To The Editor:
I am writing to the editor in response to your August 8th article concerning the Waterbury law firm secretary accused of stealing $1 million. I am certain that many attorneys in private practices both small and large asked themselves if they too were at risk for something of this nature happening to their firms. The answer is yes, that undoubtedly other firms are equally at risk for this happening to them.
The firm involved in this case Grady & Riley prided itself on its staff and their experience with the firm and rightfully so. However, having long standing firm members is no substitute for have adequate controls in place to protect firm's trust funds. In fact having staff members for a very long period of time can actually increase the risk of fraud because firm owners and managers can become too reliant on trusted staff members and become lax in their management of their activities. Especially when those activities tend to be outside the scrutiny of the firm's clients. This tendency can be dangerous in any firm but is especially so in midsized firms that may be understaffed, and may not have adequate in-house financial management expertise.
Hence, in my opinion, firms with IOLTA accounts with monthly average daily balances of over one million dollars should be subject to annual audit by the bar and should be required to have documented controls in place to ensure that funds in these large IOLTA accounts are protected.
In the past the bar has shied away from a two tiered approach to regulating the trust funds held by firms, and instead has preferred to allow the legal community to police itself. Instances like this lead this commentator to believe that there may be more firms with large trust accounts that may not have adequate controls in place to adequately protect those funds. These controls should include at the very minimum that the person who prints checks, is never the same person who signs or stamps them, all blank checks are accounted for and stored under lock and key, and the IOLTA account is reconciled by an individual who is not responsible for making deposits into the trust fund account or disbursements out of the same account. Firms of this size usually have enough staff members to adequately implement these controls but often don't have the in-house expertise to do so and so should consider consulting with their accountants to develop and implement adequate controls.
Admittedly, imposing these types of requirements on small firms where the individual attorneys may not have access to the resources to implement proper controls would be burdensome, onerous and in most cases unnecessary because the individual attorney's who control these accounts are typically performing the control function themselves. In my opinion the present system should not be changed for these small firms. However, once a firm's IOLTA account passes a certain threshold in size, without proper internal controls in place, the funds the firm is holding in trust for the benefit of their clients become at risk to the very kinds of fraud that the firm of Grady and Riley has apparently been exposed to.
Hence, if the bar wants to close the barn door before another horse escapes a two tiered approach to auditing firm trustee accounts may make sense.