Everybody needs a wake up-call.

Small firm practitioners across the state got just that recently, as word spread that a long-time, trusted secretary at the Waterbury law firm of Grady & Riley was charged with stealing more than $1 million from the office.

The crime was committed over a period of three years, police said, as Barbara Kalpin wrote herself at least 93 checks from a client fund that she managed. Kalpin reportedly used the money to pay her credit card bills and to bet on dog and horse races. She now faces two counts of first-degree larceny and 112 counts of second-degree forgery,

"Small firms are, of course, vulnerable to this," said Anthony R. Minchella, an executive board member of the Small Firms Practice Section of the Connecticut Bar Association. "Small firms may be even more vulnerable, because those lawyers may be busier practicing law [than larger firms] and may not pay as much attention to the administrative problems until there's a problem."

Such a problem, he said, will typically only come up when someone says, "Hey, where is the cash?"

Minchella and other small firm practitioners said the best defense a firm can have is to be proactive. "Having redundant controls is important," said Minchella. "The person who opens the mail should not be the same person who deposits the checks."

Another way for lawyers to stay proactive is to actively look for warning signs. "Be in touch with your staff and institute policies and procedures to conduct random, unannounced audits and reviews," Minchella said.

Andrew O'Toole, a solo commercial law and investigations practitioner in Hartford, agreed that it's important to have internal controls in place to allow for the tracking of all banking transactions. This is especially true because lawyers themselves are responsible for maintaining client trust account funds, under the Rules of Professional Conduct.

"I would say having controls in place, so the person who is signing or depositing the checks is not the same person who is checking the accounts, is necessary," O'Toole said, adding that double checking all withdrawals from client funds is advisable. "Even with all of the controls in place, there are people who will try to take advantage," he said. "That's not just something specific to law firms. I would say its an issue for any business that handles funds."

Being up to date on all ethics rules is also important. As Kalpin's former boss, Francis Grady, knows all too well, a theft of client funds will bring an automatic investigation by the Office of Chief Disciplinary Counsel.

Grady founded the law office that bears his name in 1969. He handles a mix of personal injury work, retirement law, divorce and probate litigation. Grady self-reported the theft to the Statewide Grievance Committee in May. He declined to comment on the case, but said the firm's partners immediately replenished the client accounts that had been pilfered. "We're sad that we had a long-term employee embezzling money," Grady said.

Patricia King, the state's chief disciplinary counsel, said the theft of client funds, in general terms, is "pretty problematic for the law firm…. The lawyer in these cases has an obligation to supervise employees, and in the end, it's the lawyer who has to make sure the account is secure."

She said her office will investigate whether there is an ethics violation against Grady, but nothing else could be said about the case at this time."

Speaking generally, she said the fact that a firm repaid the client funds that were taken "can be a mitigating factor."

Such disciplinary cases are not that common, but they do come up from time to time, King said. "It's important that lawyers know what these rules are on protecting client accounts," she said.

In 2010, Stamford solo Daniel Barber was suspended for 90 days after it was discovered that his sister siphoned clients' funds from real estate closings for about three years. At the time, it was said that the money was stolen to pay for his sister's heroin addiction. Barber got into further hot water when officials noticed he had been mixing client funds with money used to run his condominium maintenance business. "These rules are very clear," King said.

A Simsbury lawyer, John McCann, said he believes that having a trusted family member or long-time employee handling the books can actually increase the risk of theft. "That's because firm owners and managers can become too reliant on trusted staff members and become too lax in their management of their activities," he said.

McCann, for one, thinks firms with IOLTA accounts of over $1 million should be subjected to annual audits by state bar authorities. "These controls should include, at the very minimum, that the person who prints the checks is never the same person who signs or stamps them," said McCann, a real estate and bankruptcy attorney who recently wrote a letter to the Law Tribune suggesting extra controls.

He acknowledged that adding controls would be burdensome to some firms. "But without them," he said, "the funds the firm is holding in trust for the benefit of their clients becomes at risk to the very kinds of fraud that the firm of Grady & Riley has apparently been exposed to."•