08 Feb

Office Theft Cases Illustrate Importance of Oversight

WI Law JournalJane Pribek – Wisconsin Law Journal

Beaver Dam attorney James H. Olson, of Olson Law Offices LLC, got a sick feeling when a letter from a nearby community bank arrived at his home. The letter was from the bank vice-president, who told Olson that his assistant had been cashing checks on an account that Olson never created. The VP tried to contact Olson at his office, but the calls never went through.

Olson went to the bank the next day and learned that this had been going on for quite some time.

“It was the Friday of Labor Day weekend. I suddenly don’t have a secretary. I’m thinking of everything I have [to review]: what’s gone in and out of the trust account, the accounts receivables. Plus I’ve got client work to do, and a brief was due the following week,” Olson recalled. All told, his assistant of about 18 months had stolen approximately $20,000. It took Olson’s newly-retired wife about 90 days, working all day long, to piece together their losses. The now-former assistant had covered her tracks very well. In Olson’s case, staff was to blame. In another, more recent case, a Twin Cities lawyer was disbarred after pleading guilty to swindling the Bloomington law firm he and three other lawyers founded in 2005.

Thomas A. Rothstein was charged with thefts from Halberg Criminal Defense totaling $124,258. Rothstein allegedly used firm checks and credit cards for personal expenses, including flowers, iTunes and fitness club bills. Rothstein was the only lawyer at the firm who spent much time with QuickBooks, the firm’s financial software, according to Brent Schafer, who now serves as the firm’s managing partner. Schafer said the firm has since added several levels of internal review, as well as some outside oversight.

“Giving one person control over one area is a great leap of faith,” he explained.

Schafer said the silver lining in the Rothstein case was that none of the firm’s clients lost any money.

Olson’s former assistant was tried and convicted of felony theft, and he had luckily secured theft coverage. The insurer paid out $10,000, and at the assistant’s sentencing Olson received a check for $20,000 as restitution. In the end, other than the time he and his wife spent calculating their losses and pursuing prosecution, he was made whole. Fortunately, there were no trust account issues.

Focus on the business end
The Rothstein and Olson cases illustrate the potential problems that law firms face when trusted employees, including attorneys, cross the line into theft or fraud. Lawyers often want to concentrate on their professional roles, but they ignore the business side at their peril, said attorney Sally E. Anderson, of Wisconsin Lawyers Mutual Insurance Company in Madison.

Employee theft can be motivated by many things, said Deborah M. Smith, chair of the State Bar Committee that administers the Wisconsin Client Protection Fund, but “it’s often related to substance abuse and addictions, and the need for quick cash to satisfy whatever their problem may be.” Olson later learned his assistant had a gambling addiction.

“I think we need to do a better job of taking care of one another when we see signs of distress,” said Smith. “Reach out; ask if there’s anything you can do to help; or reach out to WisLAP, to help prevent someone from going down the road of taking client funds.”

Here are some other suggestions that can help protect your firm:

  • Listen to your instincts.- Olson said he noticed for a few months prior to discovering the theft that profits were down. But he didn’t want to believe the worst.
  • Get theft insurance. – Olson says without it, it would’ve been difficult to keep the doors open immediately after discovering the theft.
  • Hire an accountant to set up and review your books, and to help initiate a system of checks and balances. – Forget about the “extra” costs, said Olson. In the long run, it’s much cheaper than letting your money be stolen from under your nose.
  • Open your own mail if you’re a solo with one assistant. – Ignore what you hear at seminars telling you it’s not a productive use of your time, said Olson.
  • Never let the office manager have access to both the money and the bookkeeping systems. – Instead, divide duties between two or three people, so no single individual has too much control over one function, said Tracy L. Coenen, a forensic accountant and fraud investigator with Sequence Inc. in Milwaukee.
  • Never let anyone other than yourself sign bank checks, and never let anyone else make bank deposits. – In addition, said Coenen, don’t sign blank checks, even if staff has used such checks properly in the past. Olson regrets letting his former assistant use his signature stamp. You should be examining invoices and other documentation related to disbursements prior to signing any checks.
  • Periodically check financial records, sometimes on a surprise basis. – This applies to bank statements and reconciliations, accounts receivable records, vendor payments and financial statements, lawyers’ billing records, write-offs or adjustments to bills and expense reports, said Coenen.
  • Send a message from the top down that integrity matters. – This won’t necessarily protect you from being victimized. But if you’ve established a solid reputation within the local legal community, opposing counsel, judges and clients will be more understanding about the situation.

“Now I can laugh about it,” said Olson. “But it took about a year or two for us to fully recover, from an emotional standpoint.”

Barbara Jones of Minnesota Lawyer contributed to this article

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