The key to appropriately managing a client trust account is having a system in place that will alert the attorney as soon as possible that a transaction may have been entered erroneously. Several simple, monthly checks will help you discover errors quickly. In Part 1 of this series, we considered the importance of ensuring that the total balance in the trust bank account always matches the total balance in the client trust liability account; Part 2 discussed the importance of maintaining a credit balance in the Trust Bank Account. In Part 3, we explain why and how involving the client in your system of trust accounting checks and balances is important.
Most states’ RPCs require attorneys to provide regular client trust accounting statements to clients, and for good reason: A client has a vested interest in tracking his trust funds, and he can serve as a last line of defense to help discover trust accounting errors. Of course, attorneys always strive to ensure that any trust accounting errors are rectified immediately, so that the client is not impacted; but where a trust accounting misstep does slip by the attorney and his system of checks and balances, open and honest communication with (and accounting to) the client can be the best and last defense an attorney has to prevent missteps.
Providing monthly statements to clients also serves another useful purpose, and that is ensuring that the attorney’s accounting systems appropriately track which funds belong to which client. It is not enough to keep the general bank and ledger accounts in order, if the attorney can’t sort one client’s funds from another. All major accounting software, including QuickBooks and Xero, will allow attorneys and bookkeepers to track individual clients’ trust funds within the larger trust account.