The Rules of the Law Society of Alberta require that a lawyer must always maintain sufficient funds on deposit in each trust account to meet all obligations to clients.

When the RL becomes aware of a trust shortage, the lawyer is required to immediately report to the Law Society. A report cannot wait until the end of the reporting period.

Law firms are required to submit a Trust Account and Client Ledger Shortages form if:

• A shortage exists that cannot be attributed to a client file and is greater than $50 or not corrected within 30 days; or,
• A shortage exists on a client file and,
  • The law firm does not correct the deficiency within 7 days of the time the shortage arose, and/or
  • The deficiency is an amount greater than $2,500, regardless of when the deficiency is corrected.

To report a trust shortage, complete the Trust Account and Client Ledger Shortages form. For more information on trust shortages and how to report a trust shortage, view the Trust Shortage and Reporting resource.

What to Do if you Discover a Fraud

As per Rule 119.40 of the Rules of the Law Society of Alberta, a law firm must immediately report to the Law Society any fraud related to money or trust property, theft of money from the law firm’s trust accounts or general accounts, or theft of trust property.

If you discover a fraud, take the following immediate steps:

• Report the matter to the police. When reporting to the police you must consider your obligations with respect to privilege and confidentiality. If you are unsure of how to navigate this issue, you should contact a Practice Advisor.
• Report the fraud immediately to the Trust Safety department at the Law Society using this form.
• Stop using the affected account(s). You should not disburse any funds out of the account or deposit any funds into the account.
• Advise any affected clients. You are obligated to do this under Rule 7.7-1 of the Code of Conduct.

Additional steps to take following an instance of fraud include:

• Closing your trust account and opening a new one to prevent further fraudulent activity.
• Transfering your existing balance to the new trust account.
• Obtaining a list of all outstanding cheques and reissuing new ones to the identified clients.
• Updating and providing new payment instructions to existing clients.
• Ordering new trust cheques.
• Conducting an audit of your security systems to help determine the point of compromise and prevent future attacks.
• Consider obtaining a commercial crime insurance policy.

What to Do if You Suspect a Fraud

If you suspect a fraud but aren’t sure, it’s still important to report the irregularities to Trust Safety, specifically if:

• someone asks you to do something contrary to the Rules or Code;
• you suspect that someone (regardless of rank or position) is committing fraud;
• you suspect serious accounting irregularities and breaches of good accounting practices; or
• you suspect misappropriation of trust funds.

To report a suspected fraud, contact Trust Safety using the following information:

Call: 1.833.801.4086

Email

Mail:

Confidential: Law Society of Alberta
Attention: Manager, Investigations
Suite 700
333 11th Avenue SW
Calgary, Alberta T2R 1L9

Additional Resources

Reporting fraudulent or suspected fraudulent activity can protect other lawyers and their firms from future fraud attempts. For more information on theft, employee theft and fraud, view the following resources:

• Employee Theft on the Rise: Are You At Risk?
• Trust Misappropriation: Your Ounce of Prevention
• ALIAlerts

Law firms occasionally hold trust funds for extended periods of time when they cannot locate the clients or other parties to whom the funds belong. A firm must maintain proper oversight, accounting, tracking and management of matters on which the firm is retaining inactive or undisbursable trust funds. It is the responsibility of the RL — not the bookkeeper, paralegal, office manager or accountant — to safeguard client funds.

In certain circumstances, the Rules of the Law Society of Alberta allow firms to pay such undisbursable funds to the Law Society. Before paying the funds to the Law Society, the firm must have held the trust funds for more than two years and be unable to locate the funds’ owners despite reasonable efforts to do so (Rule 119.43 and section 117(5) of the Legal Profession Act).

For amounts under $50, firms must complete the Undisbursable Trust Money – Short Form and send it to the Trust Safety department via email.

For amounts over $50, firms must complete the Undisbursable Trust Money – Long Form and send it to the Trust Safety department via email, along with:

• a copy of client ledger card;
• details if the funds are subject to trust conditions; and
• attempts to contact the clients over the past two years (methods involved including proof of such efforts and responses to those efforts).

Review the Disbursing the Undisbursable resource for more information on how to report unclaimed trust funds.

Making a Claim

Anyone who claims that they own funds held by the Law Society may submit the Claim to Trust Money form to the Law Society’s Trust Safety department. The claim must be submitted within five years of the Law Society receiving the trust funds.

For more information, please contact the Trust Safety department. Lawyers seeking guidance about undisbursable trust funds may contact the Practice Advisors at 1.866.440.4640.

The Anti-Money Laundering Model Rules from the Federation of Law Societies of Canada (FLSC) and the Rules of the Law Society of Alberta prevent lawyers from using trust accounts for purposes unrelated to the provision of legal services. In Alberta, however, the Rules do allow lawyers to hold funds in a representative capacity, permitting them to act as trustees when they do not render legal services.

Holding funds solely as a trustee or fiduciary is a permitted exception to the Rule that requires lawyers to only hold trust funds that are related to legal services.

Lawyers are often asked to act as trustees in a variety of settings, simply because they are lawyers. The role of trustee is considered ancillary to legal practice. When holding funds in a representative capacity, the lawyer must establish a separate trustee account and may not deposit the funds in the firm’s trust account. Firms are obliged to report the existence of the trustee account to Trust Safety and are obliged to provide financial reporting to the Law Society.

The Representative Capacity Undertaking Form must be completed when a lawyer acts in a representative capacity during a reporting period, pursuant to Rule 119.44.

The Canada Deposit Insurance Corporation (CDIC) is a Canadian federal Crown corporation created by Parliament in 1967 to contribute to the stability of the financial system through orderly resolution of deposit insurance. It insures eligible Canadian deposits held in Canadian banks up to C$100,000 in case of a member institution (MI) failure. Not all financial institutions are CDIC insured. A list of CDIC members is available on their website.

The CDIC has specific annual disclosure requirements for deposits held in trust. View this resource on the requirements for full details.

The law firm must immediately replace the funds taken by the bank by either:

• Requesting that the bank reverse the withdrawal and charge the general bank account;
• Transferring firm’s general funds into the trust bank account; or
• Offsetting the charge against the $500 that the firm is permitted to maintain in each trust bank account as a float.

If the charge is not replaced within seven days of occurrence, the firm must complete and provide the Trust Account and Client Ledger Shortages.

Under both scenarios the lawyer must notify the Manager, Trust Safety of the Law Society. The notification must include a brief letter outlining the circumstances surrounding the bankruptcy, a copy of the statement of affairs, and a copy of the bankruptcy or proposal.

The Law Society also requires notification of a writ of enforcement against any lawyers of a law firm.

Yes, it is possible for a lawyer to still sign trust cheques. Upon receipt of the bankruptcy documents, the Manager, Trust Safety will review the information. The Manager may or may not impose conditions including the removal of the lawyer as a signing authority on the law firm trust account.