In a recent case, two former employees of an Edison law firm embezzled more than $788,000 over 2 years from their firm by improperly writing checks from the law firm’s trust account to themselves as well as to their creditors. One of the conspirators was the secretary who had access to the accounting records, thus she was able to hide the embezzlement by simply changing the payee information in the records. The fact that the embezzlement went on for so long is indicative of weak internal control. A simple reconciliation of the trust account check book would have detected the fraudulent recordkeeping immediately.
Strong internal control is always essential, but particularly when it comes to funds that aren’t privately owned and therefore not as closely monitored, such as an attorney trust fund. Segregation of duties is the cornerstone of any strong internal control, ensuring that no one employee is involved with every part of a transaction. In the above case, however, even though duties were properly segregated, the two workers colluded together. This makes fraud much more difficult to detect. The key is a frequent and ongoing reconciliation of your records. Don’t become a statistic.