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Censure and fine for trust account breaches

A lawyer, D, has been censured and fined $5,000 by a lawyers standards committee after it found she had failed to keep accurate trust account records, had allowed client ledgers to become overdrawn and had provided the Law Society monthly certificates that her trust account was in order when it was not.

The standards committee opened an own motion investigation following receipt of a memorandum from the Law Society Inspectorate.

Following an inspection of D’s trust account, the inspector alleged breaches of both the Lawyers and Conveyancers Act 2006 (LCA) and the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (Trust Account Regulations).

“In the inspector’s view, it was impossible to tell whether in fact there were funds missing or reconciliation issues caused by the incorrect record keeping,” the committee said.

The committee found that:

  • D had failed to keep accurate trust account records, in breach of s 112 of the LCA and Regulation 11 of the Trust Account Regulations;
  • D had allowed client ledgers to become overdrawn, in breach of Regulation 6 of the Trust Account Regulations; and
  • D had provided the Law Society with monthly certificates from August 2012 to May 2013 indicating that her trust account was in order when it was not (in breach of Regulation 17 of the Trust Account Regulations and Rule 2.5 of the Rules of Conduct and Client Care).

On each of the three, the committee found D guilty of unsatisfactory conduct.

In response to the investigation, D said that until September 2012 she had employed an accounts clerk to manage the trust account for her. She explained that due to the recession and a reduction in legal aid fees, she had been required to reduce her staff from six to two, and had then managed the trust account herself. She had not done this before, although she had previously maintained a working knowledge of what took place.

D acknowledged to the committee that this was not an excuse for the apparent shortcomings in her trust account operation.

D accepted that errors had occurred. She submitted, however, that the inaccuracies related to fees due to the firm including legal aid payments, were in respect of minimal amounts, and had not affected private client sums held in trust. There had also been a malfunction at that time in her accounting software, which was in the process of being rectified by the IT company.

With respect to the allegations of client ledgers being overdrawn, D submitted that while her processes were not perfect and had “been a steep learning curve”, individual private client ledgers were not overdrawn, except occasionally in a “technical sense”. She also submitted that there were always sufficient funds in the firm’s ledger within the trust account to cover overdrawn balances.

In relation to the certificates provided to the Law Society, D submitted that she considered she had correctly certified that the trust account records were a complete and accurate record of transactions during the month and of each client’s position.

She said that in her view a trust ledger had to be in respect of clients’ funds and not in respect of ledgers recording fees due to the practice.

She submitted that each month she certified to the best of her knowledge that the trust accounting provisions had been complied with.

The committee noted that D had conceded that she now knew, having had the opportunity to consider the advice of the inspectorate and an accountant, that the solicitors’ fees account was overstated for a period. This had distorted the other balances generated in the reconciliation report.

The committee said that in its view, it was not simply a case of the solicitors’ fees being overstated.

Rather, D had “provided false certificates over a sustained period, namely, August 2012 to May 2013 which went to the core of her fundamental obligations both under the Trust Account Regulations and the Rules of Conduct”.

The committee described it as “an extremely serious breach of her obligations,” which it considered to be at “the high end of offending conduct”.

D had already decided to close her trust account. When the committee asked her if she would be prepared to give a written undertaking that she would not operate a trust account again without Law Society consent, D voluntarily provided the written undertaking.

As well as the censure and fine, the committee ordered D to pay $1,500 costs.

Last updated on the 3rd June 2015