Byte of Prevention Blog

by Jay Reeves |

State Bar Changes Random Audit Rules

State Bar Changes Random Audit RulesIf you have a Client Trust Account, you should know about recent changes to the State Bar audit rules.

Previously, you could inoculate yourself against a Random Audit by preemptively having an accountant review your books and certify that they were in order.

You will still be able to do that – but the procedure for getting an exemption has changed.

Trust Accounting Rule 1.15

The State Bar launched its Random Audit program in 1985. From the start, the rules allowed lawyers whose books had been “pre-cleared” to obtain an audit exemption.

Each year, the Bar gets around 35-40 exemption requests. These come from firms large and small. If an exemption is granted, the firm does not have to worry about being randomly audited for 15 months.

“In theory, this policy would be a win-win for both the State Bar and the lawyer, as it would allow the State Bar auditor to examine other lawyers and let the lawyer have his account examined on his own schedule and by a CPA of his choice,” according to the State Bar.

But theory and reality – as any practicing attorney can attest – are two different things. And the reality was that many if not most of the preemptive reviews did not pass the smell test.

“The CPA was not required to provide any specific findings, explain the process by which the examination was conducted, or show that any remedial measures were taken to bring the trust account into compliance,” says the Bar. “Not surprisingly, the reports the State Bar received from the accountants almost always certified that the lawyer’s trust account was spotless and had no deficiencies. From our experience with the Random Audit Program and the high percentage of non-compliant trust accounts, we were suspicious that the examinations were either not thorough enough or not conducted at all.”

Thus the recent tweaking.

Things You Should Know About Trust Accounts and Random Audits

  • The trust accounting requirements are found in Rule 1.15 of the Rules of Professional Conduct.
  • The Bar wasn’t the only agency that was unhappy with the old exemption procedure. Public accountants pushed for changes as well. The Board of CPA Examiners sought clarity on how  its members should go about performing trust account reviews.
  • Anyone who wants an exemption will have to complete a Lawyer’s Representation Form and submit it to the Bar. The form is given to the CPA prior to commencement of the examination. It is later attached to the report the CPA will send to the Bar. The form requires a listing of all trust accounts and the identity of all lawyers who will be covered by the exemption.
  • The lawyer and the CPA both sign an “Agreed Upon Procedures Engagement Letter.” This is a contract that states what the CPA will be examining and how the findings will be reported to the State Bar.
  • The CPA-Attorney engagement letter also contains a two-page “Agreed Upon Procedures for CPA Examination of Lawyer’s Trust Accounts.”
  • The relevant documents are available in the “Forms” section of the State Bar website under “Trust Accounting.” They are also available in the online Lawyer’s Trust Account Handbook.
  • Lawyers are prohibited from seeking exemption from a Random Audit during the quarter in which their judicial district bar has been selected for review.

Questions about the new exemption procedure? Want more information about the required forms? Contact State Bar trust account compliance counsel Peter Bolac at (919) 828-4620 or PBolac@

Jay Reeves a/k/a The Risk Man is an attorney licensed in North Carolina and South Carolina. Formerly he was Legal Editor at Lawyers Weekly and Risk Manager at Lawyers Mutual. Contact




About the Author

Jay Reeves

Jay Reeves practiced law in North Carolina and South Carolina. He was Legal Editor at Lawyers Weekly and Risk Manager at Lawyers Mutual. He is the author of The Most Powerful Attorney in the World, a collection of short stories from a law life well-lived, which as the seasons pass becomes less about law and liability and more about loss, love, longing, laughter and life's lasting luminescence.

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