“An ounce of prevention is worth a pound of cure.”
Benjamin Franklin’s oft-repeated advice from 1735 still rings true 287 years later. Although Franklin was referring to fire prevention methods in Philadelphia, his advice is relevant to the practice of law, where the failure to proactively identify issues that can lead to a mistake or ethical breach can result in serious consequences. The financial and opportunity cost associated with responding to and correcting problems in connection with a malpractice claim or State Bar grievance is frequently far greater than the time and expense associated with proactive risk management. And far too many attorneys underestimate the risk of such liabilities and thus balk at the notion of spending modest sums to identify and mitigate such risk, despite data showing that grievances and malpractice claims are on the rise.
Having represented attorneys in State Bar disciplinary matters for over 23 years, time and again we see that one of the most common disciplinary issues is violation of the Georgia Rules of Professional Conduct, Rule 1.15, which governs safekeeping of property, IOLTA accounts, and related record keeping. The maximum penalty for violation of Rule 1.15 is disbarment. Indeed, one of our young associate attorneys said “the fastest way to disbarment is to diddle with the trust account!” Yet, it is clear time after time that many attorneys either fail to ensure they understand fully their obligations under Rule 1.15, or, despite knowing what is required, they fail to implement adequate procedures to ensure compliance. Certainly there are instances of intentional misconduct and outright theft of entrusted funds, but in our experience negligence is the root cause of the majority of Rule 1.15 violations.
Perhaps you are reading this and thinking “I keep client funds in an IOLTA account and review the monthly statements, so I’m fine…” If so, can you answer yes to each of the following questions? Please note that these questions are illustrative of the detailed requirements of Rule 1.15 and should not be viewed as a complete summary.
Ques: For each client with money deposited into my IOLTA account, do you maintain a client ledger sufficiently detailed to show:
- the fee agreement with each client;
- the name of the client;
- the date, amount, and source of all funds received on behalf of such client;
- the date, amount, payee, and purpose of each disbursement made on behalf of such client;
- the current balance for each client?
Ques: Do you or someone you have hired perform a three-way reconciliation every month of your IOLTA statement, checkbook, and all individual client ledger balances?
Ques: Do you maintain for seven (7) years the following records
- Fee Agreements with the client
- Copies of the monthly 3-way reconciliation
- All bank statements
- All deposit slips
- All canceled checks?
Ques: Do you ever maintain earned fees or other personal funds in the IOLTA account, other than a nominal amount to cover any bank fees or to keep a required minimum balance?
If you cannot unambiguously answer “yes” to each of the above questions, you and your livelihood are at risk. All it takes to trigger an inquiry by the State Bar is a single IOLTA account overdraft notice (which banks are required to send to the State Bar) or a grievance filed by a disgruntled client. Oft times lawyers call their local banker to try to catch an overdraft situation to be told by their banker that there will not be any report to the State Bar. Unfortunately, a quick call to your local banker will not prevent the automatic report. There is always an NSF report sent to the State Bar and the report is most certainly sent before you get notice that there is a problem. Overdraft notice inquiries commonly result in a request for additional IOLTA account records, which in turn can lead to the initiation of a formal investigation by the State Disciplinary Board. In short, one bounced check can open a can of worms that may result in a public suspension or even disbarment.
The good news is that the “ounce of prevention” to reduce the risk of a disciplinary action is not particularly burdensome or expensive. In many cases, simply hiring a competent bookkeeper and enhancing existing financial and record keeping controls will suffice. Where past practices have been deficient for some time, additional effort may be required to reconcile accounts and implement new practices. An additional benefit of taking proactive steps to come into compliance is that such efforts can be viewed as a mitigating factor and may support a reduced penalty in the event of a subsequent disciplinary action.
In sum, it is your duty as an attorney to not only understand what Rule 1.15 requires, but to also implement adequate controls to ensure you comply with the requirements. The cost of compliance pales in comparison to the cost of defending a disciplinary proceeding and potentially losing your ability to practice law.