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New Year, New Trust Account Random Audit Procedures

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Starting in 2024, things will be changing as far as trust account random audits are concerned.  Through the end of 2023, and for many years, the State Bar’s Random Trust Account Audit program operated the same way.  A computer program randomly selected two judicial districts to audit each quarter.  Once the judicial districts were picked, a software program scrambled or randomized the alphabetical listing of attorneys from the selected districts.  The number of lawyers audited in each district (60) was done by proration.  An example would be if there were 1000 attorneys in Judicial District 1, and 400 lawyers in Judicial District 2, for a total of 1400 lawyers, then lawyers from District 1 would make up approximately 71% of the total number of lawyers subject to auditing and District 2 would make up approximately 29% of the lawyers audited.  The same total number of lawyers would be selected each quarter, 60 lawyers, but larger districts would have a larger percentage of the 60 lawyers audited.  The selections were made by lawyer names, not law firm names.  The lawyer selected did not need to be a signatory on the trust account, but if any lawyer in a large law firm was selected, the State Bar auditor would review all general and fiduciary accounts for the law firm.

As you may deduce, if a small judicial district was selected in one quarter, say with only 100 or fewer eligible lawyers, then if you audit a total of 60 lawyers over the two districts, many of the lawyers will be selected for audit each time that smaller judicial district is audited, especially if two smaller districts were selected at the same time.   If, however, one large district was selected for audit, having 4,000 or so lawyers, then very few lawyers, relative to the size of the district, would be selected, even if the district was selected often for random audit.  The chances of a lawyer from a very large district being selected in the random audit process would be more remote than lawyers living in a more rural district with fewer lawyers.

Starting January 1, 2024, the State Bar is trying something new, which should help eliminate this issue.  Instead of selecting lawyers by judicial district, lawyers will now be selected on a statewide basis.  All active members of the State Bar who have a trust/fiduciary account or practice in a firm with a trust/fiduciary account have the same likelihood of getting randomly selected for audit in any given year.  Again, the statewide selection will be by computer-generated, randomized list of all lawyers and will be run each year.  Judges, prosecutors, public defenders, in-house attorneys, or anyone who does not maintain a trust account will be eliminated from the list of eligible lawyers.

A lawyer will not be subject to random audit more frequently than once every three years.  Same as the current process, if a lawyer selected for audit is a member of a law firm, then all trust accounts associated with the firm will be audited.  That lawyer does not need to be a signatory on the trust account, or even be a partner or shareholder in the firm.  If the lawyer selected does not have any control or management responsibility relative to the trust account, then that lawyer can defer the actual audit to another lawyer in the firm that does oversee or manage the trust account.  If you do that, you should let the State Bar Auditor, Anne Parkin, know that in advance.  A lawyer may not, however, completely delegate the audit process to a nonlawyer employee of the firm. Either the selected lawyer, or a lawyer representing the law firm, must be present for the audit.  Once a law firm’s trust accounts are audited, then the law firm, and its lawyers who remain members of the law firm, are generally exempt from random audit for the three-year period.

As this is a brand new, untested procedure for the State Bar, it is unclear exactly how this new selection process will play out, so we’ll just have to see.  If you have any questions or concerns regarding your trust account, please get in touch with us.  Let us help you confirm your trust account is in order before you are selected for an audit!

ABOUT Deanna S. Brocker Deanna represents attorneys before the State Bar on grievance and disciplinary matters and also counsels attorneys and law firms on various ethics matters. She previously served as Assistant Ethics Counsel to the NC State Bar for over 10 years. To read Deanna's full bio, click here