Trust Assurance Program
Rule changes enhance trust security
The Benchers have approved several changes to the Law Society Rules to implement the new Trust Assurance Program.
Announced in January 2006, the new Trust Assurance Program is designed to be a more effective method by which the Law Society can fulfil its duty to ensure lawyers handle trust funds appropriately (see “A new trust assurance program — more effective, and less costly for firms,”Benchers’ Bulletin 2006 No. 1 January-February).
The program is also designed to reduce costs for most law firms by eliminating the need to retain an outside accountant to prepare the annual trust report.
In addition, the Law Society’s trust assurance team will be available to answer any questions lawyers and their staff may have about trust accounting and to assist lawyers — particularly those who are setting up new practices or working in smaller firms — to develop proper accounting systems.
Through the Trust Assurance Program, the Law Society will also conduct rotational “compliance audits” of all law firms. The compliance audit will review the books, records and accounts of lawyers to ensure they meet the relevant Law Society Rules and provisions of the Legal Profession Act. The goal is to audit each law firm at least once every six years. The Law Society is also developing a detailed risk analysis system to identify firms whose accounting practices and handling of trust property may pose concerns and who should, therefore, be audited more frequently.
By introducing a risk analysis system as a basis for deciding priority audits, the Law Society will be better prepared to detect serious trust breaches in the few firms where these exist and to do so earlier. Taking proactive steps is intended to prevent thefts and subsequent claims against the Law Society’s Part B insurance coverage.
The new Trust Assurance Program will enhance public confidence in the legal profession and will assist the Law Society in detecting and preventing improper or substandard trust accounting by a few lawyers who may tarnish the reputation of many.
The rule changes build on existing provisions in Division 7 of the Law Society Rules that permit the Society to order an examination of a lawyer’s books, records and accounts to determine if the lawyer is maintaining appropriate financial records.
Amendments to Rule 3-79(1) authorize the Law Society to conduct a “compliance audit” to determine whether a lawyer meets appropriate “standards of financial responsibility.”
“Compliance audit” is defined in Rule 3-47 as “an examination of a lawyer’s books, records and accounts and the answering of questions by lawyers.”
The “standards of financial responsibility” — previously listed in several different rules — is now combined in Rule 3-43.1. Instances in which a lawyer has failed to meet a minimum standard of financial responsibility include, but are not limited to, failing to satisfy a monetary judgment within seven days, insolvency, failing to comply with a compliance audit, failing to deliver a trust report as required by the rules and failing to report and pay the Trust Administration Fee.
Law firms selected for a compliance audit will be notified approximately six weeks in advance of the audit by letter and telephone. In addition, there will be material on the Law Society’s website explaining the compliance audit process and what a firm is required to do.
Rule 3-79(2) retains the provision that existed under the former audit program requiring a lawyer to immediately produce and permit the copying of all documents needed for the audit and to answer any necessary questions.
The Law Society believes the new Trust Assurance Program fulfils an important component of our mandate to regulate the legal profession in the public interest. As a measure of how seriously the Society takes its role, the Benchers have adopted a new rule (3-79.1), which provides for an administrative suspension if a lawyer does not produce the records required for a compliance audit. The lawyer will be given at least seven days notice of the suspension and the Discipline Committee will retain the discretion to order that the lawyer not be suspended or that the suspension be delayed.
The new rules will continue to require all lawyers to file a trust report. The form of trust report will, however, be replaced by a report to be completed by the lawyer and will not require completion by an accountant. Amendments to Rule 3-75 will give the Executive Director discretion to require a lawyer to file a report completed by an accountant in addition to filing a trust report. This will permit the Law Society to continue to require an external review of the accounts of any lawyer it considers warrants such a review.
For more information on the new Trust Assurance Program, contact Don Terrillon, Manager, Trust Assurance Program, at 604 443-5798, email@example.com or Dominique Fry, Senior Trust Assurance Coordinator, at 604 605-5359, firstname.lastname@example.org.