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A major, risky misconception amongst law firms is that interest-only lawyer accounts (IOLAs) are automatically protected from fraud. Protecting client funds in your possession requires positive action, something that your banking partner can help you with. Consider using sub-accounts to support your firms master IOLA account.
“If someone gains fraudulent access to the master account, and there are no sub-accounts, all of the funds in the IOLA—potentially millions of dollars—are at risk,” says Jeffrey Mercado, CFP, MBA, Sr. Managing Director and Head of Law Firm Banking at Webster.
Sub-account numbers will be only used by your bank, so it’s highly unlikely that someone will fraudulently gain access to those sub-account numbers. Without access to these sub-account numbers, any attempt to withdraw money from the IOLA will be fruitless. You’ll also want to consider check fraud, as paper checks are incredibly vulnerable to fraud and counterfeiting, as are wire and ACH fraud, during which fraudulent requests, made to look legitimate, are used to trick employees into mistakes.
Make sure you implement a standard daily practice to review accounts and ensure nothing fraudulent has occurred; and take advantage of the various tools and tactics your banking partner makes available to you to further reduce the risk of fraud.
While tools and techniques implemented by your banking partner can be a great asset in reducing the risk of fraud, protecting against fraud starts with your company culture and mindset. Consider these perspective shifts that can help your law firm guard client funds.
NEVER ASSUME CHECKS ARE VALID. Checks, including bank-issued checks, can be forged. Using services such as Positive Pay can detect fraudulent, altered, or counterfeit checks before the payment is processed. ACH Payables also is a cost-efficient and seamless way to send funds electronically through a national ACH network.
LIMIT ACCESS. The higher the number of employees with access to bank accounts, the higher the vulnerability of that account due to internal fraud or unintentional actions resulting in fraud, such as instigating a wire transfer based on a forged request from a client.
SET UP ALERTS. When it comes to detecting an unauthorized transfer, the more eyes there are on money movement, the greater the chances the unauthorized transfer will be caught. Setting alerts for large wire transfers will notify you and all partners any time an outgoing wire exceeds a particular amount, ensuring that unauthorized transfers are realized quickly.