Support for Bill Instituting a Random Audit Program for Law Firm Financial Accounts

SUMMARY

The Professional Discipline Committee (Kathryn Donnelly, Chair) issued a report in support of amendments to the judiciary law in relation to directing the chief administrator of the courts to develop and implement a random audit compliance program to conduct periodic audits of law firm financial accounts and to amend the state finance law in relation to the funding of the random audit compliance program (A.10145-A/S.9129-B). The bill was developed in response to, inter alia, a July 2025 report by the Professional Discipline Committee, “Evaluating Trust Account Oversight Mechanisms,” which surveyed the random audit programs of attorney escrow accounts in place in nine states and concluded that a random audit program would improve compliance with attorney trust account recordkeeping rules and likely reduce theft of client funds and inadvertent or negligent losses of client funds from New York attorney trust accounts. 

BILL INFORMATION

A.10145A (AM Lavine) / S.9129B (Sen. Bynoe)- An act to amend the judiciary law, in relation to directing the chief administrator of the courts to develop and implement a random audit compliance program to conduct periodic audits of law firm financial accounts; and to amend the state finance law, in relation to the funding of the random audit compliance program. (NYS 2025-26)

REPORT

REPORT ON LEGISLATION BY THE PROFESSIONAL DISCIPLINE COMMITTEE

A.10145-A (M. of A. Lavine)
S.9129-B (Sen. Bynoe)

AN ACT to amend the judiciary law, in relation to directing the chief administrator of the courts to develop and implement a random audit compliance program to conduct periodic audits of law firm financial accounts; and to amend the state finance law, in relation to the funding of the random audit compliance program.

THIS BILL IS APPROVED

I. BACKGROUND 

The New York City Bar Association (“City Bar”) supports the enactment of A.10145-B / S.9129-B, which would amend the Judiciary Law to provide for the development and implementation of a random audit compliance program. The legislation grew out of a December 2025 Newsday investigation into escrow theft[1] and a report by the City Bar’s Professional Discipline Committee, “Evaluating Trust Account Oversight Mechanisms,” issued in July 2025.[2]

The Report surveyed the random audit programs of attorney escrow accounts in place in nine states. Such programs are generally designed to accomplish three objectives – education, deterrence, and detection of theft – by incentivizing attorneys to maintain proper records and dissuading them from misusing trust funds. Although the Appellate Division rules applicable in the First and Second Judicial Departments have authorized a random review and audit program since 1994, no such program has been implemented in New York. The Report concluded that a random audit program would improve compliance with attorney trust account recordkeeping rules and likely reduce the theft of client funds and inadvertent or negligent losses of client funds from New York attorney trust accounts, and recommended that the Appellate Division establish one.

In February 2025, State Senator Siela Bynoe and Assembly Judiciary Chairman Charles Lavine introduced legislation to amend the Judiciary Law to establish “The Random Audit Compliance Program.” The Memorandum in Support of the Legislation noted that, in 2025, a former Long Island real estate attorney was sentenced to up to ten and a half years in prison for stealing a combined total of $1,791,600 from 32 of his clients between March 2021 and November 2024. He withheld down payments and real estate proceeds belonging to his clients. Citing the report of the Professional Discipline Committee, the Memorandum further noted that the Lawyers’ Fund for Client Protection paid out 94 awards in 2024, totaling $11.6 million, a 31% increase in the number of awards and a 90% increase in payouts from the previous year.

II. WHAT THE BILL DOES

The proposed legislation directs the Chief Administrator of the courts to develop and implement a statewide random audit compliance program within the offices of the Lawyers’ Fund for Client Protection to conduct periodic audits of law firms that engage in the private practice and create and manage escrow trust accounts within New York State. The Chief Administrator shall consult with the Director of Information Technology Services to develop and implement a software program that will randomly select law firms within the state for audit. A law firm is subject to audit once in a five-year period. The law firm is required to provide records for all trust accounts, business accounts, and fiduciary accounts. Every audit will entail a two-year review of bank statements, cancelled checks, wire advices, deposit slips, three-way trust reconciliations, client trust ledgers, checkbook stubs or registers.

The Board of Trustees of the Lawyers’ Fund for Client Protection shall coordinate with the Chief Administrator of the Courts and be responsible for hiring program auditors. Moneys in the Lawyers’ Fund for Client Protection shall be available to the Board of Trustees for the purposes of funding the random audit compliance program. An auditor will conduct an initial interview to obtain detailed information about the law firm’s recordkeeping procedures. The auditor will review the firm’s trust and business account books and records to determine compliance with the Rules of Professional Conduct and will verify that all funds entrusted to the attorney have been safeguarded in the attorney’s trust account. The auditor will document any recordkeeping deficiencies on a deficiency checklist and will provide a copy to the law firm. The auditor will discuss actions required to correct any deficiencies. If misappropriation of client and/or third party funds is suspected, the matter shall be immediately referred to the attorney grievance committee.

III. JUSTIFICATION

The establishment of a random audit compliance program, similar to neighboring states of Connecticut and New Jersey, would be a proactive measure to curb the misappropriation of client and/or third party funds and to identify those attorneys who may need training in their bookkeeping procedures. While the Appellate Division has had rule-based authority to establish a random audit program since 1994, this legislation provides a funded, statewide framework for doing so, and will ultimately help protect the public from attorney misconduct. Moreover, attorneys will not be required to do anything more than maintain the records already required by Rule 1.15(d) of the New York Rules of Professional Conduct. A random audit of an attorney’s financial account will ensure that an attorney’s recordkeeping system is compliant with the existing ethical rules.

More fundamentally, under New York’s current oversight framework, scrutiny of an attorney’s trust account is almost entirely reactive. The principal trigger is the Dishonored Check Notice rule, 22 NYCRR Part 1300, which requires banks to report dishonored checks drawn on attorney trust accounts to the Lawyers’ Fund for Client Protection for referral to the appropriate Attorney Grievance Committee. By the time that referral occurs, however, there has typically already been a breakdown – at minimum a recordkeeping failure under Rule 1.15(d), and in many cases commingling or misappropriation – such that the attorney’s first encounter with disciplinary scrutiny is also the point at which discipline has effectively become unavoidable. A random audit compliance program would shift the point of intervention forward: it would identify attorneys whose recordkeeping is non-compliant before deficiencies ripen into the misuse of client funds, and would provide corrective education and remediation rather than reactive sanction. The program is therefore not merely a complement to the existing disciplinary system but a meaningful reorientation of trust-account oversight – from after-the-fact discipline toward prospective protection of clients and the attorneys who serve them.

The proposed legislation would create a random audit program similar to the ones surveyed in the Professional Discipline Committee’s Report. Whether the program is established by the Appellate Division or the Lawyers’ Fund for Client Protection is inconsequential as far as the goals. The likely reason the program has yet to be implemented by the Appellate Division is funding. This bill solves the funding problem by drawing on the Lawyers’ Fund for Client Protection, which is financed primarily by the biennial attorney registration fee rather than by taxpayer appropriation. Because every dollar paid out by the Fund is ultimately a dollar contributed by the legal profession, reducing Fund payouts through prospective audits directly benefits the profession that finances the program.

The Committee recognizes that questions have been raised concerning the ultimate scope, implementation, and cost-effectiveness of a statewide audit program, including whether a phased or pilot approach may ultimately prove appropriate as the program develops.  Those are fair considerations, particularly given the importance of ensuring that any oversight mechanism is calibrated to maximize public protection while responsibly stewarding the resources of the Lawyers’ Fund for Client Protection.  At the same time, the Committee believes the legislation appropriately establishes the foundational authority and infrastructure necessary to begin a meaningful statewide compliance program, while leaving substantial operational discretion to the administrators and auditing professionals charged with implementing it.  The bill does not impose new substantive bookkeeping obligations on attorneys beyond those already required by Rule 1.15, but instead creates a mechanism for education, early detection, and deterrence using audit methodologies already widely recognized in jurisdictions with comparable programs.  Experience gained through implementation can, in turn, inform future decisions concerning scale, frequency, staffing, and audit procedures.

IV. CONCLUSION

This proposed legislation represents a meaningful and overdue step toward the protection of client funds in New York. We accordingly urge the Legislature to pass the bill, and the Governor to sign it into law.

Professional Discipline Committee
Kathryn Donnelly, Chair

May 2026