Increase in fraud at law practices by non-lawyers
In the past two years we have seen an increase in the number of claims being lodged against the Fidelity Fund for losses suffered by clients due to fraudulent conduct by paralegals and/or law clerks employed by law practices. We have also noted an increase in the value of the fraud being undertaken. In some cases, the individuals concerned have been found to have previously undertaken similar dishonest/fraudulent conduct. A common theme enabling the paralegal/law clerk to carry out the unlawful conduct was the presence of one or more of the following factors:
- a weakness or failing in the law practice’s accounting procedures;
- a high degree of autonomy coupled with a lack of other checks and balances; and/or
- a lack of adequate supervision.
To ensure you protect yourself and your law firm from fraud, we have issued some guidance below to help you mitigate against this risk.
What can I do to mitigate risk of fraud?
Before hiring new staff:
- conduct thorough reference checks for any new staff connected to your practice, particularly those who may have responsibilities that relate to the receipt and/or payment of trust monies. By doing this, you reduce the risk of hiring a staff member who has previously been involved in unlawful or questionable conduct;
- consider requesting the prospective staff member’s consent to have a criminal history search undertaken. Please note that some individuals with criminal histories may be known by more than one name, so a criminal history search may not yield complete results;
- check our website for a list of those persons subject to a disqualification order made by VCAT. These are individuals who are prohibited from being employed by a law practice because of their conduct, without our prior approval – known as prohibited lay associates.
Examine your current processes and procedures for dealing with trust monies within your law practice – are they sufficient?
You should ensure that appropriate checks and balances are in place for handling trust monies For example:
- do you have appropriate cross checking procedures in place? No single person within the law practice should be able to direct the receipt and payment of trust monies without the involvement of at least one other staff member;
- how do you verify transfers? Bank account details for the payment of significant sums should be confirmed with the proposed recipient over the phone, not purely via email; and
- are your risk management measures satisfactory? Visit the LPLC’s website for more information about risk management
Remember: as the principal of the law practice, you are ultimately responsible for the handling of trust monies within the law practice.
Apart from the obvious distress caused to any client whose trust money or trust property has been dishonestly or fraudulently dealt with, other consequences can also arise:
- reputational damage to the law practice
- damage to consumers’ trust and confidence in the legal profession
- potential increase in the amount required to be contributed by practitioners to the Fidelity Fund and
- the VLSB+C exercising its right to recover any amount paid in respect of a Fidelity Fund claim against any person held to have been involved in the offending conduct.
Please contact us or the LPLC if you would like more information about keeping your practice safe.