If you read the quarterly State Bar Journal disciplinary section, you know that ignoring the trust account can result in severe disciplinary action. Do you know to whom every penny in your trust account belongs? Can you provide a client an accounting promptly? Are you maintaining all required records, including copies of both sides of negotiated checks? A good rule of thumb is that every transaction into or out of the trust account must have a supporting document, and that supporting document must indicate the client whose funds are impacted. What you want is a paper trail. You also need to maintain a general ledger for the account, which is like a check book register. It is your internal record for all the transactions in the account in date order with a running balance. You need to be able to create a list of individual client balances as of a certain date each quarter, although looking at this list monthly would be better. The list must always have positive client balances–see a negative balance, and you know there’s a problem. You will need this general ledger, the list of client balances, your bank statement and the supporting transaction documents to do your quarterly reconciliation. As an added precaution, we recommend that you do these reconciliations monthly, but that is not required by the rules. On a monthly basis, you are only required to reconcile your bank statement to your general ledger.
At the end of a representation, you must also be able to create a ledger for any client showing where all of their money has gone. The ledger should also reflect a running balance and an ending balance of zero. If you hold client funds longer than a year, you are required to provide an accounting (ledger) to the client annually. There is also a quarterly review report which requires you to pull three random client transactions and verify each transaction with the source documentation.
The State Bar has forms on their website for these monthly and quarterly reports, and we can also provide these reports to you. We are now offering trust account procedural audits for a flat fee. We can assess your trust account record-keeping, and note deficiencies. We can also provide you a checklist to assist with your reconciliations in the future and may be able to suggest a better, or more efficient way, to handle the trust account. Let us know if we can assist you. It’s never a bad idea to have someone look over your shoulder.