Practice Management

Do You Know the Difference Between AVAILABLE and CLEARED Funds?

Millions of dollars have recently been scammed from law firm trust accounts because of inadequate safeguards, but especially because many lawyers don’t seem to understand the difference between funds which have been cleared, and funds which are merely made available. For a long time, financial institutions have worked with law firms of solid reputation to make trust account deposited funds available long before the transaction actually completes its journey through the clearing house. For that reason, it is possible to “use” the funds before the firm can be positive the corresponding deposit is “good” and will actually be honored. Even certified bank checks can be forged, as too many firms are finding out.

As you can imagine, the consequences can be dire when it turns out the corresponding deposit is bogus. Especially because by the time you find out, it’s too late to cancel your payment to the scammer’s bank account. Can your firm handle a hit to the trust account in the vicinity of $200,000? Can you handle the associated publicity and damage to your reputation?

A recent alert about this on-going scam appeared in the California Bar Journal. This is no joking matter, and you should read it, if only to quote it to a fellow partner who sometimes plays fast and loose with trust funds in order to improve “client service”, before knowing the deposit transaction has actually cleared. After all, it’s your neck on the D-Board chopping block as well.

On a totally unrelated note, I want to inform all of my subscribers that my blog has been under attack for quite some time by scurrilous foreign parties unknown. I was not aware of it, until only recently. Some damage was done to the server, and my web design & hosting company, Radio Gate, has been working diligently to get a new more-secure server up and running. I am letting you know because apparently the automatic notification feature of the blog has not been working for quite some time. It is likely there are many posts new to the blog which you have not read. I encourage you to visit the main page of the blog and take a glance at the Index of posts, so you can catch up.

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Full post as published by Law Practice Management on July 07, 2008 (boomark / email).