Trust accounts can be
operated through electronic banking. Where
changes to processes are being made, particularly in a crisis situation, there
may be additional risks created. This may be a time to consider other
additional controls and greater staff supervision and oversight to offset the
risk. Here are some things to remember:
- Dual authorization is no longer required by the Regulations but is a
recommended control.
- The Trust Account Regulations (Part 10) are the minimum requirements;
each firm is responsible for putting in place the internal controls that are appropriate
to their own situation. Lawyers need
to identify risks and develop customized control mechanisms to eliminate or
manage risk. Additional controls may
include having a review of all trust account transactions as a standing item at
regular Partners meetings. Also, a pdf copy of the client’s trust ledger
card (history of client transactions) should be reviewed and electronically
stamped/signed as “reviewed” by the responsible lawyer for each withdrawal
transaction before it is processed. Law firms may wish to look to their
Accountants for additional guidance on appropriate internal controls based on
their individual circumstances.
- Lawyers must continue to document transactions, which means you need to print
the confirmation screen of online transactions of withdrawals and deposits. The confirmation needs to have the financial
institution and account from which the funds were sent, the financial
institution and account to which the funds were deposited (i.e. your trust
account), the amount deposited, and the date and time of the transmission of
funds. If the confirmation screen does
not identify the client on whose behalf the funds have been
deposited/withdrawn, electronically note on the PDF the client name and/or
matter number. Also, include other details such as the source of funds.
You can use the print to pdf function to create appropriate documentation. If the banking software does not have a
“print” function, take a screen shot on your Mac or Windows device. If you use mobile
banking on your phone, take the screen shot as you would normally on your
phone. Develop a system for storing electronic
documents/information in a secure location so it can be easily accessed when
needed.
Compliance with Regulatory Requirements
If you are unable to meet
the requirements of the regulations, the exception to the regulations must be
documented and reported in the manner outlined in Regulation 10.6.
Below we provide some information
based on the type of transaction:
Electronic withdrawals:
It is acceptable for a
lawyer to use the Electronic Transfer Authorization Form to authorize the withdrawal/transfer of
trust funds. A lawyer would not be able to use the Electronic Transfer
Authorization Form to direct staff (who are non-members) to solely withdraw
funds out of trust. This is because non-member staff access to online banking must
be limited to “view only” or the office must have a system for two-person
authentication already set up. For firms
with a larger staff, a three-person authentication system can be used in
instances when the lawyer is not able to electronically process a transaction
(signed form and two staff electronically processing the transaction). The
Regulations do not restrict who may be a signatory on a lawyer’s trust account,
but the lawyer must exercise professional judgment before permitting any person
access to privileged or confidential client information.
Transferring funds from the General Trust Account to the Service Nova
Scotia Trust Account:
Trust to trust transfers
are not an issue. The lawyer may complete the transfer and send a copy of the
confirmation screen to appropriate staff/bookkeeper.
Transferring funds from the General (Operating) Account to the Service Nova
Scotia Trust Account:
Transferring operating
funds to the Service Nova Scotia Trust Account falls under subregulation 10.5.3(c)
(for the Service Nova Scotia Trust Account only). Again, this can be done
electronically; however, lawyers need to ensure that when setting up the online
banking, non-member staff do not have the ability to solely process trust
account transactions.
How can I confirm non-member staff do not have the ability to process
trust account transactions?
Theft by an employee who is
not a member of the Society is not covered by the Lawyers’ Fund for
Client Compensation. The Designated Lawyer should restrict online banking
access to “view only” for applicable employees. Confirm employee staff access
by obtaining documentation from your bank. Also, view the online banking screen
of an employee with “view only” access. If it appears as though the trust
account could be selected in the transaction processing screen – their access
may not be restricted properly. Confirm with your bank that any attempts to
process a transaction will be denied.
Deposit without delay:
Electronic banking allows
for deposit without delay; however, controls and precautions need to be considered. Lawyers need to be aware of clearing periods on
funds that have been deposited electronically to ensure they do not act on
funds before they have cleared. Every law firm should discuss clearance periods
with their banks.