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Is Your Hard Earned Money Being Stolen
1. PROFESSIONAL LIABILITY FUND
IN BRIEF
MALPRACTICE AVOIDANCE NEWSLETTER FOR OREGON LAWYERS
Issue No. 70 MAY 1998
IS YOUR HARD EARNED the misappropriation.
MONEY BEING STOLEN? What can you do to protect yourself? Here are a
few simple steps you can take to minimize the risk of
In 1994 a North Carolina lawyer was disbarred loss:
for "gross negligence in overseeing trust accounts"
1. REVIEW IT. If accounting duties have been del
after his secretary misappropriated $35,000.
egated to staff, it is critical that a partner take respon
Although the lawyer had no knowledge that his sec
sibility for reviewing all notkes, correspondence or
retary was stealing and took no money himself, the
statements received from the firm's bank(s).Instruct
Slale bar found his inattention to his finances grounds
staff to date stamp and deliver bank mail unopened to
for disbarment.
the partner in charge of this review. When the bank
In another instance. a long-term employee embez statement itself arrives, do the following:
zled thousands from a trust account, then forged a res
Reconcile the account in question. (The trust
ignation letter from the lawyer to the state bar so the
account bank statement should reconcile to the
bar wouldn't in vestigate the loss.
check register and client ledgers.)
These horror stories, reported in Lawyers Weekly
Examine all transactions for any irregularities,
USA, I have had their counterparts in Oregon. Each
Verify that deposits were made timely and that no
year the Professional Liability Fund (PLF) receives
deposits were reduced by cash returned to the
calls about embezzlement, misappropriation of funds
person making the deposit.
or office theft. Trusted law office staff, attorneys,
janitorial help, and even clients may be involved in Examine canceled checks (including endorse
ments) for forgeries.
IN THIS ISSUE Keep an eye out for counterfeit checks.
Investigate any missing checks or breaks in check
Is Your Hard Earned Money Being Stolen? J �
sequence.
PIP Basics .. . . .. . . . . . . ... . .. . . . . .3 j
Free Practice Aids from the PLF ... Ins.rr In a larger firm, an administrator may be responsible
for some or all of these duties; however, some mech
Free CLE Tapes from the PLF .. ...b.serr
anism must exist for review and supervision by the
.
New Oregon Tax Court Appeal Procedures 7 managing partner.
Update: Medicaid Transfers . . . . 8
2. USE FINANCIAL STATEMENTS. Financial
.
Tips To Avoid Surprise Medicaid statements, or their equivalent, should be reviewed at
Recovery . . . . . . . . . . . . . . . . . . .9
least quarterly for any radical changes in expendi
Suing An Insurance Co m pa ny? .......10 tures. Look long and hard at categories such as pay
L iti gation Stress Syndrome .... . . . .. 1 J roll or office expense. In larger offices, embezzlers
have been known to create fictitious employees or
Tips, Traps, and Resources .........12
pay personal bills using the office expense account.
DISCLAIMER
Thill RewdCUet includes cI.l.im prC'll cnlion Icchn.iquCli Which oJle ctclilncd 10 minimize Ihe likelihood o( !)cin, .llled for ICI:al moilpracTice. Thl: m,a1c.:f1:11 pre
en led docl. nlll clhlbli�h. repOrl, or creOlle the .�tilnd:ud of carc (or oIuornCp, The ilniclc� do nul rcpre:1icnt .. complclc anal)'''L'i of the: 10f'I�� prccntcd and
reilJcn ,hOl,lld cuoJuc:' I!crr own apprIJprialC le�..1 rClc".rch,
2. 3. SEPARATE DUTIES. Centralized accounting 6. PROVE IT. Question check requeSts for any ven·
responsibilities make it more difficult to detect theft dors whose name you don't recognize. Require two
or other problems. Payroll should be scrutinized by signatures when a check is written for more than a
someone other than the person responsible for cutting specified dollar amount. Never sign a blank check.
the payroll checks. Whenever possible, have separate
7. DEPOSIT IT. Immediately photocopy and
people handle the separate accounting functions of
endorse all incoming checks, money orders, drafts or
accounts receivable, accounts payable, etc. Consult a
other instruments using a "for deposit only" endorse
CPA firm for assistance in setting up proper controls
ment stamp. To protect yourself and your clients,
and accounling procedures.
make deposits daily. Remember, the sooner you
4. LOCK IT UP. Store truSl and general aCCount deposit client funds in trust, the more quickly the
checks and deposit slips in separate locations. Not funds will clear and be available for disbursement. If
only will this make the thief's job more difficult, it you have client money on the premises and cannot
will Jessen the chances of writing a check on, or mak get (0 the bank, you must make other secure, appro
ing a deposit into, the wrong account. Also, minimize priate arrangements.
the number of blank checks you keep on hand.
8. CUT IT UP. If you received an ATM card when
5. NO CASH. Never allow checks to be written you opened up your account, cancel your pin code
from your trust account to cash. Pay yourself by writ immediately, cut up the ATM card and do whatever
ing a check payable to your operating account. Pay else is necessary to prevent ATM access to your
costs on behalf of the client directly to the entity in account. This applies to your trust and general oper·
question, i.e., the court. county recorder, sheriff, ating account.
process server, etc. Discourage clients from paying in
9. KNOW IT. Many a lawyer has been lulled into
cash. If cash is accepted, have another employee wit
complacency thinking nothing will go wrong because
ness the cash transaction. Limit the amount of petty
a process is "computerized." Anyone who has ever
cash and establish forms and procedures for using it.
experienced data corruption, a virus or similar prob
lem understands the danger of this attitude. ]n some
.. �
p
instances, computerization can make a firm more vul
nerable to theft. If you don't understand how your pro·
gram works, you can't supervise ochers who are per
forming accounting duties with it. Use passwords to
prolect and limit access to financial data stored on
computer.
RAISED BY
10. KNOW THEM. Don't enter into a partnership,
AN ALCOHOLIC? office share, or hire a bookkeeping service on blind
faith-check the background of your potential part·
ners, office mates or independent contractors. If
you're h iri ng staff, check references as thoroughly as
The Oregon Attorney possible. Once in practice, keep an eye out for 1.!n�x
Assistance Program plained changes in lifeSlyle, spending habits. or other
behavior that might tip you off that something is
Can Help You! wrong. Audit billing statements periodically to make
sure they match the actual work done by the
partnerIassoci ate.
Michael Sweeney
Direct Line: 226· 057 HOW TO GET HELP
or
1-800-321-0AAP(6227) Consulting with a CPA firm is probably one of
(To page) the best moves any practitioner or firm can make in
establishing proper accounting systems and controls.
Jf you don't have a CPA firm in mind, concact the
.i
A free, non-profit, confidenllal program for you
Oregon Society of Certified Public Accountants at
Page 2 IN BRIEF MAY 1998
3. Wilsoll alld Dee Crocker. Norma Johnson of the Portland
FILES PILED:'HIGH. �
,-----
CPA firm ueHen Mesher & Company. Pc. and Jill
.. Husemann of JBL&K Insurance for Jheir assistance in
ON THE FWOR?
compiling this article.
, . I This excerpt repriJ.l(ed with permission from LowyerJ' Wt:tk.ly USA
(September 9. 996). For subscription information. call 1-800-451-9998.
Call for or write Lawyers Weekly Public.alious. 41 West Street, Boston. MA 02111.
free and
confidenrilll
office systems
assistance.
PROFESSIONAL
LlABllJTY FUND
· Carol WH."'.
• Dec Crocker
• Beverly Michaelis
PraCh'ce Managemenl
A�l.son
503-639-6911 or
/-800-452-1639 d
503-641-7200 or 800-255-1460 and ask for Ihe
Client Referral Service.
Insurance brokers can provide quotes on com
mercial insurance including fidelity insurance, bonds
and any special endorsements you or your firm might
need. Fidelity insurance is different than a fidelily
bond. Fidelity insurance pays for the loss. Fidelity
bonds pay for the loss, but then look 10 the lawyer
for reimbursement. Rates depend on the amount of
coverage, deductible. number of locatio os. number
of employees. nature of employees' positions, and
internal accounting controls and procedures.
The American Bar Association has many excel
lent practice management publications on bookkeep
ing. accounting and related issues. Check out the
ABA web site al www.abanet.org or caU the ABA al
312-988-5000.
The PLF has a variety of resources for practi
tioners who need belp with tbe mechanics of setting
up a trust aCCOunt or bookkeeping system, including
free and confidential office consultations. For further
information, contact Carol Wilson, Dee Crocker or
Beverly Michaelis at 503-639-6911 or 800-452·1639.
B e verly Mi c hae l i s
Practice Management Advisor
Professional Liability Fund
The aurhor gratefu.Lly acknowledges the ABA Practice
Management Advisors Task Force, Barbara S. Fishleder,
PLF Director of Loss Prevention, colleagues Carol
MAY 1998 IN BRIEF Page 3