If your firm holds client funds in an IOLTA account, the monthly question is simple to ask and harder to answer: does the money in the account match what you hold for each client? A three-way reconciliation is how you answer it.
The three balances
- Adjusted bank balance. The statement balance, plus deposits the bank has not yet credited, minus checks written but not yet cleared.
- Check register balance. Every deposit and disbursement for the trust account, in order, with a running balance.
- Client ledger total. The balance held for each client matter, plus the bank fees ledger, added together.
When all three are identical, the account reconciles. When they are not, the difference has a cause, and the work is to find it.
Why three, and not two
Matching the bank to the check register can come out even while individual client balances are wrong, for example when a disbursement was charged to the wrong matter. Adding every matter’s balance to the comparison catches that, and it also exposes a negative client balance, which the rule prohibits.
What the rule calls for
Massachusetts Rule 1.15 calls for this three-way comparison, at least every sixty days, on any trust account that holds funds for more than one client matter, as a pooled IOLTA account typically does. Reconciling monthly keeps any difference small and recent, which makes it far easier to trace.
What a difference usually turns out to be
- Client cost reimbursements mixed in with fee income.
- Earned fees left sitting in the trust account.
- Checks that have been outstanding for months.
- Simple arithmetic errors, and now and then a bank error, such as the same check paid twice.
Keeping it routine
Reconcile on a fixed schedule, keep each month’s reports, and follow up on checks that stay outstanding. The account remains the attorney’s responsibility; a regular reconciliation is how you can see that it is in order.