Trust Accounting Compliance

Trust Accounting Compliance: 6 Mistakes Law Firms Must Avoid

In working with law firms, we see a wide range of trust accounts—and a wide range of processes firms use to stay compliant with trust accounting rules.

Unfortunately, many firms unknowingly make costly mistakes.

Here are six of the most common trust accounting mistakes law firms make and how to avoid them to maintain full compliance with Florida Bar trust accounting requirements.

1. Not Reconciling the Trust Bank Account

Every month, you should perform a bank reconciliation for all trust accounts. This involves comparing your internal trust ledger with your bank’s records.

A proper reconciliation will produce a report showing:

• Deposits that cleared

• Checks that cleared

• Outstanding deposits and checks

Review the outstanding items each month. Ask questions like:

• Was the check mailed?

• Did it get lost?

• Does it need to be reissued?

Staying on top of these issues helps maintain both accuracy and compliance.

2. Client Trust Ledgers Don’t Match the Bank Balance

Each client with funds in your trust account must have an individual client trust ledger. This ledger must include:

• All deposits made on behalf of the client

• All disbursements made

• The remaining trust balance

You must compare the total of all client trust ledgers to your trust bank account balance to ensure they match.

Example:
If five clients each have $10,000 in trust, your trust bank account should show $50,000.

3. No Admin Balance in Trust for Bank Fees

Firms are allowed to keep a “reasonably sufficient” admin balance in the trust account to cover bank fees such as wire charges or returned deposits.

We recommend keeping $100 to $250 in the account for this purpose. Just be sure to:

• Record it on a separate “Admin” trust ledger

• Track it consistently, just like a client ledger

This prevents accidentally using client funds to cover law firm expenses.

4. Not Keeping Copies of Cancelled Checks

Florida Bar rules require firms to retain copies of cancelled checks—both front and back.

We suggest using a bank that includes check images on your monthly statement. This is more efficient than manually downloading or printing each check from your online banking portal.

5. Not Keeping Deposit Slips

Trust accounting compliance also requires that you retain a copy of every deposit slip.

Each deposit record should include:

• Date of deposit

• Source of the funds

• Client or matter associated with the funds

We recommend saving both the deposit slip and images of all checks included in the deposit.

6. Not Reconciling Practice Management Software with Accounting Records

This is one of the most frequent trust accounting issues we see.

Firms may rely on a practice management system to track trust balances but forget to match it against their accounting system. This can lead to discrepancies.

Example:
You record a trust disbursement in your software but forget to actually transfer the funds from trust to operating. The transaction is incomplete, even though it appears processed in the software.

To stay compliant:

• Print trust balance reports from your practice management system

• Compare them monthly to your accounting software trust balances

This simple step can prevent major trust discrepancies.

Need Help With Trust Accounting Compliance?

Trust accounting compliance is non-negotiable for law firms—and small errors can lead to serious consequences.

If you’d like to review your current trust processes or need help staying compliant, book a free consultation and we’ll walk you through the steps to protect your firm.