FAQs – Frequently Asked Questions Regarding Audits of New York IOLA  Attorney Trust Accounts

What are some of the questions that come up when a NY attorney’s IOLA attorney trust account is audited?

FAQ # 1 – What is a three-way reconciliation of a NY IOLA trust account, and what happens if an attorney has not been performing it?1

A New York attorney is required to perform both a basic reconciliation of the IOLA trust account as they would for a normal checking account and an additional reconciliation that applies to trust accounts. This three-way reconciliation is performed to ascertain whether  the account is in balance. There are three basic areas of review:

(a) whether the checks that have been written are being covered by the money in the account;

 

(b) whether the debits and credits listed on the bank account statement are reflected in the attorney’s internal bookkeeping; and

 

(c) whether each client’s sub-account within the larger IOLA trust account as a whole is in balance. This third prong of the three-way reconciliation determines whether the funds the client has provided can cover all of the checks and other withdrawals that are being made for that client. Stated another way, it determines whether one client’s check was paid with another client’s funds.



FAQ # 2 – What bookkeeping records are required to be maintained by the attorney with respect to their IOLA account and for how long?

This question is answered in 22 NYCRR Part 1200 (Rule 1.15(d)), which sets forth that a list of the records must be maintained by the attorney for seven years.

Required Bookkeeping Records.
(1) A lawyer shall maintain for seven years after the events that they record:
(i) the records of all deposits in and withdrawals from the accounts specified in Rule 1.15(b) and of any other bank account that concerns or affects the lawyer’s practice of law; these records shall specifically identify the date, source and description of each item deposited, as well as the date, payeeand purpose of each withdrawal or disbursement;
(ii) a record for special accounts, showing the source of all funds deposited in such accounts, the names of all persons for whom the funds are or were held, the amount of such funds, the description and amounts, and the names of all persons to whom such funds were disbursed;
(iii) copies of all retainer and compensation agreements with clients;
(iv) copies of all statements to clients or other persons showing the disbursement of funds to them or on their behalf;
(v) copies of all bills rendered to clients;
(vi) copies of all records showing payments to lawyers, investigators or other persons, not in the lawyer’s regular employ, for services rendered or performed;
(vii) copies of all retainer and closing statements filed with the Office of Court Administration; and
(viii) all checkbooks and check stubs, bank statements, prenumbered canceled checks and duplicate deposit slips.
Id.



FAQ #3 – Where is the interest earned on IOLA funds deposited?

The interest earned on IOLA accounts is generally used “to fund non-profit agencies which provide legal services for the poor, and programs to improve the administration of justice.” Attorney Trust Accounts and Recordkeeping – A Practical Guide, The New York Lawyers’ Fund for Client Protection of the State of New York (April 2021) at 4. While it makes sense for the client to forgo earning interest on amounts that are held in trust for a short period of time, if the money is going to be held for a longer period of time, the attorney should consider placing it in an interest-bearing IOLA account. This can be done utilizing the banking institution to allocate the interest to different portions of the total balance in the account, or that process can be done by the attorney themselves. Id.

FAQ # 4 – What should an attorney do with unclaimed IOLA trust account funds?

Unclaimed IOLA trust account funds should be handled with a two-step process. First, the attorney should undertake reasonable efforts to locate the client. While there are many ways of doing this, we generally suggest that the attorney consider utilizing a licensed private investigation firm. The rationale is that not only does it demonstrate reasonableness, but the private investigator presumably will be available to sign an affidavit as to the fact that a reasonable search was done.

This leads to the second part of the answer: if the private investigator cannot find the client, the attorney should presumably seek a court order to ascertain the amount that should be deposited with the Lawyer’s Fund for Client Protection. Id at 6; 22 NYCRR Part 1200 (Rule 1.15(f))


FAQ # 5 – Can an attorney use their IOLA trust account for law firm administrative operations?

An attorney is not allowed to utilize their IOLA account for the internal business transactions of the law firm. Instead, the attorney is required to open an attorney business account. Therefore, most law firms will have at least two bank accounts. Typically, the reason that there might be more than two will have to do with the fact that the law firm has offices in multiple states. Under such circumstances, separate trust accounts and operating accounts would presumably need to be opened in those states, as well. A variation on this in which the attorney will need to evaluate whether or not to use an existing IOLA account or open a new fiduciary account presents itself when the attorney is serving as an estate executor or otherwise acting as a fiduciary. The key question usually will be whether the attorney is acting through their law firm or in their individual fiduciary capacity. Attorney Trust Accounts and Recordkeeping – A Practical Guide, The New York Lawyers’ Fund for Client Protection of the State of New York (April 2021) at 6.

 

1The citations and quotes set forth on this webpage were accurate as of 2021. Please remember to update them if they apply to your matter.

The Nissenbaum Law Group’s Approach to NY Attorney IOLA Trust Account Audits

The Nissenbaum Law Group welcomes referrals for matters relating to attorney trust accounts. This may often involve the firm working in concert with a forensic accounting firm that can assist in responding to it. Please contact Mr. Nissenbaum if you are the subject of an IOLA attorney trust account audit.

PUBLICATIONS & PRESENTATIONS

Gary D. Nissenbaum, Esq.

  • Presented Seminar, Six Aspects of Attorney Ethics Enforcement in NJ, NY & PA That You May Not Have Heard About Before, Lawline, March 2024
  • Panelist, New Jersey Trust and Business Accounting, New Jersey Institute for Continuing Legal Education, February 2021
  • Presented Seminar, How to Avoid Serious Mistakes When Facing an Ethics Grievance or Random Trust Account Audit, Essex County Bar Association, December 2020
  • Presented Seminar, “Good Grievance, Charlie Brown!” Latest Developments in NJ Ethics Law and Procedure, New Jersey Institute for Continuing Legal Education, July 2020
  • Presented Seminar, How to Avoid Serious Mistakes When Facing an Ethics Grievance, Wilshire Grand Hotel, December 2019
  • Presented Seminar, Attorney Ethics Grievances: 20 Insights from the Trenches, Wilshire Grand Hotel, December 2016
  • Presented Seminar, Attorney Ethics Grievance Process, Union County Bar Association, 2011

Anthony C. Gunst, Esq.

  • Presented Seminar, Six Aspects of Attorney Ethics Enforcement in NJ, NY & PA That You May Not Have Heard About Before, Lawline, March 2024
  • Presented Seminar, How to Avoid Serious Mistakes When Facing an Attorney Ethics Matter, New Jersey Association of Legal Administrators, April 2023

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