Tips About The Trust Account: Proper Endorsement
We have all read articles about disciplinary action being taken against an attorney where the cause was listed as “clerical errors”. We envision an unorganized desk, and a bookkeeper shopping online, or chatting on Facebook.
I know from experience that is not typically the case. I will be offering real life scenarios to assist not only the attorney protecting their law license, but also the staff. Please share your lessons with me by emailing to firstname.lastname@example.org.
Ms. Bookkeeper received a notice from the firm’s bank in the mail. Enclosed was a “legal copy” of a check she had deposited over two weeks earlier. The return reason was “ENDORSEMENT MISSING”. The check was made payable to JOHN DOE AND THE BEST EVER LAW FIRM. There was nothing unusual about this check. It was from PRO Insurance Company for a personal injury settlement. She had John Doe sign the back, affixed the “For Deposit Only, Acct # 123, My Bank” stamp, and made a remote deposit. She printed her reports confirming the deposit was transmitted, waited three days, then wrote the checks to pay the client, the medical providers, and the firm.
When she received the notice from the bank, she jumped in her car and headed out to the bank to get their error corrected. Here is what she learned.
The check was returned by the bank it was drawn on because she failed to sign the back. Because the word AND appeared on the check it was not only necessary to have the client sign, but she needed to write or stamp THE BEST EVER LAW FIRM by: and sign her name as an authorized signer on the account. She was instructed to sign and redeposit the check titled “legal copy” that she had received in the mail with the notification.
She repeated many times, “That is the way we have always done it”. So often we take routine procedure for granted. With remote deposit and new rules in place, we must educate ourselves to new policies and procedures.
Keep in mind, it is the responsibility of the attorney to make certain funds are available for disbursement before he writes checks out of the account. Unfortunately, there are times when the firm is not notified there is problem until after the checks are disbursed and negotiated.
Best Procedure: Reconcile the trust account with the bank daily. Short of that, log into the bank and see if there are any chargebacks. In the above scenario, the bookkeeper would have been made aware of the chargeback several days before she received the notice in the mail and she could have acted more quickly. Pay close attention to the “Pay to the Order of” line. Be aware of the words AND / OR. You may want to speak with a representative from your bank about the necessity of having a client write “Pay to the order of” if they are signing the check over to your firm for deposit. Ask if the bank will send out an email alert, or make a phone call letting you know corrective action needs to be taken.
About the Author
Kathy Pope has 30 years of experience in reconciling trust and operating accounts, as well as conducting trust account audits. As a consultant, Kathy is available to design and implement procedures to assist your firm in improving compliance and documentation.