Circular No 045/2023
Dated 23 Feb 2023
The Bar Council has recently been made aware of a series of embezzlements that have been perpetrated by law firm support staff. This information was conveyed to us by the Advocates and Solicitors Disciplinary Board (“ASDB”).
Although lawyers had been named in the ASDB complaints, it was discovered that these embezzlements were perpetrated by key members of the law firm’s support staff — two clerks and the firm manager.
A key cause of these cases of embezzlement was that support staff were handling files and communicating directly with clients without informing or updating the lawyers. In addition to not knowing what their staff were doing, the lawyers also did not cross-check their finances regularly.
The manner in which these embezzlements generally unfolded was as follows:
- The lawyers had complete trust in their support staff, as some of the clients were brought in by the support staff mainly for conveyancing matters. The staff then proceeded to deal with the clients directly without informing or updating the lawyers about the files. This was possible because the lawyer had been convinced to allow the support staff to handle conveyancing matters.
- The support staff instructed clients to make payments in cash on the basis that the firm’s accounts were in the process of being moved to another bank.
- Alternatively, the “firm” would allegedly instruct the clients to transfer the monies directly into the support staff’s personal account to save time and avoid the hassle of withdrawing from the client accounts.
- The support staff accepted these monies from the clients without ever issuing an official receipt — occasionally only a letter marked with the firm’s letterhead and a stamp where the signature ought to have been, was given. The cash was never entered into the client accounts.
- When the support staff later moved to a different firm, they also withdrew the monies kept in the client accounts as well. They could do so because the lawyer(s) pre-signed cheques and entrusted them to the support staff.
What Can You Do?
We urge Members to adopt good risk management and due diligence practices when it comes to trusting support staff and clients’ monies. The following is a non-exhaustive list of suggested best practices to minimise the risk of falling prey to potential embezzlement:
- Conduct a background reference check before employing support staff;
- Always be mindful of the type of matters entrusted to support staff;
- Always check files for work progress and the accounts of each file;
- Reconcile bank statements at the end of every month, and check against the individual files;
- Regularly check files and accounts of firm branches;
- Never pre-sign blank cheques;
- Keep cheque books in a locked box or drawer, not with staff;
- Be consistent in checking and verifying all payments made into and from client accounts;
- Do not allow support staff to handle sensitive matters and clients without supervision by a legal staff, a partner, or the sole proprietor of a firm;
- Ensure that access to financial information is limited solely to partners and only to support staff who require it to perform their duties;
- Insist that clients make payments by cheque or bank transfer to the client account(s) and avoid accepting cash. Ensure that all clients are aware of this by placing a signage or notice on this, in the premises of the firm;
- Ensure that there is a convenient yet discreet method for all members of the firm to report suspicious behaviour, eg placing a letter box within the office, having a company hotline or email, etc; and
- Alert the authorities if you suspect possible embezzlement. Report suspected or confirmed incidents of embezzlement to the Bar Council and make notification of a claim or circumstance to the PII Scheme Insurer.
- Adopt an employee screening procedure on new and current employees which evaluates their personal information, including employment and financial history. This should be an ongoing procedure that has clear parameters or circumstances that may trigger re-screening of employees during the course of employment. For more information, click here to refer to paragraph “11.7 Employee Screening Procedures” of the Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (“DNFBPs”) and Non-Bank Financial Institutions (“NBFIs”) issued by Bank Negara Malaysia.
Compliance with the Rules and Rulings of the Bar Council and the Legal Profession Act 1976
In the light of the above-mentioned occurrences, Members of the Bar are reminded that in accordance with Ruling 7.01(3) of the Rules and Rulings of the Bar Council (“BC Rules and Rulings”), law firms are not to be manned solely or left under the supervision of a person not holding a valid practising certificate unless there is sufficient cause to do so.
In line with that, no advocate and solicitor shall permit an unauthorised person to carry out the duties and functions of an advocate and solicitor in his/her firm, as stipulated under Ruling 7.01(4) of the BC Rules and Rulings.
Members are further reminded that bank accounts maintained in the name of an advocate and solicitor or his/her firm in connection with his/her legal practice is not to be operated by any unauthorised person, pursuant to Ruling 8.01 of the BC Rules and Rulings.
Additionally, any act in contravention of the rules of practice and etiquette of the profession or BC Rules and Rulings could be constituted as misconduct under section 94(3)(d) and (k) of the Legal Profession Act 1976.
Members are to be constantly vigilant as there are many ways for embezzlements to take place. The key to prevention is a combination of adequate and proper supervision of staff, and having a complete paper trail of files.
To read more on preventing embezzlements and internal fraud, click
here.
Click
here to view a chart detailing how to make a notification to the PII Scheme Insurer.
Should you have any enquiries, please contact the Bar Council PII and Risk Management Department by telephone at 03-2050 2001 or by email at
pirm@malaysianbar.org.my.
Issued by: Mohamad Ezri Abdul Wahab and Arthur Wang, Co-Chairpersons, Bar Council Risk Management Committee