Trust Reconciliations

Updated: Jun 25


Law firms in Australia, Ireland, the United Kingdom and United States who hold client or trust monies on behalf of their clients are all subject to regulation. The regulatory bodies across those countries may choose to inspect their books at any time. The most critical task for all firms is the completion of an accurate bank reconciliation balanced against a list of client ledgers constituting the sum of all individual funds held. Uniformly, the monthly reconciliations will be the first documents sought by the auditor. This article sets out the basic requirements in each country and offers tips on reconciling and also completing any missing records.


Australia


Similar to the United States, Australia operates a state-based regulatory system however the rules are uniform in every state. All law practices operating trust accounts are required to reconcile “within 15 working days after the end of month concerned”. Rule 48 of the Legal Profession Uniform General Rules (NSW & VIC) state “The trust records relating to a general trust account are to be reconciled as at the end of each named month by preparing a statement reconciling the general trust account balance as shown in the ADI records with the balance of the practice’s trust account cash books and (with) a statement containing a list of the practice’s trust ledger accounts showing name, reference and balance of each matter”.


Ireland


The Solicitors Accounts Regulation 2014 Rule 25 Minimum Accounting Records (1) (j) specifies that a solicitor or firm of solicitors must maintain “a copy of each balancing statement” which refers to the requirement to keep a monthly reconciliation.


United Kingdom


Solicitors Account Rule 8.3 specifies that a solicitor “completes at least every five weeks, for all client accounts held or operated by you, a reconciliation of the bank or building society statement balance with the cash book balance and the client ledger total, a record of which must be signed off by the COFA or a manager of the firm. You should promptly investigate and resolve any differences shown by the reconciliation.”


Similarly in Scotland, Accounts Rule 6.8.1 specifies that “Every practice unit shall within one month of the coming into force of rule 6 or of its commencing practice, and thereafter at intervals not exceeding one month, cause the balance between the client bank lodged and drawn columns of its cash book or the balance of its client bank ledger account as the case may be to be agreed with its client bank statements and shall retain such reconciliation statement showing this agreement for at least the required retention period from the dates they were respectively carried out.”


United States


Taking Florida as our example, Bar Rule 5-1.2 (d) (1) specifies that “a lawyer is required to make monthly reconciliations of all trust bank or savings and loan associations accounts, disclosing the balance per bank, deposits in transit, outstanding checks identified by date and check number, and any other items necessary to reconcile the balance per bank with the balance per the checkbook and the cash receipts and disbursements journal.”

A firm could choose to write their reconciliation on a sheet of paper, provided they appended pages for the cash book, bank statement and trial balance and indicated date of preparation of all. A far superior method is to use LEAP. Strict rules ensuring that all cash book entries are to be recorded in chronological sequence ensure an accurate audit trail is always at hand, although at the cost of some flexibility when attempting to recreate records. Here are some tips when reconciling:


Verify the starting point

It may seem obvious you cannot move a reconciliation forward without knowing your starting point – the last time bank plus/minus adjustments agreed with the cashbook. Before diving into a lengthy reconciliation process, it might pay to reconfirm the last closing bank balance and any unusual or generic ‘adjustments’.


No starting point? Work backwards

If a cash book has missing reconciliations or an unclear starting point, work backwards. This can be particularly useful when dealing with systems with transitioned legacy data and you are unsure if transactional data should have been listed as an adjustment by virtue of inclusion in the previous system’s cash books. You know what balance you are aiming for – the closing cash book compared against the closing bank of same date. Working backwards through the bank statement data can often reveal the missing adjustments.


Use the Bank Register in LEAP

LEAP’s Bank Register is a convenient chronological running balance of trust, with added indication if a payment or deposit has been cleared on an earlier reconciliation. When dealing with multiple transactions of same value, it is all too easy for a user to cross-tick the wrong transaction. The Information ~ Search Transactions function adds to your ability to search by date and by value. Don’t forget the Tools menu within every receipt will provide information about the deposit it may be attached to.


Back date a reconciliation if incorrectly finalised

All State & Territory Regulations and Rules stipulate reconciliation must be performed as at month-end. If users have inadvertently finalised on a subsequent date, e.g. the 1st or 2nd of the following month, all is not lost. Try this process: output the reconciliation to Excel and replace all total fields with sum calculations. Ensure your formulas are correct. Referring to bank statement and cashbook data, replace transactions within the reconciliation that may have been presented as if the reconciliation truly had been conducted at month end. Alter the closing cash book and bank balances and achieve your nil variance. The rules stipulate a reconciliation must be performed and be reproducible at audit – provided the recreated rec was performed within the time limit, no qualification at audit would be expected.


Reconciliations are a test that what you state you have recorded in your bank has actually been recorded at the correct value. Always be mindful that practitioners are managing their client’s money in trust, not their own money, and a duty to pay that money as directed is in continual existence.

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