Client trust accounting
There are regulations governing the management of client monies in every jurisdiction globally. For American law offices, it’s each state’s Rules of Professional Conduct including client trust accounting.
In the United States, accounting obligations have gotten tougher since the infamous Thomas Girardi case. The new zero-tolerance stance by state bar associations demands mandatory compliance – or face the consequences.
Knowing and adhering to accounting protocols is your professional responsibility, but it’s also more easily said than done as it’s unlikely to be your area of expertise. After all, front-office, client-facing duties come first. Back-office, administration-type tasks have a tendency to come second.
To help you out, we’ve collated the information, resources and guidance you need to safeguard client funds, comply with onerous financial management requirements, and avoid client complaints along with accompanying investigative or disciplinary action.
Client trust accounting: the basics
Let’s backtrack slightly. Not everyone’s au fait with client trust accounts rules. In a nutshell, it’s the process of managing funds that are held in trust on behalf of clients. In most states, Law offices must keep client funds separate from office funds. This necessitates maintaining separate IOLTA/IOLA bank accounts and, for client funds, accurate record keeping of every transaction in and out.
‘Why is client trust accounting important?’, you may ask. There are two main reasons. First, it’s mandated by law. Failure to comply means you’re breaking the law. Second, it protects client funds from theft. Protection of client monies is a priority always.
‘How can I comply?’, you may also ask. This web page shows you how.
Compliance on a national scale
The Girardi effect
While the case against Thomas Girardi took place in California and the State Bar of California has taken a lead role in updating policies, procedures and legislature to ensure misappropriation of client funds on this (or any!) size doesn’t happen again, other state bars are quickly following suit.
‘The Girardi effect’ is not limited to the California legal community alone. It’s a nationwide concern. Including yours!
Handy tools and guides
Get to grips with trust accounting duties
The State Bar of California’s news center – As the headquarters of all-things client trust accounts reform, you’ll find breaking news here first.
Your state bar association’s client trust accounting handbook – As a ‘for instance’, California’s handbook is downloadable at calbar.ca.gov. Search in Google to locate the handbook relevant to you.
Our client trust accounting white paper – Written specially to assist compliance with increasingly complex accounts practices being set in stone by state bar associations, discover more on Girardi and the background to upcoming changes, access questions to ask in your business to position yourself here and now, and read the solutions to your trust accounting compliance dilemmas.
Learn from the experiences of other law offices
In the Girardi illustration, accounts breaches were deliberate. Client monies were intentionally stolen. Sometimes, though, infringements happen through no fault of your own.
Here’s what Sheryl Seiden at Seiden Family Law has to say about an episode of fraud on her trust accounts which were put right again by Jayva:
“Jayva has been our hero. After we had fraud on our trust account, we then had some accounting issues that had to be reconciled. It required significant unraveling of our trust account. Jayva worked tirelessly to reconcile our accounts. Since then, they’ve been our ace in the hole ensuring that our finances are perfectly organized and managed. They are very responsive, organized, dedicated and helpful. During our monthly meetings, not only do they highlight all issues, but they evidence a real dedication to their work. Jayva is very knowledgeable about the software they support and if they run into an obstacle, they know how to obtain the information to overcome it. I would highly recommend Jayva to support all of your firm’s accounting needs.”
Be proactive – not reactive
Your essential compliance toolkit
The best approach to trust accounts compliance is, by far, following essential bookkeeping principles at the outset. Burying your head in the sand and waiting to see what happens is a potentially dangerous and costly strategy. The survival of your business is literally at stake.
Take charge of the situation with:
Our client trust accounting system health check – Costing only $1,750 to get your accounts shipshape and gain peace of mind, sign up for this service.
Use legal accounts software that’s fit for purpose – Excel and paper-based processes aren’t up to the job. Instead, we recommend choosing LEAP Legal Software integrated fully with either QuickBooks Online or Xero for single data entry, information flow, and trusted financial management functionality. Ask for pricing and request a demo.