3.12 Trust Reconciliations

Reconciliation is the accounting procedure that proves your trust transactions have been recorded accurately. Reconciliation must occur monthly for as long as any trust account remains open, whether there have been any trust transactions in that month or not (Rule 119.36(4)(d)).

There are four stages to proper trust reconciliation for both pooled and separate trust accounts:

  1. Reconcile the approved depository balance for the account with the statement and with your records for the account.
  2. Reconcile the reconciled approved depository account balance with the total of the detailed monthly listing of individual clients.
  3. Ascertain your total trust liability by adding together each reconciled bank account balance (pooled and separate) and agreeing to the total "gross trust liability," which is the total trust balance as shown in your general ledger.
  4. Correct any unreconciled items.

The "gross trust liability" of your firm must include the amounts held in clients' separate trust accounts; it is not just the amount in your pooled trust account. Some lawyers make the mistake of removing the trust liability from the accounting records at the time a client's funds are transferred from a pooled account to a separate trust account. Your "gross trust liability" is unaffected by a transfer from one trust account to another.

The wrong way to show a transfer from a pooled account to a separate account is:

DEBIT: trust liability account
CREDIT: pooled trust account

The right way to show the transfer is:

DEBIT: client's separate trust account
CREDIT: pooled trust account

In this way the trust liability is unaffected but the amount of the client's trust funds is segregated to a separate trust account.

Your internal office procedures regarding trust reconciliations should

  • diarize the date when trust account statements are due from your approved depository and a system of follow-up to ensure statements are received in a timely fashion,
  • diarize the date of the monthly reconciliation and
  • include a policy according to which all staff members know that any errors or differences must be brought to your attention immediately, so that you can correct or reimburse trust balances as necessary.

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3.13 Practical Information on Banking>

Last modified: Tuesday, 17 January 2017, 3:34 PM