Tuesday, October 9, 2012

PCLaw and Fraud Prevention


The following is not meant to be an exhaustive list, but rather a starting point, which you should adapt to the specific needs of your own law practice.

First and foremost, prepare (or have prepared for you) a monthly trust comparison report. These reports should be completed by the 25th day of the following month. Take some time to thoroughly review the report, and ask your bookkeeper questions if you find things do not appear to be as you believe they should be.

Office Practices:
  • ensure each incoming cheque is stamped with a “deposit only” endorsement
  • issue pre-numbered receipts to clients for cash or cheques received
  • clients should be asked to sign cash receipts, to avoid later disputes over amount received
  • ensure cash/cheques are deposited by the end of the next banking day
  • if deposits are not made immediately, are they are locked in a safe location?
Staff – separation of duties
  • one person opens the mail and a separate person deposits funds
  • one person deposits the cash/cheques, another person enters the receipts in the accounting records
Review
  • ensure deposit slips match accounting records
  • verify sequence of numbered receipts – ensure they match accounting records
  • scrutinize your trust and general bank account statements, looking for:
    • returned cheques
    • any unusual transactions
    • compare trust bank account balance(s) with client trust listing
  • review the monthly bank reconciliations, looking for:
    • outstanding items and follow up on them
    • stale-dated cheques over six months old
    • review the client trust listing for overdrawn and inactive accounts
DISBURSEMENTS

Cheque Preparation Policies

Many times, staff prepare cheques for signing by the lawyer
  • stamp original copies of invoices "paid" to prevent being paid more than once
  • only original invoices, and not photocopies, required when signing cheques
  • confirm the service was indeed provided, or the disbursement is proper
  • trust account cheques clearly marked “trust”
  • general account cheques clearly marked “general”
  • trust cheques and general cheques different colours to avoid confusion

Trust cheques
  • review reasonableness:
    • Minister of Finance – trust cheque trust should accompany the claim/defense/motion/ etc. to be filed
    • other disbursements should have the original invoice
    • payable to your firm, should have your own invoice prepared
  • confirm client has adequate trust funds

PCLaw

The data in accounting programs can be changed, to cover up / hide fraudulent activities.  PCLaw can be used for fraud prevention by reviewing audit trail reports – Reports - Audit trail reports. You primary interest would be the general and trust bank journals, and the general journal – deselect the others. You will want to include corrected entries. Review the corrections, to see if any attempts are being made to deliberately manipulate the data.

As always, I invite your comments and suggestions for future post topics. Next Posting – Bank Errors and PCLaw - Part 2.
Clyde