Blue Tab

BLOG

IOLTA Tip #3: Properly Maintaining IOLTA Accounting Records
Monday, January 7, 2013

Every lawyer who holds money for clients must have a system in place for maintaining and properly recording all transactions related to these funds. There are many resources available to read and review. In this article, I offer a few tips to make sure you have proper accounting procedures in place for handling client funds held in your IOLTA account.

Here are a few basic facts before discussing accounting procedures:

• The “IOLTA” acronym stands for “Interest on Lawyers’ Trust Accounts”;
• The basic nature of an IOLTA account is that it is, in essence, an escrow account, for the deposit of unearned client funds. The interest earned on these accounts generates revenue for the state’s legal aid fund.

• Lawyers are required to send itemized bills to clients at the time the lawyer withdraws funds from a trust account to pay themselves for services. These itemized bills should show:
• the services provided with a description and dollar amount;
• the amount withdrawn from the client’s trust account to pay the bill;
• the amount of funds the lawyer continues to hold in the client’s trust account after withdrawal for payment of the invoice.
• Lawyers should not make withdrawals from trust accounts by ATM or checks payable to “Cash” and are required to use pre-numbered checks.

For the trust accounting, you also need:

1) The trust bank account balance to match the trust liability account balance.

2) A ledger for each client’s trust balance, the total of which equals the trust bank account balance.

3) A detailed ledger, for each client, showing the ins and outs of the trust monies.

When it comes to your trust accounting, there’s one requirement that affects lawyers and other legal professionals and doesn’t exist in most other professions. It’s called the 3-way reconciliation report. The Rules of Professional Conduct require lawyers to demonstrate that their financial records accurately reflect all of the transactions in which a client has given them monies “in Trust.” The “three-way” reconciliation accomplishes this by comparing the total of the individual client ledgers and the bank charges with the balance in the check register. Both amounts should be the same. http://goentrust.com/what-is-a-3-way-reconciliation/

How a 3-way reconciliation works:

first

second

third

To complete the 3-way match you first reconcile the Checkbook Register to the Bank Statement. The Bank Statement must match the Checkbook Register after taking into account any withdrawals or deposits that have not yet cleared the bank. Most people are familiar with this process as it is the same as balancing your personal checkbook.

Once that is complete, you need to make sure the Checkbook Register matches the total on the IOLTA Balance Register.

The first step shows you have recorded in your checkbook all of the transactions that cleared the bank. The second step shows you have recorded all of the transactions which affect the client’s IOLTA balance.

There are plenty of IOLTA resources out there. It’s a matter of accessing those resources. The best thing that you can do with respect to IOLTA accounting is to access the available information, and to learn as much as you can. Then, create a system for managing your IOLTA accounting, and follow, in addition to the ethical rules, your own internal procedures, which should include monthly three-way reconciliation.

Recent Posts

CPN Legal Blog
- 07/01/2020 - The Value of a Cash Flow Repor
- 10/11/2019 - Year End Collections: Tips for
- 08/07/2019 - Collection Realization Rates t
- 10/23/2016 - Year-end planning: Collect Dat
- 09/12/2016 - Year-end planning for lawyers:
- 07/14/2016 - The 6 Month Financial Checkup:
- 05/31/2016 - How to Ditch That Unprofession
- 05/28/2016 - Evolution of Marketing for Law
- 02/15/2016 - 5 Checklists to add efficiency
- 03/01/2015 - Implementing project managemen
- 02/09/2015 - Use LinkedIn’s Relationships T
- 01/04/2015 - Is 2015 going to be a profitab
- 01/04/2015 - Is 2015 going to be a profitab
- 12/09/2014 - Clio Turns Tasks into Processe
- 11/25/2014 - Back to Basics: 20 Tips to emp
- 11/23/2014 - Holiday season and networking
- 10/26/2014 - Lawyers, do you have a game pl
- 10/15/2014 - Collection Realization Rates:
- 10/12/2014 - Focus on managing processes, n
- 10/09/2014 - Would You Pass a Trust Account
- 10/09/2014 - The Evolving Role of a Paraleg
- 10/06/2014 - A Clio Workflow for Collecting
- 09/28/2014 - The Evolution of Online Market
- 09/24/2014 - Clio Emerges as a Platform not
- 09/13/2014 - Are you going to be left behin
- 07/31/2013 - Lawyers: Managing Your Online
- 07/17/2013 - If You’re Going to be on Linke
- 04/29/2013 - One Way to Differentiate Yours
- 04/19/2013 - More Favorite Products from 20
- 04/18/2013 - A Sampling of My Favorite Prod
- 04/14/2013 - Tips from ABA TechShow: iPad A
- 04/03/2013 - Headed to ABA LegalTech Show
- 02/10/2013 - LinkedIn Tips for Lawyers #1:
- 02/04/2013 - Thinking About Blogging – Just
- 01/07/2013 - IOLTA Tip #3: Properly Maintai
- 12/10/2012 - Tip #2: IOLTA/Credit Cards – N
- 11/27/2012 - Handling Credit Card Payments
- 11/12/2012 - Some random tips and ideas to
- 10/23/2012 - More WOW Tips for Retaining Cl
- 10/21/2012 - History of Social Media – Info
- 10/07/2012 - If You Give a Client a Cookie,
- 10/02/2012 - In the Stands or On the Track:
- 09/24/2012 - One simple change to create a
- 09/19/2012 - Attraction vs Retention Market
- 09/03/2012 - A Cyclist’s Perspective on Fee
- 08/12/2012 - Where’s the Money – Managing t
- 08/04/2012 - Where’s the Money – Keep a Reg
- 07/29/2012 - Where’s the Money – Another Pe
- 07/22/2012 - An Informed Client is a Happie

Tag Cloud

Clio 2019 Partner Led Excellence Award Winner

Cincinnati Bar Association

Amicus Certified Consultant

Intuit Certified ProAdvisor | Quick Books

Gusto - Payroll for Solo and Small Firms

With Jack Newton, co-founder of Clio, Chris shares need-to-know info on these government aid programs – CARES ACT

CONTACT INFO

CPN Legal
Call Us (513)-315-5750

9624 Cincinnati Columbus Rd
Suite 318
Cincinnati, OH 45241

Map and Directions >

COPYRIGHT © 2020. CPN LEGAL. ALL RIGHTS RESERVED.

Try Clio