This period while your practice may be a little slow could be an excellent time to get caught up on your trust accounting if your bookkeeping has been less than ideal in the past or you’ve gotten behind.
I see smaller firms still doing trust accounting and trust reconciliation by hand which is time consuming and prone to simple math mistakes that can take hours to fix.
In speaking with new clients I often learn they use QuickBooks to maintain their operating accounts. QuickBooks is a good software and fairly simple to use even for the trust account. With a few slight modifications you can easily maintain and produce the trust accounting reports (the proper three-way reconciliation) as required in Rule 1.15.
This downtime provides a good opportunity to become compliant in your trust accounting. You will need to start with locating the following bank records to recreate the data.
- Bank statements
- Images of cancelled checks, showing client for whom disbursement was made
- Deposit tickets, showing client for whom funds were received
The NC State Bar requires a three-way reconciliation. The first report is reconciling your books to the monthly bank statement. The mistake I’ve seen law firms make with their trust accounting is that they complete the traditional bank reconciliation and go no further. Trust accounting requires two additional reports.
The second report is the list of clients and the balance you are holding for each client. It is not until this step is done that you identify if you have a violation such as an over disbursement.
The third report is maintaining the general ledger which is the old-fashioned checkbook register including the beginning balance, the deposits, check written, the running balance and the ending balance, all of which must agree with the other two steps.
Lawyers are not accountants by design, so they keep pushing trust accounting to the back burner. But as you probably know, trust accounting violations are the most common reasons for bar grievances so now is a great time to get caught up.
If you are way behind, have run into a problem you can’t resolve or are creating a trust account for the first time for your firm you may want to contact an accountant that specializes in trust accounting to get you on the right path.