Monday, June 15, 2009

Random Audit Leads To Discipline

In a matter that was initiated as a result of a random audit of an attorney's trust account, the Vermont Professional Conduct Board imposed a public reprimand of an attorney who kept a "positive balance" in his trust account. The conduct involved commingling but not misappropriation. The board found the following facts:

Respondent is a solo practitioner who focuses on real estate work.  He was admitted to the Vermont Bar in 1979.  In November of 2007, Respondent’s trust account was chosen to be audited as part of the audit program conducted by Disciplinary Counsel. A Certified Public Accountant performed the audit in January of 2008 and as a result of the audit, Disciplinary Counsel opened an investigation into Respondent’s trust account management.

In the course of the investigation, Respondent admitted that since 1978, it has been his practice to “maintain a positive balance” of his own funds in his trust account to provide a cushion against the various errors that, in his experience, can occur in the process of closing real estate transactions. On the date of the audit, there was approximately $1200 of Respondent’s own money in his trust account.

            Respondent also admitted that for approximately ten years, not all deposits to his trust account were properly recorded in his trust account ledger, and at the time of audit, the ledger balance was approximately $4000 less that the actual balance in the trust account.

            Over the years, Respondent had received and reviewed his monthly trust account statements, but he did not compare or reconcile his bank statements to his trust accounting system.  Had he made the reconciliation, he would have realized that the balance on the bank statement was more than the balance reflected in his trust account ledger, and he would have realized that some deposits had not been properly recorded in his ledger.

            Respondent cooperated with the audit and Disciplinary Counsel’s investigation and, at the suggestion of the CPA who performed the audit, he has made several changes to his trust accounting system.  He has also reconciled his trust account.

            Neither the audit nor the investigation revealed any evidence to suggest that Respondent intended to misuse client funds or to put client funds at risk.  Respondent has no previous discipline and there is no evidence to suggest that he had a dishonest or selfish motive for maintaining his own funds in his trust account and for failing to reconcile his bank statements to his ledgers.

            While the investigation was pending, Disciplinary Counsel received a notice of overdraft to the trust account.  This did not result from unethical conduct and in the past six months there have been no other overdraft notices.

(Mike Frisch)

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