Paul W. Carlson, CPA (00:00):
You now have a complete IOLTA reconciliation report in your hand. Either you completed it, we completed it for you, or that employee that lost the bet completed it. What do you do with the reconciliation report next? It's very important that you review it for completeness and accuracy. The fastest way to review an IOLTA reconciliation report is to use a checklist to confirm that everything is there.
(00:24):
A quick note on delegating trust accounting. It's okay for lawyers to delegate trust accounting requirements. However, ultimate responsibility for trust account remains with the lawyer. If the trust account goes wrong, lawyer can't say, "My bookkeeper messed it up. You can't take action against me." The lawyer is always completely responsible for their trust account, which makes going through the trust account with a checklist very important.
(00:54):
So, here we have the first page of our IOLTA checklist. We use this checklist internally when preparing IOLTA reconciliation reports, and we give copies of this to our clients for their review. What I'm going to do is jump over to our example IOLTA reconciliation report, and talk through each of the checklist points from the example. So, if you want, I would suggest downloading a copy of the checklist from the link below and follow along on the example.
(01:27):
This is the example IOLTA reconciliation report that we use. Let's go through each of the checklist points while looking at the example reconciliation report. So the first checklist point is to confirm that the reconcile bank balance, general Ledger balance and customer Balances match. Again, this is piece of the IOLTA triple reconciliation process. Next on the checklist is the most important piece, is we want lawyers to look at this graph of the overall trust account balance and make sure that it ties with your understanding of how the firm is operating. If overall you think the trust account balance should be going up and the chart shows the trust account balance going down, please call us and let's have a conversation to understand what's occurring. That you have a better context of what's happening within your firm, and we are removed from some of that context and you can maybe catch an error that we would not see.
(02:23):
Okay. So, the next item is the bank statement, is to make sure all copies of the bank statement are present, which we have. We want to ensure that we have copies of all clear checks, which we do. Want to ensure we have copies of all the positive items that we have, and we want to make sure that the bank account ending balance ties back up to the summary page, which we do. Then we go to the merchant account statement. For here, we want to make sure that the full report is here and that we can see individual swipes along with daily batch totals. Then we go to the deposit detail report. We want to make sure that we have all detail for all deposits listed, which we have here. We can see we have an aggregate deposit, and we can see the detail.
(03:12):
For the withdrawal detail report, we want to make sure this report is present, and that we can see the detail of aggregate withdrawals. Then we have the reconciliation detail report. Several items on this one. So one, we want to make sure that the cleared balance matches back to the summary page. We want to make sure that the ending balance matches up to the summary page. We want to make sure that the total dollar value of all deposits and withdrawals match what we see on the bank statement. And we also want to make sure that the number of transactions perfectly mirror the bank statement.
(03:53):
If this is probably the first thing we look at to confirm law firm trust accounts, if this does not tie perfectly to the bank statement, we know the reconciliation report has huge problems. We want to confirm that any outstanding items are reasonable. So, this check was just written last month, so that makes sense that it hasn't cleared yet. If things start to get old, we need to follow up and reissue checks. The general register report, we want to make sure that the ending balance ties to the summary page. We want to make sure that this running balance is always positive. A trust account auditor looks at this report to see if it ever goes negative, which would be a big problem. And we want to make sure that all these transactions make sense to you and they're familiar.
(04:41):
Then we get into the client and admin register. We want to make sure that the ending balance ties to the summary page, which we have. We want to make sure that each client balance is always positive. Client balances should never be negative. We want to make sure that we have a good detail for each transaction. We want to review and make sure that transactions are familiar to you, and we also want to make sure that we have enough firm funds left in the trust account. So, here we have $75. The firm is not allowed to keep personal money in the trust account, but you can keep a little bit of money in the trust account to cover bank fees, and we want to make sure that that number stays positive.
(05:24):
And then, the last item is record retention. We want to make sure that we keep all reports and supporting documents in a single physical location or electronic file. So if we get audited, we can just turn over one item to the auditor and we're set, and we want to understand your state's record retention requirements and keep documents long enough. Again, you can download the checklist and the example reconciliation report from the link below. And the takeaway from this video is to show that with the checklist, you can very quickly review the IOLTA reconciliation report for completeness. Thank you.
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