The duty to report
Reporting trust money irregularities, or suspected irregularities, is mandatory under section 154 of the Legal Profession Uniform Law (NSW). All irregularities and suspected irregularities must be reported to the Law Society as soon as practicable, regardless of the monetary value involved.
The words “suspected” and “regardless of the monetary value” matter. You do not have to be certain, and a small loss still has to be reported.
Remember
- The duty is mandatory.
- It covers suspected irregularities.
- The amount does not matter.
Facts and sources for this part
- Reporting trust money irregularities, or suspected irregularities, is mandatory under section 154 of the Legal Profession Uniform Law (NSW). [S6]
- All irregularities and suspected irregularities must be reported to the Law Society as soon as practicable, regardless of the monetary value involved. [S6]
What counts as an irregularity
The Law Society says an irregularity includes fraud, cyber-crime, or receipt of trust money from unknown or unexpected sources. So a payment-redirection loss, a bank-impersonation withdrawal and an unexplained deposit all fall within it.
Our advice: add “money arriving from someone I do not know, for a matter I cannot explain” to your list of things to escalate on the day, not at month end.
Remember
- Fraud and cyber-crime are named in the list.
- Unexpected money from unknown sources is too.
- Escalate on the day.
Facts and sources for this part
- The Law Society says an irregularity includes fraud, cyber-crime, or receipt of trust money from unknown or unexpected sources. [S6]
What happens if you do not report
Failing to report can amount to unsatisfactory professional conduct or professional misconduct, and is also a civil penalty offence. That puts a failure to report in the same category as the underlying error.
It also means the question is not whether the practice looks careless. It is whether you told the Law Society promptly. A prompt report is the strongest answer to nearly any later question.
Remember
- Not reporting can be professional misconduct.
- It is also a civil penalty offence.
- A prompt report is your best protection.
Facts and sources for this part
- Failing to report can amount to unsatisfactory professional conduct or professional misconduct, and is also a civil penalty offence. [S6]
The old cheque scam
The Law Society describes an old scam that keeps coming back: a foreign cheque is banked, the balance sent on quickly, and when the cheque does not clear the bank uses the funds of other clients in the trust account to cover the transfer.
Our advice: treat any new client who sends a cheque for a matter you have done little or no work on, and wants a fast transfer of most of it, as a red flag. Wait for a bank confirmation that the money has been collected, not just credited, and treat unknown or unexpected sources as reportable.
Remember
- A credited cheque is not the same as collected money.
- Other clients’ funds can be used to cover the shortfall.
- A quick-transfer request on a new matter is a red flag.
Facts and sources for this part
- The Law Society describes an old scam: a foreign cheque is banked, the balance sent on quickly, and when the cheque does not clear the bank uses the funds of other clients in the trust account to cover the transfer. [S5]
- The Law Society says an irregularity includes fraud, cyber-crime, or receipt of trust money from unknown or unexpected sources. [S6]
After an incident, in order
If you have transferred funds or given access to a scammer, contact your bank immediately to report the cyber incident, then contact your cyber insurer and the Law Society’s Trust Account Department. The Law Society also says practices should have a clear policy and procedure for reporting scams, and should report a trust money scam to the Trust Accounts Department.
Our advice: keep the procedure on one page, with the phone numbers, and make sure every person in the practice knows where it is. Write down times as you go; they matter to the bank and the insurer.
Remember
- Bank first, then insurer, then the Trust Accounts Department.
- Have a written scam procedure.
- Note the time of every step.
Facts and sources for this part
- If you have transferred funds or given access to a scammer, contact your bank immediately to report the cyber incident, then contact your cyber insurer and the Law Society’s Trust Account Department. [S8]
- Law practices should have a clear policy and procedure for reporting scams, and should report a trust money scam to the Law Society’s Trust Accounts Department. [S9]
Check what you have learned
Three questions from the test, each explained. Tap an answer.
Question 1 of 3
How soon must a suspected irregularity be reported?
Show the answer
Right answer: A, As soon as practicable, whatever the amount. Irregularities and suspected irregularities must be reported as soon as practicable, regardless of the monetary value involved. [S6]
Question 2 of 3
A foreign cheque is banked and the balance is sent on quickly. What happens if the cheque does not clear?
Show the answer
Right answer: A, The bank may use other clients’ funds in the trust account to cover the transfer. When the cheque does not clear the bank will use the funds of clients in the trust account to cover the transferred funds. [S5]
Question 3 of 3
A cheque from an unknown overseas client is credited and he asks you to send most of it on today. What should you do?
Show the answer
Right answer: C, Not send it; confirm collection with the bank and consider reporting it as an irregularity. Receipt of trust money from unknown or unexpected sources is listed as an irregularity. [S6]