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Fundamentals of Trust Accounting F eaturing 2013 Updates

Fundamentals of Trust Accounting F eaturing 2013 Updates. Kelly Dillon , CFE Office of Chief Disciplinary Counsel. Getting Started. What you should know. First Step: Check Your Checks. The checks should be clearly printed to indicate the account is a “trust account”.

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Fundamentals of Trust Accounting F eaturing 2013 Updates

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  1. Fundamentals of Trust AccountingFeaturing 2013 Updates Kelly Dillon, CFE Office of Chief Disciplinary Counsel

  2. Getting Started What you should know.

  3. First Step: Check Your Checks • The checks should be clearly printed to indicate the account is a “trust account”. • If your bank will not deduct the cost of ordering checks from your operating account, you should be sure to include the cost of the checks on your bank charge ledger and reimburse the account accordingly.

  4. Looking for advice…

  5. Formal Opinion 128 (nonrefundable fees) – Posted on May 19th, 2010The Advisory Committee of the Supreme Court of Missouri has issued a formal opinion concluding that attorneys may not enter into agreements for nonrefundable fees and that all fees must be placed in the attorney's trust account until not subject to refund…

  6. What goes into the trust account? • The funds of others. • All advance fee deposits

  7. What does NOT go into the account? • Personal funds • Earned fees • Big money generating big interest

  8. What to disburse… • Earned fees. • Funds due clients and third parties. • Payments for which funds are held.

  9. What NOT to disburse… • Funds in which two or more people claim interest. • Funds not considered “good funds” by the bank.

  10. The Do’s of Trust Accounting… • Keep your checkbooks in different locations. • Remove your earned fees promptly. • Reconcile your account monthly. • Supervise your staff. • Maintain your trust account records for 5 years. • Keep copies of deposited items. • Respond promptly to the OCDC.

  11. The Don’ts of Trust Accounting... • Don’t pay your personal or office expenses from your trust account.

  12. The Don’ts of Trust Accounting... • Don’t make payments to yourself for earned fees unless you know your records are accurate. • Don’t hold your deposits. • Don’t authorize clients to make deposits or withdrawals from your account.

  13. What makes an accounting system a good accounting system? • General ledgers. • Client and bank charge ledgers.

  14. TRUST LEDGER

  15. What makes an accounting system a good accounting system? • General ledgers. • Client and bank charge ledgers. • Billing records, settlement sheets, time sheets, etc.

  16. Rule 4-1.15(f)(1) through (11) • Receipts and disbursement journals of deposits and withdrawals that include the date, source and description of each deposit, and the date payee and purpose for each disbursement.

  17. Rule 4-1.15(f)(1) through (11) • Ledger records for each account, including the source of all funds deposited, for who the funds are being held, amount of funds, descriptions for withdrawals, and names of persons or entities to whom funds are disbursed.

  18. Rule 4-1.15(f)(1) through (11) • Compensation agreements with clients, including documents such as fee agreements, engagement letters or retainer agreements.

  19. Rule 4-1.15(f)(1) through (11) • Accountings to clients or third persons.

  20. Rule 4-1.15(f)(1) through (11) • Bills to clients.

  21. Rule 4-1.15(f)(1) through (11) • Records showing disbursements to clients.

  22. Rule 4-1.15(f)(1) through (11) • Physical or electronic checkbook registers, bank statements, records of deposit, pre-numbered canceled checks, and substitute checks.

  23. Rule 4-1.15(f)(1) through (11) • Electronic transfer records that include name of the person authorizing the transfer, date of transfer, name of recipient, and confirmation from financial institution showing account number, date and time of transfer.

  24. Rule 4-1.15(f)(1) through (11) • Reconciliations.

  25. Rule 4-1.15(f)(1) through (11) • Portions of the client file reasonably related to the client trust account transactions.

  26. Rule 4-1.15(f)(1) through (11) • Records of credit card transactions, consistent with law and data security standards.

  27. What makes an accounting system a good accounting system? • General ledgers. • Client and bank charge ledgers. • Billing records, settlement sheets, time sheets, etc. • And….

  28. Three Four Way Reconciliation

  29. Minimum Four Way Reconciliation

  30. Ch-ch-Changes… ~David Bowie

  31. The New Rules • New organizational system: • Rule 4-1.145 – definitions for safekeeping property and IOLTA accounts; • Rule 4-1.15 – provisions for the safekeeping of property; • Rule 4-1.155 – provisions for maintaining IOLTA accounts; and • Rule 4-1.22 – provisions for file retention.

  32. New Rule 4-1.15 – Safekeeping Property (Continued) • (a)(3) [NEW] – Only a lawyer admitted to practice law in MO or under the direct supervision of the lawyer shall be authorized as a signatory or authorize transfers from client trust account. (See Comment [2] – “lawyer has a non-delegable duty to protect & preserve the funds in a client trust account and can be disciplined for failure to supervise subordinates who misappropriate client funds.” - See also Rule 4-5.3) • (a)(4) [NEW] Receipts shall be deposited intact and records of deposits shall be sufficiently detailed to identify each item. (See Comment [4] – No split deposits)

  33. New Rule 4-1.15 – Safekeeping Property (Continued) • (a)(5) [NEW] Withdrawals shall be made only by check payable to named payee, not to cash, or by authorized electronic transfer. • (a)(6) [NEW] Must wait a reasonable period of time for funds to actually be collected by the financial institution where the trust account is held, and cannot make a disbursement if the lawyer has a reasonable belief that the funds have not yet been collected by the financial institution. (See Comment [5])

  34. New Rule 4-1.15 – Safekeeping Property (Continued) • (a)(7) [NEW] Reconciliation of the account shall be performed in a reasonably prompt time each time an official statement from the financial institution is provided or available. • (b) Lawyer may only deposit his or her own funds in a client trust account for the purpose of paying bank service charges, and only in the amount necessary for that purpose. (See Comment 2)

  35. Recap of new points: • (a)(3) – Cannot delegate supervision; • (a)(4) – No split deposits; • (a)(5) – Withdrawals by check or electronically to named payee, not to Cash; • (a)(6) – Need to make sure “good funds” • (a)(7) – Regular reconciliations.

  36. Why mandatory overdraft reporting? • Protection of the Public • Attorney Education • Suggest review of the Trust Account Handbook. • Recommend or require CLE attendance. • Make suggestions for better accounting practices.

  37. Mandatory Overdraft Reporting • Number of overdraft cases opened in 2010? • 2011? • 2012?

  38. Reasons for Overdraft • Bank error • Accounting error • Failed to reconcile • Premature disbursement • Comingling or misuse • Misappropriation by Attorney • Other

  39. IOLTA and Ethics • Missouri Lawyer Trust Account Foundation • Bank fees, rates, etc. • 573-634-8117 • www.MOiolta.org • Missouri Legal Ethics Counsel • Melinda Bentley • 573-638-2263 • www.MO-Legal-Ethics.org

  40. Kelly Dillon573-635-7400Kelly.Dillon@Courts.MO.Govwww.MoChiefCounsel.org

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