State Bar Audit ID’s Common Rule Violations

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Trust accounting problems are common violation of NC Bar rules. The random audits conducted by the NC State Bar in the first quarter of this year identified the most prevalent.

  • 35% of lawyers audited failed to sign, date and/or maintain reconciliation reports.
  • 12% of lawyers audited failed to review bank statement and canceled checks.
  • 40% of lawyers audited failed to perform the transaction reviews each quarter.

As an attorney, your primary focus is to provide the best possible legal services to your clients. However, you have a fiduciary duty to safeguard your client trust funds. Failure to comply could result in disciplinary action.


PPC for Legal

If you delegate the daily operations it does not remove your fiduciary responsibilities for proper oversight and reviews. Rule 1.15 defines several tasks that can only be performed by the lawyer.

I often find that lawyers get lost in what documents to review. Let’s briefly discuss the review of monthly and quarterly reconciliations, and the quarterly transaction review; all of which must be completed and documented by the lawyer.

Monthly and Quarterly Review

Monthly Review of the Monthly Reconciliation. Whether it is a paralegal, an outside accountant/CPA, or the lawyer personally that reconciles to the bank statement, the lawyer is required to review the reconciliation report and the checkbook register to verify the ending balances agree. A trust accounting professional tip: Always review any uncleared deposits as that could possibly result in a violation.


Injury RX

Quarterly Review of the Quarterly Reconciliation. The lawyer must review the reconciliation report, the checkbook register, and the list of client ledger balances to verify all three reports have the same ending balance. In addition to confirming the ending balances agree, you want to look specifically for any client with a negative balance. This represents an over disbursement of client funds and must be resolved within ten days.

Bank statement and canceled checks. The lawyer is required to review the bank statement and canceled checks. Canceled checks are checks that you disbursed from your trust account, which have been negotiated by the recipient and have cleared your trust bank account. Trust records can be altered to show a false payee making it critical for you to review the canceled checks, as well as required by the NC State Bar.

Discrepancies. Lastly, the lawyer must research discrepancies found (such as negative balances) and verify it was resolved within ten days of the report date.

The lawyer must document their review, sign, date, and retain a copy of the reconciliations for six years. The Trust Account Reconciliation Form found on the NC State Bar’s website, contains a lawyer signature line to certify the review.


Computer Forensics

Quarterly Transaction Review

Each quarter the lawyer is required to complete a review of three transactions, with multiple disbursements. The purpose of this review is to verify disbursements were properly made. Here are the steps:

No. 1:  the Quarterly Review Report found on the NC State Bar’s website.

No. 2: Randomly select three transactions, with multiple disbursements. Print the client ledger, canceled checks, written accountings provided to the client, and any other document used to create the disbursement such as a HUD/CD or Settlement Statement.

No. 3: Start with the bank source document; the canceled check as this shows the true recipient of the funds. Remember, reports can be altered but the canceled check cannot. Compare that to the client ledger, to the written accounting, and to any other document used to create the check in order to verify disbursements were properly made.

As fiduciaries, you are entrusted with your client confidence not only in their legal matter but with their money as well. Implementing the above lawyer reviews, which is required by NC State Bar, is your first step towards proper oversight and compliance.

Dawn Cash-Salau

Dawn Cash-Salau is the owner of Escrow Consulting and Accounting LLC, specializing in trust accounting. Realizing an increasing need for experienced accountants versed specifically in trust account compliance, Dawn established ECA in 2010, serving clients throughout North Carolina. With over 20 years of accounting experience, Dawn is uniquely qualified to provide this service due to her extensive concentration in this area. A graduate of East Carolina University, Dawn earned a Bachelor of Science in business administration in accounting in 1996. In 2008, Dawn was recognized as Honorary Alumna at NC Wesleyan College. For more information, call (252) 531-4241 or visit

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