New York Doesn't Randomly Audit Trust Accounts Yet — Here's Why That May Not Last

20 hours ago

3 min read

By Tammy Hoang, Certified QuickBooks ProAdvisor

Here is something most New York attorneys don't realize: the Appellate Division's rules have authorized a random audit program for attorney trust accounts since 1994. It has simply never been implemented. Today, a New York trust account only gets examined if a client files a complaint or a bank reports a dishonored check — there is no proactive, random compliance check the way New Jersey, North Carolina, Florida, and Texas all run.

That may be changing. A 2026 bill in the New York Legislature, driven by a Newsday investigation into escrow theft and a New York City Bar report analyzing nine other states' audit programs, would create exactly the kind of random compliance check New York has authorized but never used.

This article explains where New York's oversight actually stands today, why real estate escrow accounts specifically are under scrutiny, and what a firm should be doing now regardless of what the Legislature decides.

Authority That Exists, and a Program That Doesn't

Rules in New York's First and Second Judicial Departments — 22 NYCRR § 603.27 and § 691.12 — explicitly authorize the Grievance Committees to "propose regulations and procedures" for a random trust account review and audit program. These rules have existed since 1994. No such program has ever actually been put into place.

This means New York's current system relies entirely on reactive triggers: a client complaint, or a bank's mandatory report of a dishonored check under the Dishonored Check Reporting Rule. By the time either of those happens, a recordkeeping failure has often already occurred — sometimes commingling or misappropriation has already occurred. There is no mechanism to catch a firm's sloppy reconciliation before it becomes a real shortfall.

new york appellate division audit authority

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Why Real Estate Escrow Is the Current Pressure Point

In 2024, the New York Lawyers' Fund for Client Protection approved 94 awards for stolen client funds totaling $11.6 million — a 31 percent increase in the number of awards and a 90 percent increase in payouts from the year before. Of that total, real property escrow losses alone accounted for $9.9 million, with theft of settlement proceeds adding another $415,476.

A pending bill, introduced in the Assembly as A.10145-B and in the Senate as S.9129-B, would direct the Chief Administrator of the Courts to create a random audit compliance program specifically targeting law firms that manage real estate escrow trust accounts — every firm would have an equal chance of selection, with no firm audited more than once in a five-year period.

What the Proposed Program Would Actually Do?

Under the pending legislation, the random audit compliance program would be established within the Lawyers' Fund for Client Protection, coordinating with the Chief Administrator of the Courts to hire program auditors. A firm found with deficiencies would have 45 days to respond with evidence of corrective action; if the response is acceptable, the matter closes. If major deficiencies — such as misappropriation of client funds — are discovered, the matter is referred immediately to the Attorney Grievance Committee of the relevant Appellate Division department.

This structure mirrors what New Jersey, North Carolina, and now California have already built: education and correction as the first response to a recordkeeping gap, with disciplinary referral reserved for the findings serious enough to warrant it.

new york proposed random audit legislation

What Rule 1.15 Already Requires, Regardless of the Legislation?

Whether or not the random audit bill passes, New York's Rule 1.15 already requires attorneys to notify clients promptly of the receipt of funds, prohibits commingling except for funds reasonably sufficient to maintain the account or pay account charges, and requires accurate records entered at or near the time of each transaction. Escrow and real estate attorneys are not waiting for a new law to be exposed to Rule 1.15 discipline — the underlying obligation is already fully in force.

The absence of a random audit program has meant many New York firms have never had their trust accounting checked by anyone outside the firm. That is not the same as being compliant — it simply means non-compliance has had fewer chances to surface.

How Irvine Bookkeeping Helps New York Law Firms?

The safest position for a New York firm right now is to already be doing what a future random audit would check for — monthly three-way reconciliation, individual client ledgers, and contemporaneous records — rather than waiting to see whether the pending legislation becomes law.

Irvine Bookkeeping prepares monthly reconciliations and maintains client ledgers built to satisfy Rule 1.15 today, and to be ready for whatever oversight structure New York adopts next. QuickBooks certified.