July 2006

Ask the Auditor

Random Trust Account Examinations: What to Expect

by Cheryl Heuett

Many lawyers wonder what to expect when they are chosen for a random examination of their trust account. (For details about the random-examination process, see the “Ethics and the Law” column, “WSBA Random Examination of Trust Accounts,” in Bar News, October 2005.)  Having someone examine your trust account can make even the most meticulous bookkeeper a little nervous. You’re not sure what to expect, and it seems you were chosen at the most inconvenient time. The purpose of this column is to let you know what you can expect if you are chosen, and to demystify the random-examination process. The first question that may come to mind is whether you were really randomly selected for the audit, or if you did something to trigger the examination. Rest assured that random examinations are truly random, and no one gets targeted. Now that we’ve settled this misconception, let’s get to what happens during an examination.

What should I do when I receive a letter from the auditor?

The letter from the auditor asks you to call and schedule a date for the examination. You should plan for the auditor to be at your office for the entire day. Most examinations can be completed in one day, but occasionally the auditor needs additional time. Although the auditor gives you at least two weeks’ notice, she is flexible and will work around your schedule and give you more time to prepare if you need it. The letter contains a list of things the auditor will want to see during the examination. You don’t have to make copies of everything — if the auditor needs a copy of something, she will let you know. The auditor may also ask to see other documents during the examination, such as backup for particular transactions. It is very helpful to have the requested documents prepared before the auditor arrives. Feel free to call the auditor if you have any questions regarding the items on the list. It’s not unusual to find bookkeeping errors when preparing for the examination. If this occurs, go ahead and correct the mistakes and discuss them with the auditor during the examination. The auditors are more focused on overall procedures and understand that people might make a few mistakes.

What happens the day of the examination?

The auditor needs a place with an outlet for a laptop computer to review records. The examination begins with an interview of the lawyer, the person in charge of the bookkeeping, or both. The interview helps the auditor learn about your practice and accounting procedures. The auditor then spends some time examining the documents you have prepared and asking questions as the records are reviewed. The lawyer or bookkeeper does not have to sit with the auditor during the entire time the records are being reviewed; however, they do need to be available throughout the examination period to answer questions. The auditor will probably ask to see supporting documentation for some transactions, which might include looking at client files. Because auditors are required by Washington State Supreme Court regulations to keep all information obtained during an examination confidential, you will not be violating your ethical duty to preserve your clients’ confidences and secrets by showing the auditors your client files (in fact, you must do so). Even the fact that the random examination is taking place is confidential. At the end of the examination, the auditor reviews any findings with you and makes a plan for completing any follow-up.

What happens after the examination?

If any violations are noted, the auditor generally gives you a reasonable amount of time to correct them and advice on how to do so. After the auditor completes any follow-up work, she prepares a written audit report. The audit report describes the scope of the examination, the auditor’s findings, any recommendations, and corrections you have made. A copy of the report is sent to you and the chair of the Disciplinary Board. The chair reviews the auditor’s findings and recommendations and issues an order on every random examination performed. The chair uses her own judgment in reviewing the audit report so the final order may or may not follow the auditor’s recommendations. The chair may order that no further examinations are necessary, order a follow-up examination to be performed after a stated period of time, or make a referral to the Office of Disciplinary Counsel for a full audit. Once the audit is complete, including any follow-up work or satisfactory re-examinations, the file is destroyed. The Bar keeps track of the fact that your records were examined as well as the date of the examination, so you and other members of your law firm won’t be chosen for at least another two years.

Can a random examination result in discipline?

The focus of the random examination is education. The auditor is there to help you understand the rules regarding trust accounts, ensure you are complying with these rules, and make recommendations for improving your trust account or accounting procedures. While a random examination can result in discipline, it is not common. The auditor makes recommendations to the chair of the Disciplinary Board, but doesn’t make the final decision.

If you have any questions about your trust account, or if you have any topics that you would like to see addressed in a future “Ask the Auditor” column, contact WSBA Audit Manager Trina Doty at 206-727-8242 or trinad@wsba.org, Auditor Cheryl Heuett at 206-733-5937 or cherylh@wsba.org, or Auditor Jim Roberg 206-733-5921 or jimr@wsba.org. 

Cheryl Heuett is a WSBA auditor. She performs random examinations and educates attorneys about the trust-account rules and regulations.