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Trust Account Fraud Prevention: How to Protect Your Firm & Your Clients
Trust accounts hold some of the most sensitive funds in your law firm, making them a prime target for fraud—both internal and external. One small mistake or lack of oversight can lead to embezzlement, misappropriation, and even bar discipline.
The worst part? Many attorneys don’t even realize fraud is happening until it’s too late.
This guide breaks down:
How fraud happens (and the biggest warning signs to look for) How to safeguard your trust accounts against fraud What to do if you suspect fraudulent activityLet’s dive in before your firm becomes the next cautionary tale.
How Trust Account Fraud Happens (and the Red Flags to Watch For)
Fraud in trust accounts can happen in multiple ways—sometimes from external threats, but often from within the firm itself. Here’s what to watch out for:
Internal Fraud: Employee Theft & EmbezzlementHow it Happens:
- An employee diverts funds to a personal account
- Trust account checks are forged or misused
- An attorney “borrows” client funds (even temporarily)
Red Flags:
Client balances don’t match bank statements Unexplained wire transfers or withdrawals A staff member insists on handling all financial records aloneCase Example:
A Florida law firm lost over $250,000 when a paralegal secretly wrote trust account checks to herself for over two years. Nobody was reconciling the trust account, so the fraud went undetected—until an audit caught it.
External Fraud: Scams, Wire Fraud, & Phishing AttacksHow it Happens:
- Hackers impersonate a client and trick attorneys into wiring funds
- Email phishing scams lead to unauthorized trust account access
- A fake vendor requests a payment from client trust funds
Red Flags:
Unexpected wire transfer requests (especially from “clients” or “vendors”) Changes in payment instructions sent via email Requests for “urgent” fund transfers with no verificationCase Example:
A California attorney lost $500,000 in client funds after receiving an email—supposedly from a client—requesting a wire transfer. The email was fake, and by the time the fraud was discovered, the money was gone.
7 Essential Safeguards to Prevent Trust Account Fraud
You can’t afford to take risks with your trust accounts. Implement these best practices now to keep your firm protected.
Require Dual Authorization for Payments- Never allow one person to have sole control over trust account transactions.
- Require two approvals for every disbursement—one from the attorney and one from an independent reviewer.
Reconcile Your Trust Account Monthly (No Exceptions!)- Compare your bank statement, trust ledger, and client ledgers to ensure everything matches.
- Investigate discrepancies immediately—even small ones.
Restrict Access to Trust Funds- Limit access only to trusted individuals—not every employee should handle trust accounts.
- Use role-based security in your accounting software.
Use Positive Pay with Your Bank- This fraud prevention tool requires your approval for any check or ACH payment before it clears.
- Ask your bank if Positive Pay is available for trust accounts.
Implement Multi-Factor Authentication (MFA)- Require MFA for all logins to your trust account software and banking platforms.
- This helps block hackers from unauthorized access.
Verify All Payment Requests Directly- Never process a wire transfer based on an email request alone.
- Call the client directly to verify any changes in payment instructions.
Train Your Staff on Fraud Awareness- Hold annual fraud prevention training for attorneys and employees.
- Teach staff how to spot phishing emails, wire fraud scams, and internal theft.
What to Do If You Suspect Trust Account Fraud
Step 1: Identify & Stop the Issue Immediately
- Review transaction records and pinpoint suspicious activity.
- Lock access to the account if an employee is involved.
- Contact your bank immediately if external fraud is suspected.
Step 2: Report the Incident to Your State Bar
- Most state bars require attorneys to report trust account fraud—even if the attorney wasn’t directly involved.
- Failure to report could lead to disciplinary action.
Step 3: Conduct a Full Internal Audit
- Work with a CPA or forensic accountant to review past transactions.
- Strengthen internal controls to prevent future fraud incidents.
Protect Your Firm: Get Expert Help with Trust Account Security
Managing a trust account isn’t just about compliance—it’s about protecting your firm, your clients, and your reputation.
At Prestige Accounting & Consulting, we help law firms:
Set up ironclad trust account fraud prevention systems Perform monthly reconciliations to catch discrepancies early Train attorneys & staff on trust account security Audit and strengthen financial controls to eliminate risksDon’t wait until fraud happens—let’s secure your trust accounts now. Book a consultation today & protect your firm from trust account fraud! 
