The Supreme Court of California has recently taken steps to ensure the protection and security of its clients’ finances.
On October 25, 2022, it implemented the Client Trust Account Protection Program (CTAPP), which includes expanded reporting requirements for attorneys working in the state.
This new program represents a major advancement towards proactive oversight, providing an extra layer of confidence that money held by lawyers is safe and secure.
What is the Client Trust Account Protection Program (CTAPP)?
The California Supreme Court has implemented a new rule, called Rule 8.5.5, that requires the State Bar to establish a program to protect client trust accounts.
This program includes several components, such as annual trust account certification, annual client trust account registration, and a self-assessment.
If a licensee is selected for review by the State Bar, they must complete and submit a client trust accounting compliance review at their own expense, conducted by a certified public accountant.
Depending on the results of this review, the State Bar may take additional actions such as an investigative audit, a notice of mandatory corrective action, or a referral for disciplinary action.
What Does This Mean For Your Firm?
As a law firm in California, it is important to comply with the newly implemented Rule 8.5.5, which requires annual trust account certification, annual client trust account registration, and a self-assessment. If you identify any issues that may indicate non-compliance with these requirements, it is crucial that you take immediate steps to resolve them.
To help ensure compliance and avoid potential disciplinary action, we recommend that you consult with a Certified Public Accountant (CPA) who is experienced in conducting client trust accounting compliance reviews. One such CPA firm is Miod & Company, LLP, which has a reputation for providing excellent service and expertise in this area.
In addition to consulting with a CPA, you may also want to seek guidance from an ethics attorney or other outside experts who can help you navigate the complexities of trust accounting compliance. Taking proactive steps to address any issues that arise can help protect your firm’s reputation and ensure that you continue to meet the standards set forth by the State Bar. Remember, allowing issues to linger only makes matters worse, so it’s important to act quickly and decisively.
CTAPP Requirements Imposed By State Bar
As part of this program, the State Bar of California has imposed several requirements on licensees, including annual trust account certification, annual client trust account registration, and a self-assessment.
In addition, if selected for review by the State Bar, licensees must complete and submit a client trust accounting compliance review to be conducted by a certified public accountant at their own expense.
Annual Trust Account Certification
Under the Client Trust Account Protection Program (CTAPP), all licensees are required to report annually if they were responsible for client funds and funds entrusted by others in the prior year.
If they were responsible, they must also certify that they are knowledgeable about and in compliance with the rules and statutes governing client trust accounts and the safekeeping of funds entrusted by clients and others.
Annual Trust Account Registration
All licensees who were responsible for client funds and funds entrusted by others in the prior year must register each trust account in which they held such funds at any time during the prior year.
It includes identifying account numbers and financial institutions in an online form using a secure system provided by the State Bar for reporting.
Annual Self-Assessment
Under CTAPP, all licensees who were responsible for a client trust account in the prior year must complete an annual self-assessment on client trust accounting duties and practices.
Compliance Review
If selected by the State Bar, a licensee must complete and submit a client trust accounting compliance review to be conducted by a certified public accountant at the licensee’s expense.
Additional Actions
If selected by the State Bar for a compliance review, additional actions based on the results of the review may include an investigative audit, a notice of mandatory corrective action, and a referral for disciplinary action.
What If You Fail to Comply With CTAPP Requirements?
Compliance with the Client Trust Account Protection Program (CTAPP) requirements is crucial for California law firms to avoid disciplinary action or other consequences.
If a licensee fails to meet the CTAPP requirements, they will be enrolled as an inactive licensee by the State Bar according to the rules set by the Board of Trustees.
It is important to note that this inactive enrollment is cumulative, and does not prevent a disciplinary proceeding or other actions for any violations of the State Bar Act, the Rules of Professional Conduct, or other applicable laws.
Thus, it is imperative that law firms comply with CTAPP requirements to maintain their active status and protect their reputation.
What is the CTAPP Reporting Deadline?
The Client Trust Account Protection Program (CTAPP) has certain reporting requirements that lawyers and law firms in California must follow. To stay compliant with the program, licensees must report annually whether they managed client trust funds during the reporting period or not.
The reporting deadline for this is tied to the date that annual licensing fees are due, which is January 31. It’s important to meet this deadline in order to avoid potential disciplinary action or other consequences.
Final Thoughts
The new Client Trust Account Protection Program (CTAPP) provides an important mechanism for protecting the funds of clients and ensuring compliance with applicable rules and regulations.
As a law firm, it is critical to stay up-to-date on the requirements of the CTAPP and ensure that you comply with the reporting and certification obligations.
If you need assistance with CTAPP compliance, we suggest you contact Miod & Company, LLP. Our team of experienced accountants and attorneys has a deep understanding of the requirements and can help you navigate the process efficiently and effectively.
We can also assist with other accounting and financial needs for your law firm.
