30 July 2025, by Insyirah Ishkandar, Risk Management Officer (until July 2025) and Mysahra Shawkat Ali, Assistant Director
Notice: Between 2020 and end 2024, 15% of the notifications made to the Malaysian Bar Mandatory Professional Indemnity Insurance (“PII”) Scheme arose from allegations of breach of stakeholders’ duties and/or misappropriation of clients’ monies from the client’s account.
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While these notifications bring to the forefront the inadequate procedures to oversee a Client Account, one notification affected the eligibility of a law firm partner to renew their Sijil Annual, caused by the delayed submission of the accountant’s report. To make matters worse, there was forgery involved in the accountant’s report. Please read our study below.
The Facts of the Case
A law firm with four partners was established in Selangor in 2015. As the firm grew, a branch office was later established in the northern region of Malaysia managed by Partner X, with full control over the northern branch's day-to-day operations and unmonitored access to the branch’s Client Accounts.
This lack of oversight would later prove to be detrimental.
Initial Red Flags
In early October 2022, one of the founding partners of the insured practice (“IP”), whom we will refer to as “Partner A”, was compiling the documents to renew their Sijil Annual, which includes the northern branch’s accountant’s report. To complete the submission, Partner A requested the accountant’s report and State Bar subscription certificates from Partner X for the northern branch. Partner X claimed that the accountant’s report was in the process of being prepared by his accountant.
Over the following weeks, Partner A made repeated attempts to follow up with Partner X. When a report was finally submitted in December, it contained glaring errors and failed to comply with the Accountant’s Report Rules 1990. Partner A sought an explanation from Partner X but received no response.
Around the same time, other partners in the firm received disturbing reports about Partner X where he had approached other fellow Members of the Bar to:
- “borrow” sample accountant’s reports; and
- requested the use of their firms’ Client Accounts to deposit his clients’ monies.
Uncovering the Misconduct
At the end of December 2022, Partner A visited the northern branch’s bank to investigate further. A banking services manager informed Partner A that the Client Account had been closed and revealed a series of irregularities. Cheques had been issued without sufficient funds in the Client Account. Funds had been transferred between the Client Account and Partner X’s personal account. There were also attempts to draw cheques from a closed account. In addition, it appeared that Partner X had deposited his own money into the Client Account.
Later that day, Partner A received a copy of the accountant's report from Partner X. Suspecting something amiss, one of the partners in Selangor sought verification with the accounting firm. It turned out that the individual was a company secretary and not an accountant. The "qualified chartered accountant" in question also denied ever signing the report.
Since the delivery of the accountant’s report, Partner X ceased all communication with the partners in Selangor.
Following this discovery, the partners in Selangor lodged a police report, the partnership with Partner X was terminated on the same day. This was followed by a notification to the Malaysian Bar PII Scheme Insurance Broker, in accordance with the 2022 Certificate of Insurance (“COI”).
The Selangor partners then started to receive several claims stemming from Partner X’s misappropriation of the clients’ funds:
| Notification |
Description |
| Notification 1 |
A Letter of Demand (“LOD”) from a claimant alleging that the IP had failed to release a deposit for a property transaction. A civil suit was later filed seeking RM117,180 in damages and costs. |
| Notification 2 |
An LOD alleging that the IP had received RM252,000 to pay the balance purchase price related to a property, but failed to do so. |
| Notification 3 |
The IP was contacted by claimants alleging that Partner X, acting as their solicitor, failed to complete a transaction and later became unreachable. They demanded a refund of RM2,200 and legal costs. |
| Notification 4 |
An LOD alleging that Partner X, while representing a vendor, failed to provide necessary documentation, rendering the transaction incomplete. They demanded a total of RM123,007.23, including liquidated damages and legal fees. |
One Claim
All four notifications stemmed from a single cause: the embezzlement and misconduct of Partner X. In accordance with Clause 35(r)(ii) and (v) of the 2022 COI, the insurer determined that the four notifications be treated as “One Claim.”
Key Takeaways for Safer Practice Management
This case study is a clear reminder of the risks of unregulated authority within a legal practice. To safeguard your firm, consider implementing these essential but simple controls:
- Enforce Financial Oversight with Dual Controls and Audits
Never allow any one individual, regardless of position or level of trust, to manage or disburse Client Accounts alone. Require at least two authorised signatories for all transactions and ensure audit trails by having proper documentation. Complement this with regular internal audits across all branches, not just the main branch, to maintain transparency, catch discrepancies early, and reinforce firm-wide accountability.
- Verify Professional Credentials
Engage only certified chartered accountants to prepare the law firm’s accountant’s report. Confirm their qualifications and licensing status with the Malaysian Institute of Accountants. A simple check can prevent your accountant’s report from being invalid.
- 1 Firm, 1 Accountant’s Report
Every law firm, regardless of the number of branches or partners, must submit a single, consolidated accountant’s report covering the firm’s entire operations. Delegating this responsibility to individual partners or allowing separate reports for different branches can lead to inconsistencies, or even fraud and your firm’s application for Sijil Annual being rejected. Ensure that the preparation and submission of the report is coordinated centrally and monitored by all partners.
- Third Party Use of Client Account
Do not allow temporary use of your Client Account for matters not related to your law firm. Such conduct may relate to money laundering or misappropriation of funds.