Whether you are holding client retainers for future work, distributing personal injury settlements, managing insurance payouts – or anything in between – trust accounting is likely an important part of your law firm’s financial operations. Navigating trust accounting for law firms is challenging, requiring busy attorneys to keep a watchful eye on all client funds while juggling state bar regulations. At CPN Legal, we help lawyers manage trust accounts and remain in compliance with the use of systems like Clio and Clio’s integration with QuickBooks Online. To learn how we can enhance your accounting practices, consider connecting with our team today.
About CPN Legal
Established in 2011 by co-founders Peggy and Chris Gruenke, CPN Legal has evolved from a small, family-owned business into a nationally recognized law firm consultancy practice. Built on a foundation of two decades of experience in the legal industry and corporate bookkeeping, our firm is now home to a robust team of CPAs, controllers, bookkeepers, payroll, and invoicing specialists. Our entrepreneurial spirit fuels our passion for helping small businesses to grow, thrive, and succeed in the legal industry.
Our compassion and professionalism is what sets CPN Legal apart. We deliver white-glove service to clients we know by name. Our team wants to invest in your success alongside you, and your business’s growth is our only priority. As your partner in business, you can feel confident that we will provide top-notch accounting and bookkeeping services to eliminate stress and drive your business forward.
What is Trust Accounting for Law Firms?
Law firms utilize trust accounts to hold client funds and keep them independent from the law firm’s funds. Law firm trust bank accounts are a powerful tool for keeping funds safe and managing them with full transparency, but failing to comply with state bar rules when handling client trust accounts can cause you to lose your license. Proper trust accounting is necessary to track all movement of cash and ensure that every client’s funds are handled according to state bar rules and regulations.
Every jurisdiction has a different set of requirements for trust accounts, but the main rules they share include:
- Funds kept in the trust must not co-mingle with the law firm’s funds
- Firms must keep detailed records of all money that comes in and out of the trust
- Client funds must only be used for their own legal matters
While this may seem simple in theory, there are a range of complexities related to trust accounting that make it far less easy in practice. Lawyers who fail to comply with the requirements of trust accounting will face serious consequences, ranging from fines to disbarment.
What Are the Complexities Related to Trust Accounting?
Newly minted and seasoned lawyers alike report that trust accounting is one of the most challenging areas of their practice. Managing your trust accounting can be tedious and time-consuming, and successfully navigating the complexities related to trust accounting for law firms is no simple task. Some of these key intricacies include:
- Differences in trust accounts. There are two categories of trust accounts that lawyers can use to manage their clients’ funds: pooled accounts and separate accounts. The Interest on Lawyers’ Trust Accounts (IOLTA) is a commonly used pooled account that allows you to accrue interest on any funds kept in the trust account, then donate the earned interest to legal aid programs or another public service initiative.
- Nebulous and inconsistent rules and requirements. Trust accounting has a wide variety of rules which vary depending on the jurisdiction. Between reporting requirements, third party duties, and reconciliation of ledgers, navigating the complex web of state bar requirements can be difficult.
- Maintaining up-to-date financial records and remaining compliant with all relevant rules and regulations is paramount to your law firm’s success and credibility. The trust account must match the sum of all individual trust liability accounts to the penny. Identifying errors and knowing precisely when discrepancies occurred is crucial.
What Are Common Errors Lawyers Run into with Trust Accounting?
As experienced professionals in trust accounting for law firms, we help our clients oversee and reconcile their accounting practices. Some of the most common errors lawyers run into with trust accounting include:
- Co-mingling funds. Lawyers are required to hold funds in an account separate from their firm’s account. Rule 1.15 of the ABA Model Rules for Professional Conduct establishes this requirement, setting forth rules for safeguarding the property of clients and third parties. Co-mingling can occur in a variety of different ways, oftentimes unintentionally. Using trust account funds to cover personal expenditures or improperly depositing money into an account, for instance, can result in commingling violations.
- Improper recordkeeping. It is necessary to keep accurate, detailed, and up-to-date records of all deposits, withdrawals, and transfers. Many lawyers run into pitfalls with recordkeeping, oftentimes due to a lack of policies and procedures for maintaining trust account records. We like to tackle this problem using legal software and automated systems, which take the stress out of proper recordkeeping and ensure compliance.
- Untimely reconciliations. Mistakes happen, especially when balancing your business’s accounting processes with your legal practice. Small mistakes can quickly spiral into major issues without time reconciliation. We perform ongoing reviews of your systems and processes to ensure that slip-ups are identified and reconciled in a timely fashion.
Can QuickBooks Online Be Used for Trust Accounting?
Yes, QuickBooks Online, when integrated with Clio, can be used for trust accounting for law firms. When these tools are properly set up, it is possible to automate trust account transactions, handle billing, and easily monitor your finances. We empower lawyers to streamline their law firm’s accounting processes with QuickBooks Online. Our team of accountants will set up your trust account, add trust liability accounts, and generate reports to keep your firm in compliance with state bar rules and regulations.
How Can CPN Legal Ease Trust Accounting Worries for Law Firms?
At CPN Legal, our goal is to ease trust accounting worries and allow you to focus on what truly matters: your practice. Our team will work alongside you to tailor a strategy that meets your needs. We leverage proven accounting best practices to manage your trust accounts, including:
- Performing 3-Way Reconciliation to ensure that your accounts are complete, accurate, and compliant.
- Ensuring transparency in all aspects of your firm’s billing practices to build trust with your clients and staff.
- Designing and implementing workflows for trust transactions across QuickBooks Online and law practice management software.
- Minimizing the risk of co-mingling by employing standardized practices to keep your business accounts separate from your trust accounts.
- Conducting regular financial checkups to assess the health of your business.
- Creating an “audit trail” of bank records and financial documents to make it possible to trace all transactions and positions.
We strive to make outsourced accounting services available to small business owners in the legal industry. Your success is our success, and we will serve as your trusted partner in every area of trust accounting and bookkeeping.
Contact Our Team that Can Help with Trust Accounting for Law Firms
Trust accounting for law firms may seem like a daunting task, but entrepreneurship is rarely ever simple and straightforward. At CPN Legal, we work alongside lawyers and law firms to implement new processes to streamline their trust accounting and develop good habits to remain in compliance with state bar regulations. To speak with our team of experts, consider contacting us at (513) 334-5076 today.