This Month, Let’s Talk About Fraud

March is Fraud Awareness Month. We are raising awareness about the risk of fraud by providing tips on fraud prevention strategies.

Is it possible that your practice will never become a victim of fraud? Perhaps. The bad news is that anyone can be a victim of fraud or theft. The good news is that there is much we can do to minimize the severity, duration and impact of loss.

The fraud facts outlined below describe the impact of fraud on the profession and provide tips to help you minimize losses. Remember, “An ounce of prevention is worth more than a pound of cure.”

Fraud Facts

1. Fraud costs all lawyersThe Association of Certified Fraud Examiners estimates that organizations lose about 5% of their annual revenues to fraud with a median loss of $150,000. Fraud is a crime that affects every practicing and insured lawyer. The profession bonds its own people. The Assurance fund/Trust Safety Insurance has paid out defalcation claims by Alberta lawyers since 1939. Every practicing and insured lawyer pays Part B – Trust Safety insurance. The cost of the insurance program is driven primarily by the cost of claims and this is why having effective loss prevention measures in place is so important.
2. Fraud affects all lawyersFraud is an evolving risk and we all must pay attention to this threat. There are always new ways for fraudsters to steal from firms – especially in light of the speed and frequency of business change. Fraudsters take advantage of weakened controls, new processes, and failure to exercise appropriate oversight. You should assume that anyone can and will commit fraud under the right circumstances. Talk to your colleagues and your staff about fraud. The more comfortable everyone is with the concept, the more likely they will be able to quickly identify unusual circumstances. And remember, fraud’s direct impact extends beyond just financial losses. When lawyers and firms become victims of fraud or theft, it affects the reputation of the legal profession and may cause the public to lose confidence in lawyers which in turn, may impact your ability to attract and retain clients.

Your “Ounce of Prevention”

What proactive measures can you take now to prevent fraud? Here are the top five prevention strategies:

1. Monitor inactive accounts or client ledger accounts with high balances for unusual entries and transfers.
2. Make sure monthly bank reconciliations are being done. This is a key control that compares your book balances to your bank balance and ensures that it matches.
3. Separate duties or tasks. Tasks must be segregated so that a single person is not able to perpetrate the fraud and then cover it up. For example, the person who receives a payment should be different from the person who records the transaction in the system or performs the reconciliation/verification of the transaction. In smaller firms, segregation of staff duties may be more challenging. In smaller firms, you should engage in other control measures, such as reviewing withdrawals from Trust Accounts to ensure they are for legitimate reasons.
4. Follow the money by performing audits to ensure the transactions make sense.
5. Pay attention to documents and the supporting paperwork. Remember that good documentation does not mean something happened, only that someone said it happened.

Questions? Call us! We’re here to help.

What to Do if You Suspect Fraud/Theft

Report irregularities to Trust Safety, specifically:

• If someone asks you to do something contrary to the Rules or Code
• If you suspect that someone (regardless of rank or position) is committing fraud
• If you suspect serious accounting irregularities and breaches of good accounting practices
• If you suspect misappropriation of trust funds

How to Report Suspected Fraud/Theft

Call: 1.833.801.4086

Email: Inform Trust Safety

Mail:

Confidential: Law Society of Alberta
Attention: Manager, Investigations
Suite 700
333 11th Avenue SW
Calgary, Alberta T2R 1L9

Sources

1. 2016 ACFE Report to the Nations on Occupation Fraud and Abuse
2. ACFE Fraud’s hidden cost to you and your organization
3. CEB Audit Leadership Council “The $350 Million Question: Why Fraud Matters More Than You Think”