Most trust account problems at small firms do not start with anything dramatic. They start with a busy month, a shortcut that seemed harmless, and a reconciliation that slipped. Over 12 years of keeping books for law firms in Massachusetts, we have seen the same handful of mistakes come up again and again.
Here are five of them, and the simple habits that prevent each one.
1. Earned fees left sitting in trust
A retainer is deposited into the IOLTA account. Work gets done, an invoice goes out, and the fee is earned. Then the money stays in trust for months because nobody got around to transferring it.
Why it matters: once a fee is earned, it belongs to the firm, and leaving the firm’s money in the trust account mixes firm funds with client funds. It also makes the client ledgers harder to read.
How to prevent it: make the transfer part of your billing routine. When an invoice is paid from trust, the transfer to operating happens the same week, and the client ledger shows it.
2. Client cost advances recorded as income
A client reimburses the firm for a filing fee or expert cost the firm paid on their behalf. In the operating books, that reimbursement gets recorded as fee income.
Why it matters: your income looks higher than it is, and your expenses look higher too. Reports by associate or by service line stop meaning much.
How to prevent it: track client cost reimbursements separately from fees in QuickBooks Online, so each one offsets the cost it repays.
3. Bank fees paid from client money
A wire fee or monthly service charge hits the trust account, and it gets recorded against a client’s ledger, or not recorded at all.
Why it matters: bank charges are not a client’s to pay. Massachusetts Rule 1.15 calls for a separate ledger for bank fees and charges, so they never quietly reduce what a client is owed.
How to prevent it: keep the bank fees ledger, and make sure it is part of every reconciliation.
4. Checks that stay outstanding for months
A disbursement check is written to a client or a third party, and it never clears. Month after month it sits on the outstanding list.
Why it matters: the money still belongs to someone, and the longer a check sits, the harder it is to resolve. A check outstanding for months is one of the clearest signs a trust account needs a closer look.
How to prevent it: review outstanding items at every reconciliation, and follow up with the payee once a check passes a set age. Raise it with the responsible attorney so it gets a decision.
5. A difference nobody can explain, carried forward
The bank, the register, and the client ledgers are off by a small amount. Nobody can find it, so the difference gets noted and carried into next month. Then the month after.
Why it matters: small differences rarely stay small or simple. The longer they sit, the more transactions there are to search through.
One firm came to us with exactly this. Its IOLTA account was off, and no one at the firm could explain why. We worked back through about three years of records, found where the error started, and corrected it. The firm ended up with corrected reconciliations for the full period, prepared for the review that followed.
How to prevent it: reconcile monthly, and do not close a month with an unexplained difference. Massachusetts requires a three-way reconciliation at least every sixty days. Monthly keeps any problem one month deep.
The common thread
Every one of these mistakes is easier to prevent than to fix. A monthly three-way reconciliation, operating books that track fees and cost reimbursements separately, and someone outside the day-to-day who looks at both each month will catch nearly all of them early.
Not being sure the account is right is often the first sign it needs a closer look.
What Larsen Bookkeeping does for Massachusetts firms
- A monthly three-way IOLTA reconciliation, with any difference traced to its source.
- Operating books in QuickBooks Online, with client cost reimbursements tracked separately.
- Reports set up around the questions you ask, such as billings by associate and income by legal service line, where your records support it.
- A monthly review conversation.
Some firms keep an in-house bookkeeper for day-to-day entries and bring us in for the reconciliation and a second set of eyes. The account remains the attorney’s responsibility; the monthly reports let you see whether it reconciles.
Talk it through
Larsen Bookkeeping works with solo attorneys and small firms in Massachusetts only, especially firms of two to six lawyers. If any of these mistakes sounds familiar, request a consultation. You can also call 781-924-1489.
This article is general education, not legal advice. Consult Rule 1.15 and the Office of Bar Counsel for your obligations.