Ethics Opinion Articles - NC State Bar Journal

The Randomness of Trust Account Audits or Why Bruno May Pick on You (and Your Trust Accounts) Next Quarter

By Alice Neece Mine and Bruno DeMolli

Bruno DeMolli, staff auditor and investigator for the State Bar, rarely needs to be introduced to a member of the North Carolina State Bar. After 15 years of auditing the trust accounts of North Carolina lawyers, he is on a first name basis (or at least known by his first name) with most members of the bar. What isn’t widely known is why Bruno arrives on the doorsteps of certain lawyers each quarter to determine the lawyers’ compliance with the trust accounting rules, Rules 1.15-1 to 1.15-3, of the Revised Rules of Professional Conduct. On occasion, a lawyer concludes that she is being audited because she has done something to draw attention to herself. More often, audited lawyers are indignant because they believe that the bar should be investigating another, unnamed, lawyer in town who is the “type” to mishandle trust funds. But, despite the rumors to the contrary, lawyers are not picked for a trust account audit because they have drawn attention to themselves or they “fit the profile.” Rather, every effort is made to be random in the selection of the lawyers whose trust accounts will be audited by Bruno during a particular quarter. This article explains the random selection process.

The authority to audit trust accounts randomly is spelled out in the rules of the State Bar, Chapter 1B, Rule .0128(b):

The chairperson of the Grievance Committee may randomly issue investigative subpoenas to members compelling the production of any records required to be kept relative to the handling of client funds or property by the Rules of Professional Conduct for inspection by the counsel or any auditor appointed by the counsel to determine compliance with the Rules of Professional Conduct. Any such subpoena will disclose upon its face its random character and contain a verification of the secretary that it was randomly issued. No member will be subject to random selection under this section more than once in three years. The auditor may report any violation of the Rules of Professional Conduct discovered during the random audit to the Grievance Committee for investigation. The auditor may allow the attorney a reasonable amount of time to correct any procedural violation in lieu of reporting the matter to the Grievance Committee. The auditor shall have authority under the original subpoena for random audit to compel the production of any documents necessary to determine whether the attorney has corrected any violation identified during the audit.

Note that the audits permitted by this rule are procedural—primarily designed to alert members of the bar to the record-keeping and reconciliation requirements for lawyers’ trust accounts.

Each quarter, Bruno audits the trust accounts of 60 lawyers from two judicial district bars. The week before the quarterly meeting of the State Bar Council, a computer software program randomly selects six judicial districts from the 39 judicial districts in the state. Although only two judicial districts participate each quarter, the field of six names is necessary to avoid redundancy. A truly random software program that picks only two judicial districts each quarter has the disadvantage of potentially selecting the same judicial districts quarter after quarter. Several years ago, when the computer program was set to select the names of only two districts, one particular judicial district was picked three times in five years. (Needless to say, the lawyers in that district were a little more paranoid than usual about activities of their State Bar.) Under the current procedure, six districts are initially selected by computer to generate the field from which the final selections are made. Bruno reviews the list of six to determine how many times and the dates on which each district was selected since the inception of the random audit program. Bruno identifies the two judicial district bars that will be audited during the quarter by eliminating from the list the four judicial districts that have been audited most recently and frequently.

After Bruno selects the two district bars, the names of the 60 individual lawyers whose accounts will be audited must be determined. To do this, a software program is run that scrambles, or randomizes, the alphabetical listing of the members of the two judicial district bars. The number of lawyers audited in each district is determined by proration. For example: District A has 250 lawyers and District B has 86 lawyers, creating a combined total of 336 lawyers in both districts. The lawyers from District A make up 74% of the total [250 ÷ 336 = 0.74] and the lawyers from District B comprise 26% of the total number of lawyers [250 ÷ 336= 0.26]. These percentages are multiplied times 60, the total number of lawyers subject to audit during the quarter, to determine how many lawyers from each district will be chosen [.74 × 60 = 44.6 or 45 lawyers from District A; .26 x 60 = 15.3 or 15 lawyers from District B]. Starting at the top of the computer-generated list of random names of the lawyers in each judicial district bar, Bruno schedules appointments for audits until the respective number of lawyers for each chosen judicial district is reached. The lawyer selected for the random audit does not have to be a signatory on the trust account or a partner or shareholder in the law firm: all general trust accounts and fiduciary accounts for a law firm are reviewed when any lawyer practicing with the firm is selected for random audit. Lawyers who do not maintain trust accounts (e.g., judges, prosecutors, public defenders, corporate lawyers, etc.) are eliminated from the list.

Bruno reviews only the preceding 12-month period of activity for a lawyer’s trust account(s) and accounting system (i.e. manual or computer). During an audit, the lawyer does not have to be at Bruno’s beck and call. Usually, an appropriate member of the lawyer’s staff can answer Bruno’s questions. At the conclusion of the review, Bruno meets with the lawyer to critique the procedures the firm is using to maintain its trust account(s). The lawyer is welcome to invite the other lawyers in the firm or members of the staff to be present during the critique. A copy of Bruno’s memo outlining any procedural deficiency is provided to the lawyer. In some situations, the lawyer must provide written assurance to the State Bar that certain deficiencies will be corrected. For example, a lawyer who has failed to reconcile a trust account on a quarterly basis (see Rule 1.15-3(c)) may be asked to state, in writing, that quarterly reconciliations will be immediately undertaken. The trust accounts are then monitored to ensure that the lawyer complies.

After 15 years with the State Bar’s random audit program, Bruno has visited all 39 judicial district bars a minimum of three times each and audited the trust accounts of well over 10,852 lawyers (representing 3,398 lawyers who were selected for audit plus the 7,454 lawyers who practice in the same firms as the selected lawyers). As a consequence, the name “Bruno DeMolli” has become synonymous with the name of the State Bar and with integrity and care in fulfilling a lawyer’s duty to safe guard and account for client funds….Bruno also knows the best inexpensive eating establishments in the state. Just ask him the next time he randomly appears on your doorstep.

Alice Neece Mine is the assistant director of the North Carolina State Bar.

Bruno DeMolli is staff auditor and an investigator for the North Carolina State Bar.

THE NORTH CAROLINA STATE BAR
217 E. Edenton Street • PO Box 25908 • Raleigh, NC 27611-5908 • 919.828.4620
Copyrightę North Carolina State Bar. All rights reserved.