California attorneys have an ethical, nondelegable duty to safekeep funds and property of clients and involved third parties. While the duty falls solely on the attorney, it is permitted for attorneys to work with firm employees and contractors in completing the day to day trust account bookkeeping and recordkeeping. While this is the case, attorneys are required to review the work upon completion. Attorneys must remain abreast of every move within the trust account they are responsible for. Specifically when it comes to reporting, attorneys must be able to answer questions posed by the clients themselves or auditors.
This article presents 6 digestible steps for licensees to follow when reviewing monthly three-way reconciliation prepared by a team member or bookkeeper. It includes potential signs of miscalculation, questions to ask to ensure general preparedness, as well as actions to perform between reconciliations to remain organized and in compliance.
Be sure to gather all the necessary documents to review for each trust account. You will need:
(1) Trust account journal
(2) Individual ledgers
(3) Bank statement with check copies
(4) Client ledger summary (list of clients and their balances)
(5) List of outstanding deposits
(6) List of outstanding disbursements
As you begin reviewing the documentation of the completed three-way reconciliation, keep the following questions in mind to determine if things are correct. If you cannot answer the questions simply, it may be time for further inquiry to the preparer.
On the Reconciliation form
On the Account Journal
On the Individual Ledgers
On the Bank Statement with Check Copies
All documentation including the client ledger summary, bank statement ending balance, account journal, outstanding deposits, and total outstanding disbursements should be correctly reflected on the monthly reconciliation form. Do the balances appear reasonable?
Look at the account journal and client ledger for disbursements that have yet to be cleared by the bank. Ensure that any clients with undeposited disbursements are communicated with immediately to verify receipt of disbursement and inquire why it has not been deposited. Encourage the client to deposit the disbursement. If the client reports that disbursement was not received, stop payment on the first payment and reissue another payment.
Similarly, if any deposits received by the firm are not yet deposited into the trust account, determine why with firm staff, especially if it has been more than 30 days. The deposit must be made as soon as possible. Remember that attorneys are required to deposit funds into client trust accounts on a timely basis per Rule 1.15.
Perform spot checks on the reconciliation with your trust account source documents verifying the amounts regularly. The California State Bar suggests this be done on a quarterly basis. Compare the ending balance of the other bank statement to the record provided by the preparer. Alternatively, pick one of two check copies provided with the bank statement to confirm the amounts are recorded accurately in the client’s ledger.
This practice also applies to client files relating to trust account activity. On a regular basis, spot check client deposit and disbursement copies and ensure they are saved to client files. This will prove a proactive way to prevent missing information when it is time to complete the three-way reconciliation.
Adhering to the rules regarding monthly three-month reconciliation can feel daunting if you are unfamiliar with how to complete the task or unsteady in your bookkeeping skills. SmartBean® is committed to helping attorneys navigate these complexities with our professional bookkeeping services. If you need assistance managing your client trust accounts, call SmartBean® to receive your free consultation today!
