A former part-time Ohio judge and bankruptcy trustee whose bookkeeper was convicted of stealing funds from his trust account was publicly reprimanded last week for failing to reconcile his trust account monthly and failing to adequately supervise his staff. The court’s opinion spotlights the potential legal ethics problems that dishonest non-lawyer staff can create. Below are some ways to steer clear of possible pitfalls.
The respondent was a part-time judge, which allowed him to have a private practice, and he was a bankruptcy trustee for 30 years. In his bankruptcy practice, the respondent received significant amounts of cash from clients for legal fees and court costs. The respondent’s long-time bookkeeper recorded the payments in a client ledger, but was found to have regularly converted funds for her own use rather than depositing them in the respondent’s trust account or operating account.
The bookkeeper eventually left the respondent’s office to work elsewhere. Two years later, in preparing to close his solo practice and merge with another lawyer, the respondent audited his books and discovered money was missing from his accounts. The state attorney general conducted a forensic audit and determined that over a nine-year period, the bookkeeper had embezzled more than $185,000. (She was later sentenced to 36 months incarceration.)
Failure to supervise and reconcile
Regularly reconciling the records of funds held on behalf of a client is a best practice, of course. What is not well-known is that some state versions of Model Rule of Professional Conduct 1.15(a) (“Safekeeping property”) really get down to the nitty-gritty. Ohio’s version, for instance, specifies that lawyers must perform and retain a monthly reconciliation. The ABA/BNA Lawyers’ Manual on Professional Conduct notes that “Most of the jurisdictions … have gone well beyond the [Model Rules’] paradigm and incorporated detailed recordkeeping and accounting requirements.”
The respondent admitted that while the bookkeeper worked for him he reviewed bank statements for his trust account, but never conducted a monthly reconciliation by comparing the client ledgers with the client-trust account registers and bank statements.
In addition, the respondent stipulated that he had failed to adequately supervised the bookkeeper, violating Ohio’s version of Model Rule 5.3 (“Responsibilities regarding non-lawyer assistance”). Rule 5.3(b), as broadly adopted across the U.S., requires a lawyer with direct supervisory authority over a non-lawyer to make reasonable efforts to ensure that the non-lawyer’s conduct is compatible with the lawyer’s own professional obligations. The rule requires us to monitor staff so their actions are in line with our own ethics duties; it forecloses any “free pass” for ethics violations just because an unfaithful employee under your direct supervision commits them.
The sanction here — a public reprimand — is the lowest level of discipline available in Ohio. The court noted that the respondent had deposited $35,000 his own funds to make up the net shortfall in his accounts after it was discovered. None of his clients lost money as a result of the employee’s theft, and respondent had a clean disciplinary record.
The court noted other disciplinary cases from Ohio and elsewhere, however, where aggravating factors led to stiffer penalties, including suspension from practice.
Tips for staying out of trouble
The court here properly noted that “delegation of work to non-lawyers is essential to the efficient operation of any law office.” But on the other hand, “delegation of duties cannot be tantamount to the relinquishment of responsibility by the lawyer,” and “supervision is critical in order” to safeguard client interests.
- If your jurisdiction specifies periodic account reconciliations or other kinds of detailed recordkeeping, it goes without saying that you should comply. Don’t wait for a post-embezzlement forensic audit.
- Trust but verify. Even long-time trusted employees can do bad things under some circumstances. Be alert for red flags.
- Don’t stop supervising. In some of the cases where lawyers received suspensions after employee thefts, they had completely relinquished control of their office functions to staff, and stayed “oblivious” to potential problems.
Making “reasonable efforts to ensure” that your non-lawyer staff adhere to your own ethics duties takes attention; don’t fall down on the job.