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Are you prepared to pass a Trust Account Audit?? - Part II


In our previous post we started the conversation about the areas you need to go over in order to pass without headaches your Trust Account Audit. To recap the list included: 

  1. Do not mingle the operating funds with your Client’s trust funds.

  2. Complete your 3-way reconciliation on time every month.

  3. Maintain a separate Ledger for each of your clients’ funds.

  4. When invoicing include an accounting summary of your clients’ funds.

  5. When receiving Credit cards for Trust funds, make sure to use a law friendly payment software.

  6. Identify every check/transfer you deposit and withdraw from the Trust Account with the Client’s name and matter.

Let’s start today by going thru each of this in more detail:


Commingling Operating or Personal funds with your client’s trust Funds. 

This is one of the most important guidance dictated by the Bar Association. The Trust Account or IOLTA is meant to hold your client’s funds and commingling is a violation of the ethics rules. If you fail to keep your clients’ funds separate from your personal funds it may be considered a breach on your fiduciary duty: you must handle your clients' money with the highest standard of care. Those who commingle and spend their clients’ funds for their personal gain have breached both their fiduciary and committed legal malpractice and this can cost your license. We can’t highlight this enough, trust me, do not commingle.


Even though avoiding commingling is a very important part of being in compliance, our next subject has a huge impact. Performing a 3-way Reconciliation as the name suggests balances three things: your internal books against your Trust Account bank statement, and then it reconciles with each client ledger.


Most Bar Associations mandate to complete this on a regular basis, however, we’ve seen many law firms didn’t know about the requirement or just avoid it because it is time-consuming. We are true believers that this step must be part of your monthly bookkeeping. It is truly the best way to know what is happening in your trust account, make sure you transferred all your earned money to your operating account, and find out about any discrepancies so you can fix it immediately with a fresh mind. 


In order to complete your 3-way reconciliation, you must have a Client’s Ledger. This contains a detailed view of all the accounting history by matter including opening balances, disbursements, time and fees, billing, and payments. Nowadays most Practice Management has the ability to keep track of your clients funds. 


Stay tuned, on our next post we will discuss our last three steps to be Audit Ready!

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