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Is Your Hard Earned Money Being Stolen


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Is Your Hard Earned Money Being Stolen

  1. 1. PROFESSIONAL LIABILITY FUND IN BRIEF MALPRACTICE AVOIDANCE NEWSLETTER FOR OREGON LAWYERSIssue 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 del­after his secretary misappropriated $35,000. egated to staff, it is critical that a partner take respon­Although the lawyer had no knowledge that his sec­ sibility for reviewing all notkes, correspondence orretary was stealing and took no money himself, the statements received from the firms bank(s).InstructSlale bar found his inattention to his finances grounds staff to date stamp and deliver bank mail unopened tofor 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 trustignation letter from the lawyer to the state bar so the account bank statement should reconcile to thebar wouldnt 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 noyear the Professional Liability Fund (PLF) receives deposits were reduced by cash returned to thecalls 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. DISCLAIMERThill RewdCUet includes prCll 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)Li of the: 10fI�� prccntcd and reilJcn ,hOl,lld cuoJuc: I!crr own apprIJprialC le�..1 rClc".rch,
  2. 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 dont recognize. Require twoor other problems. Payroll should be scrutinized by signatures when a check is written for more than asomeone 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 andpeople handle the separate accounting functions of endorse all incoming checks, money orders, drafts oraccounts receivable, accounts payable, etc. Consult a other instruments using a "for deposit only" endorse­CPA 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 you4. LOCK IT UP. Store truSl and general aCCount deposit client funds in trust, the more quickly thechecks and deposit slips in separate locations. Not funds will clear and be available for disbursement. Ifonly will this make the thiefs job more difficult, it you have client money on the premises and cannotwill Jessen the chances of writing a check on, or mak­ get (0 the bank, you must make other secure, appro­ing 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 when5. NO CASH. Never allow checks to be written you opened up your account, cancel your pin codefrom your trust account to cash. Pay yourself by writ­ immediately, cut up the ATM card and do whatevering a check payable to your operating account. Pay else is necessary to prevent ATM access to yourcosts 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 intocash. If cash is accepted, have another employee wit­ complacency thinking nothing will go wrong becauseness the cash transaction. Limit the amount of petty a process is "computerized." Anyone who has evercash 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 dont understand how your pro· gram works, you cant 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. Dont 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 youre 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 dont have a CPA firm in mind, concact the .i A free, non-profit, confidenllal program for you Oregon Society of Certified Public Accountants atPage 2 IN BRIEF MAY 1998
  3. 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 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 PraChce Managemenl A�l.son 503-639-6911 or /-800-452-1639 d503-641-7200 or 800-255-1460 and ask for IheClient Referral Service. Insurance brokers can provide quotes on com­mercial insurance including fidelity insurance, bondsand any special endorsements you or your firm mightneed. Fidelity insurance is different than a fidelilybond. Fidelity insurance pays for the loss. Fidelitybonds pay for the loss, but then look 10 the lawyerfor reimbursement. Rates depend on the amount ofcoverage, deductible. number of locatio os. numberof employees. nature of employees positions, andinternal accounting controls and procedures. The American Bar Association has many excel­lent practice management publications on bookkeep­ing. accounting and related issues. Check out theABA web site al or caU the ABA al312-988-5000. The PLF has a variety of resources for practi­tioners who need belp with tbe mechanics of settingup a trust aCCOunt or bookkeeping system, includingfree and confidential office consultations. For furtherinformation, contact Carol Wilson, Dee Crocker orBeverly Michaelis at 503-639-6911 or 800-452·1639. B e verly Mi c hae l i s Practice Management Advisor Professional Liability FundThe aurhor gratefu.Lly acknowledges the ABA PracticeManagement Advisors Task Force, Barbara S. Fishleder,PLF Director of Loss Prevention, colleagues CarolMAY 1998 IN BRIEF Page 3