Directs the chief administrator of the courts to develop and implement a random audit compliance program to conduct periodic financial audits of law firms that engage in the private practice and create and manage real estate escrow trust accounts in the state in order to ensure proper handling of IOLTA accounts; provides for the funding of the random audit compliance program.
STATE OF NEW YORK
________________________________________________________________________
9129
IN SENATE
February 5, 2026
___________
Introduced by Sen. BYNOE -- read twice and ordered printed, and when
printed to be committed to the Committee on Judiciary
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 fund-
ing of the random audit compliance program
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The judiciary law is amended by adding a new section 212-a
2 to read as follows:
3 § 212-a. Random audit compliance program. 1. The chief administrator
4 of the courts shall develop and implement a state-wide random audit
5 compliance program ("the program") to conduct periodic audits of law
6 firms that engage in the private practice and create and manage real
7 estate escrow trust accounts within the state of New York. The purpose
8 of the program is to ensure that law firms appropriately handle client
9 funds, maintain required records of clients' funds and attorneys' fees
10 as described in the rules of court and the rules of professional
11 conduct, and utilize generally accepted accounting practice in managing
12 their trust accounts. These goals will be accomplished through:
13 (a) educating New York attorneys on the proper method of compliance
14 with the record keeping and ethical responsibilities under the New York
15 rules of professional conduct, 22 NYCRR 1200, Rule 1.15;
16 (b) providing a deterrent effect due to the presence of an active
17 auditing program and an incentive to keep good records and to avoid
18 temptation to misuse trust funds; and
19 (c) the detection of misappropriation of client funds.
20 2. The chief administrator shall consult with the director of the
21 office of information technology services, or such director's designee,
22 to develop and implement a software program that will randomly select
23 law firms within the state for audit. Alternatively, the chief adminis-
24 trator may enter into an agreement to license for use an existing
25 program providing such capability. The program must ensure that the
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD14666-02-6
S. 9129 2
1 selection process provides that every law firm, regardless of size, has
2 an equal chance of being selected for an audit. The program must also
3 ensure that a law firm may only be selected for random audit once in a
4 five-year period. This provision shall not limit the ability to audit a
5 law firm for cause during the same five-year period.
6 3. An audit of a law firm that maintains more than one location within
7 the state shall entail an audit of all offices located within the state.
8 An audit of a law firm that maintains a location within the state and
9 one or more locations outside of the state shall entail an audit of only
10 the office or offices located within the state.
11 4. (a) A law firm audited under this section and any rules or regu-
12 lations promulgated pursuant to this section shall be required to
13 provide records for all trust accounts, business accounts, and fiduciary
14 accounts. Every audit will entail a two-year review of bank statements,
15 cancelled checks, wire advices, deposit slips, three-way trust reconcil-
16 iations, client trust ledgers, checkbook stubs or registers, and, if
17 necessary, case files, as well as any other documents or records the
18 chief administrator may specify or the auditor deems necessary to
19 advance or complete the audit.
20 (b) An audit may be performed by one or more auditors.
21 (c) A senior attorney with knowledge of the law firm's financial prac-
22 tices should be present for the audit. If such attorney is not avail-
23 able, a responsible person knowledgeable about the books and records
24 must be present for the audit.
25 (d) The auditor will conduct an initial interview to obtain detailed
26 information about the law firm's recordkeeping procedures. The auditor
27 shall review the firm's trust and business account books and records to
28 determine compliance with the rule requirements and will verify that all
29 funds entrusted to the attorney have been safeguarded in the attorney's
30 trust account.
31 (e) The auditor will document any recordkeeping deficiencies on a
32 deficiency checklist and will provide a copy of the completed checklist
33 to the law firm. The auditor also will discuss with the attorney or with
34 the responsible person in charge of the attorney's books the actions
35 required to correct any deficiencies.
36 5. (a) If no issues are discovered during the audit, a closing letter
37 shall be sent to the law firm confirming compliance with rule require-
38 ments.
39 (b) If minor deficiencies are discovered during the audit, a deficien-
40 cy letter describing shortcomings that require corrective action shall
41 be sent to the law firm. The firm shall have forty-five days to respond
42 with information about the corrective action that has been taken. If the
43 response is acceptable, the matter will be closed. If the firm does not
44 respond, the matter may be referred to for disciplinary action.
45 (c) If major deficiencies, such as misappropriation of clients' funds,
46 are discovered during the audit process, the matter shall immediately be
47 referred to the attorney grievance committee of the appellate division
48 in the department where the attorney or attorneys of the firm are admit-
49 ted to practice. A copy of the referral shall be provided to the law
50 firm.
51 6. (a) The random audit compliance program shall be established within
52 the offices of the lawyers' fund for client protection. The board of
53 trustees of the fund shall coordinate with the chief administrator of
54 the courts to implement the program and shall be responsible for hiring
55 program auditors. Funding for the program shall by provided by the fund.
S. 9129 3
1 (b) Each auditor hired must have an advanced degree in accounting or
2 certifications in fraud examination.
3 7. The chief administrator shall promulgate rules and regulations to
4 implement the provisions of this section. In the discretion of the chief
5 administrator, such rules and regulations may allow for differences in
6 audit procedures based on the size or location of a law firm, the volume
7 of matters handled by the law firm and any review measures already
8 implemented by a judicial department.
9 8. For the purposes of this section, the terms "law firm" and "firm"
10 include law practices comprised of multiple attorneys, sole practition-
11 ers, and individuals or firms that provide legal services on a full-time
12 or part-time basis, regardless of corporate entity form.
13 § 2. Subdivision 2 of section 212 of the judiciary law is amended by
14 adding a new paragraph (ff) to read as follows:
15 (ff) Establish, implement and oversee the random audit compliance
16 program described in section two hundred twelve-a of this article.
17 § 3. Section 97-t of the state finance law, as amended by chapter 103
18 of the laws of 1990 and subdivision 2 as separately amended by chapters
19 103 and 190 of the laws of 1990, is amended to read as follows:
20 § 97-t. Lawyers' fund for client protection of the state of New York.
21 1. There is hereby established in the custody of the state comptroller a
22 special fund to be known as the "lawyers' fund for [clients] client
23 protection of the state of New York".
24 2. The full amount of the allocable portion of the biennial registra-
25 tion fee collected pursuant to the provisions of section four hundred
26 sixty-eight-a of the judiciary law and such other monies as may be cred-
27 ited or otherwise transferred from any other fund or source, pursuant to
28 law, including voluntary contributions, together with any interest
29 accrued thereon, shall be deposited to the credit of the lawyers' fund
30 for client protection of the state of New York. All deposits of such
31 revenues not otherwise required for the payment of claims as hereinafter
32 prescribed shall be secured by obligations of the United States or of
33 the state having a market value equal at all times to the amount of such
34 deposits and all banks and trust companies are authorized to give secu-
35 rity for such deposits. Any such revenues in such fund, may be invested
36 in obligations of the United States or of the state, or in obligations
37 the principal and interest on which are guaranteed by the United States
38 or by the state.
39 3. Moneys in the fund shall also be available to the trustees of the
40 lawyer's fund for client protection for the purposes of funding the
41 random audit compliance program described in section two hundred
42 twelve-a of the judiciary law.
43 § 4. Severability. If any clause, sentence, paragraph, subdivision,
44 section or part of this act shall be adjudged by any court of competent
45 jurisdiction to be invalid, such judgment shall not affect, impair, or
46 invalidate the remainder thereof, but shall be confined in its operation
47 to the clause, sentence, paragraph, subdivision, section or part thereof
48 directly involved in the controversy in which such judgment shall have
49 been rendered. It is hereby declared to be the intent of the legislature
50 that this act would have been enacted even if such invalid provisions
51 had not been included herein.
52 § 5. This act shall take effect on the one hundred eightieth day after
53 it shall have become a law. Effective immediately, the addition, amend-
54 ment and/or repeal of any rule or regulation necessary for the implemen-
55 tation of this act on its effective date are authorized to be made and
56 completed on or before such effective date.
