Disclaimer: This extract was taken from the article ‘An Explanation of Some of the Main Terms of the 2013 Certificate of Insurance’ which was published in JURISK! March 2013. The information herein has been edited to reflect the changes in the numbering of the 2014 Certificate of Insurance ("COI"). For the original version, please download the pdf-version of the article. Best Practice tips are provided as a guide. Examples given are for illustrative purposes only and all the policy terms conditions and limitations will need to be considered in the specifics of any case notified.
Illustration I: Ben & Jerry is a Kuala Lumpur (“KL”) law practice, with one branch office in Selangor. Ben manages the KL office while Jerry manages the Selangor branch. All banking transactions, including office and client accounts are handled separately - in fact the principal KL office does not receive any copies of any banking transactions of its Selangor’s branch and vice versa. A claim is made against the Firm and upon investigation it is revealed that Jerry was siphoning off clients’ money. In order for Ben to secure ‘Innocent Partner’ cover he must prove compliance with Clause 11. And based on the facts, prima facie Ben would be in breach of Clauses 11 (d) and (e)(i) & (ii) which entitles the Insurer to decline the claim. Jerry however, would not be able to seek protection under this PII policy as his act is specifically excluded under Clause 32(e) of the COI.
Best Practices:
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Ensure all supporting documents such as invoices and vouchers are in place before signing cheques.
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Use serialised payment vouchers.
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Do not leave the Firm’s cheque books with office staff.
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When you receive new cheque books from the Bank, make sure all cheque leaves are accounted for.
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Set aside a day just to sign cheques. Never sign cheques in a rush. This you can procrastinate!
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Apply a two-to-sign obligation for cheques with larger amounts eg amount above RM5,000.
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Do not pre-sign blank cheques.
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Check your Firm’s bank statements especially the clients’ account monthly [or even conduct spot checks!] so you can detect any discrepancies. With online banking you can check at shorter intervals.
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It is preferable that you do not allow just one staff to manage your Firm’s accounts as it may create an easy environment for that one staff to embezzle.
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Inform the bank that your Firm only requires 1 signature to stop payment. This option is good when you suspect the payment was actually not authorised by the Firm.