Keeping a Lid on Illegal Takings: Commonsense procedures can keep employees' hands out ofthe cookie jarAuthor(s): JILL SCHACHNER CHANENSource: ABA Journal, Vol. 85, No. 6 (JUNE 1999), pp. 74-75Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/27840832 .

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SOLO NETWORK

Keeping a Lid on Illegal Takings Commonsense procedures can keep employees' hands out of the cookie jar BY JILL SCHACHNER CHANEN

Dick Howland has a secretary any lawyer would hope for.

After she had been working for him for several years, Howland of Amherst, Mass., did what many so lo and small-firm practitioners do:

He turned over many administra tive responsibilities, including check writing authority.

Howland wanted another per son to be able to pay bills and to re lieve him of some of the responsibil ities of running a busy practice. In the 15 years his secretary worked for him, not a dime was ever taken from his bank accounts.

Many solo and small-firm prac titioners wish they could say that. Every year, a surprising number of lawyers become unwitting victims of theft by their employees.

Small Firms Are an Easier Target Although there are no statistics

on in-firm theft, law practice man agement experts agree that solos and small firms are victimized more often than larger firms be cause smaller practices tend to be more lax about administrative pro cedures. Often lawyers are so busy with substantive client work that they pass off the administrative re

sponsibilities to an employee with out taking adequate precautions.

"I am always amazed when I hear that the employee who has been there for years has done the firm in," says Paul Bernstein, a

Chicago lawyer, CPA and practice management consultant.

Even the most trusted employ ee can have unexpected troubles at home and be tempted to "borrow" from the firm's accounts if he or she knows the boss pays little attention to the books, Bernstein says.

But a little commonsense man aging goes a long way, says Beverly Michaelis, a practice management adviser with the State Bar of Ore gon's Professional Liability Fund. For example, Michaelis suggests separating duties so that no em

ployee is given all administrative tasks, and regularly monitoring of fice bank accounts, ledgers and in ventory.

According to Bruce Dorner, a

BRUCE DORNER advises checking all accounts, from office supplies to client trust accounts, on a monthly basis, as well as obtaining employee dishonesty insurance.

solo practitioner and practice man agement consultant from London derry, N.H., only the lawyer in charge of the firm's finances should open mail from the bank.

Lawyers should peruse month ly statements to make sure checks have been authorized, signatures are proper, and no checks are out of sequence. Accounts?including client trust accounts?should be balanced immediately, Dorner says.

Bernstein says that when checks come in to the firm, the lawyer should see them first and

prepare deposits. Before checks are written to clients or vendors, the lawyer should examine the in voice or other documentation, Mi chaelis says. It may seem logical, she says, but many lawyers simply sign checks blindly. Fabricating a

phony supplier or client is an all too-common tactic.

And if the firm has more than one lawyer, a second should review checks and bank statements so that the lawyers are not tempted to steal.

Dorner advises solo and small firm practitioners to monitor office

Ideas Exchange The aba Journal and Solosez, an aba e-mail forum for solo and small-firm lawyers, have teamed up to let aba members share advice online on this month's Solo Network topic. Excerpts from the ongoing discussion appear below. To join the chat group, send an e-mail that reads "Subscribe Solosez" with your e-mail address (no other words are necessary) to listserver@abanet.org. Or preview Solosez at www.abanet.org/solo/home.html.

On employee theft

Tom Thurmond (tom.thurmond@ counsel.com) Vacaville, Calif.

We've never been hit with theft ?yet. I've been doing this for almost 20 years. One of the first things I did [after starting the practice] was to get advice from a corporate control ler about what I should do to protect

myself from internal theft.

All bank statements are opened by me only. I can look them over for odd charges and scan the checks. If one of the staff prepares the de posits, I or someone else will make them. I keep track of our checks in all accounts and make sure that all check numbers are accounted for. I review the month-end reconciliations of our bank statements.

74 ABA JOURNAL/JUNE 1999 ABAJ/CHRIS FITZGERALD

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supplies and equipment. "There is the ever popular [trick of] buying stamps and office supplies on the [firm's account], and then they all go home with the bookkeeper," he says. "If you know that you only use three legal pads a month, find out why your office manager is buying 36 a month."

Lawyers also should keep from being lulled into complacency by using computerized accounting and checkwriting software. Michaelis ad vises lawyers to be sure they un derstand how the programs work.

Lawyers Take the Fall And take note, lawyers: While

in-firm theft can wreak havoc on a small practice, it also may result in disciplinary procedures. Several states have disbarred lawyers un der failure-to-supervise rules after their employees stole from client trust accounts. Most of those disci plined have been solo or small-firm practitioners.

Nor is covering up so easy any more: Twenty-six states now have mandatory overdraft notification for client trust accounts. Banks are re quired to notify the state lawyer disciplinary agency when those ac counts are overdrawn.

And 11 states have instituted random audits, which sometimes reveal discrepancies in client trust accounts as a result of in-firm theft.

Ultimately, says Dorner, law yers should insure their practices. "Employee dishonesty insurance is often very inexpensive and covers situations like theft, and accidents like checks flying out of the window of the car on the way to the bank."

And landing in the wrong hands.

Dick Howland (howland@crocker .com) Amherst, Mass.

For [employees] who are paid less: Allow a measured amount of sharing of firm supplies, be generous with inexpensive supplies, provide special occasions of unusual enjoy ment for the office staff together, and ask only to be advised when a major cost is incurred in a phone call or supply taken for a good reason.

Also, give the employees funds when they experience desperate cir cumstances that they can't handle [fi nancially], such as major car repair bills, day care or comp time.

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