Electronic banking has become the preferred means of receiving, disbursing, and transferring funds for many firms.  Depositing or writing checks has disappeared, much like the practice of sending letters.

Yet, there are lingering concerns.

Despite what some believe, there has never been an ethical prohibition against moving funds online.  The devil is in the details.  Bank confirmations alone do not generate a sufficiently clear audit trial of whose money was transferred and for what purpose.  Failing to document these additional details can lead to trust accounting errors – among them, duplicate transfers.  If you withdraw funds online and don’t record the transfer, you may not remember it.  If you don’t remember the transfer, you may take the funds again, believing you are paying yourself for the first time. Eventually this practice results in overdrawing the trust account.

The workaround is to create a procedure that captures the following details:

• Date and time of transfer
• Amount of funds transferred
• Reason for transfer
• Name or signature of lawyer authorizing transfer
• Client and/or matter ID

The reason for transfer should be tied to proper documentation.  Examples include a receipt for an eFiling fee advanced by the firm or the firm’s invoice if the transfer is in payment of a monthly billing.  The reason for transfer should be as specific and complete as possible.

Funds should never be transferred by law firm staff on a lawyer’s verbal say-so.  Always obtain written authorization in some form – an email confirmation or signature/initials on a request form.  In a law firm, access to the trust account should be restricted, based on a reasonable separation of accounting duties designed to prevent theft.  Additionally, if trust accounting is delegated to staff, lawyers must provide proper supervision.  See In re Strader, 27 DB Rptr 219 (2013) (stipulated suspension for failure to supervise an office manager who embezzled nearly $500,000 from the lawyer’s trust account).

If your firm has a multi-jurisdictional practice, ensure that trust accounting procedures meet the strictest applicable standard.  For example, the Washington Rules of Professional Conduct (Washington RPC) prohibit nonlawyers from signing trust account checks: “Only a lawyer admitted to practice law may be an authorized signatory on the account.”  (Washington RPC 1.15A(h)(9)).  By reasonable extension, nonlawyers would not be permitted to disburse funds electronically.  Also of note is Washington RPC 1.15A(h)(5) which provides “All withdrawals must be made only to a named payee and not to cash. Withdrawals must be made by check or by electronic transfer.”  (i.e., withdrawing funds via telephone transfer is prohibited.)

All Rights Reserved [2015] Beverly Michaelis