Trust Reconciliations

Reconciliation is the accounting procedure that proves your trust transactions were recorded accurately and provides proof that there are sufficient funds in trust. The following accounts should be reconciled monthly:

  • Pooled Trust Account – Rule 119.36 (4)(d);

  • Separate Interest-Bearing Account (SIBA) – Rule 119.20 (2); 

  • General Account - Rule 119.40; and

  • Credit Card Accounts.

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)).

Bank reconciliation is a three-way process. It compares three balances:

  1. The Trust Bank Journal “Book Balance” (all receipts and disbursements)

  2. Client Trust Listing – Balance your records show for each client and

  3. Trust Bank Statement Balance – Balance shown by the bank adjusted for cheques and deposits that have not yet cleared 

Note: The Trust Assets (Trust Bank Account), Trust Liabilities (Client Trust Listing) and Control Account (Trust Journal), MUST BALANCE TO THE PENNY

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. Compare your bank balance to your trust bank journal.

  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 interest bearing 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.

What should be included for review and retained after a bank reconciliation?

  • The Trust Bank Statement (Pooled and SIBA)
  • The bank reconciliation statement (arithmetic calculation) with supporting documents (such as uncleared cheques, uncleared deposits, detailed list of adjustments with description)
  • The Trust Bank Journal
  • The Client Trust Listing  
  • Trust transfer journal – Include only transactions for the month being reconciled 
  • Save a PDF copy of the bank reconciliation 
  • The Responsible Lawyer must review, sign and date within 30 days

What to look for in a bank reconciliation

Trust Bank Account

  1. List of “Uncleared Deposits.” Why are these deposits in your books not showing at the bank? 
    Pay special attention to:

    • Recurring outstanding deposits carried over from month to month.
    • That the deposit book confirms any outstanding deposits listed on the trust bank reconciliation were deposited the next banking day.

  2. List of “Uncleared Cheques.” If sufficient time has passed, why do these cheques remain uncleared?

    • Less than 30 days. Were the transactions near the statement closing date?
    • Greater than 31 days. Determine why transactions have not cleared.
      • Contact parties, e.g. outstanding cheques
        • Confirm entries are correct, e.g. duplicate entries

  3. Stale-dated cheques - Cheques are stale-dated six months after the issue date. Consider putting a stop-payment and re-issuing the cheque(s) to your client(s).

  4. Are there bank service charges or posting errors? If so, ensure that they are corrected.

  5. Adjustments should be clearly explained and not simply carried over into the next month.

  6. Ensure that all Separate Interest-Bearing Trust Accounts are included on the trust reconciliation.

  7. Review all cancelled cheques attached to the bank statement (as a general fraud check).

Client Trust Listing

  1. Identify Balances.

  2. Are there any matters closed less than two years with retainer balances? If so, formulate a plan to issue refunds.

  3. Are there any client files that have been inactive for more than two years? If so, consider returning funds to the client or remitting funds to the Law Society under the provisions of Rule 119.27.

  4. Are there any files with large balances in trust for a long period of time? If so, consider whether it would be appropriate to open a Separate Interest-Bearing Trust account.

    Note: Obtain written client authorization prior to opening a Separate Interest-Bearing Trust account.

  5. Is the “float” within the allowable limit of $500 per Rule 119.19(4)(d)?  If not, issue a trust cheque payable to the general account for the excess amount over $500.

  6. Are there any shortages? Per Rule 119.24(3) the shortage should be reported if: the law firm does not correct the deficiency within seven days of the time the shortage arose, or the deficiency is an amount greater than $2,500, regardless of when the deficiency is corrected.

  7. If the cause of the shortage cannot be immediately identified, it is the Responsible Lawyer’s obligation to replace the funds from the General Account as soon as possible. 

Trust Bank Journal 

  1. Ensure the ending balance of the Trust Bank Journal agrees with the Client Trust Listing and Adjusted Bank balances.

  2. Adjustments should be clearly explained and not simply carried over into the next month.

<3.11 I Have a Trust Shortage - Now What?

3.13 Practical Information on Banking>

Last modified: Tuesday, 15 June 2021, 6:15 PM