes sure the requirements of Rules 1.15 through 1.15-4 are met.

“In a firm with two or more lawyers, personal oversight of all of the activities in the general trust accounts by all of the lawyers in the firm is often impractical,” according to Comment 27 of Rule 1.15-4. “Nevertheless, any lawyer in the firm who deposits into a general trust account funds entrusted to the lawyer by or on behalf of a client is professionally responsible for the administration of the trust account in compliance with Rule 1.15 regardless of whether the lawyer directly participates in the administration of the trust account. By identifying, training, and documenting the appointment of a trust account oversight officer (TAOO) for the law firm, the lawyers in a multiple-lawyer firm may responsibly delegate the routine administration of the firm’s general trust accounts to a qualified lawyer.”

6 Things to Know About TAOO

1. You can have more than one TAOO. The rule provides that more than one partner may be designated as a TAOO.
2. Having a TAOO doesn’t mean you’re not still responsible. “Designation of a TAOO does not relieve any lawyer in the law firm of responsibility for the following: (1) oversight of the administration of any dedicated trust account or fiduciary account that is associated with a legal matter for which the lawyer is primary legal counsel or with the lawyer’s performance of professional fiduciary services; and (2) review of the disbursement sheets or statements of costs and receipts, client ledgers, and trust account balances for those legal matters for which the lawyer is primary legal counsel.”
3. The TAOO must be trained. “Within the six months prior to beginning service as a TAOO, a lawyer shall (A) read all subparts and comments to Rule 1.15, all formal ethics opinions of the North Carolina State Bar interpreting Rule 1.15, and the North Carolina State Bar Trust Account Handbook; (B) complete one hour of accredited continuing legal education (CLE) on trust account management approved by the State Bar for the purpose of training a lawyer to serve as a TAOO; (C) complete two hours of training (live, online, or self-guided) presented by a qualified educational provider on one or more of the following topics: (i) financial fraud, (ii) safeguarding funds from embezzlement, (iii) risk assessment and management for bank accounts, (iv) information security and online banking, or (v) accounting basics; and (D) become familiar with the law firm’s accounting system for trust accounts.”
4. TAOO training must occur annually. During each year of service, the TAOO shall receive continuing Bar-approved education and training on trust account management.
5. The firm must make a written designation of its TAOO. Requirements for the designation are found in the Rule. The designation – and subsequent renewals – shall be maintained with the trust account records as required by Rule 1.15-3.
6. The TAOO must be re-certified each year. “The TAOO and the managing lawyers shall execute a statement confirming the continuing designation of the lawyer as the TAOO, certifying compliance with the requirements of this rule, describing the training undertaken by the TAOO as required by paragraph (c)(2), and reciting the statements required by subparagraphs (d)(1), (2), (4), and (5).”