Efirm Finance Trust Account Reconciliation

Trust Account Reconciliation

When to use this

This is a mandatory compliance procedure, not an optional financial report. Use it:

• Monthly (minimum), as required by most bar/regulatory rules.
• Whenever a discrepancy is suspected (negative balance, client complaint, staff departure).
• Before any bar audit or regulatory inspection.
• On firm merger, acquisition, or dissolution — every open balance must be resolved.
• When onboarding a new matter that involves client funds (retainer, escrow, settlement proceeds).

Critical: Never treat trust account work as routine bookkeeping. Commingling, overdrafts, or unexplained shortfalls can result in disbarment, criminal prosecution for misappropriation, and civil liability to clients.

Regulatory framework by jurisdiction

Note on Sharia compliance (KSA / GCC): Interest-bearing IOLTA-style accounts are not permissible. Use non-interest-bearing client accounts. In the UAE and KSA, consult whether any interest accrued must be returned to the client or donated to charity.

The three-way reconciliation

All three balances must agree within penny-tolerance at month-end. Any difference is an exception requiring immediate investigation.

┌─────────────────────────────────────────────────┐
│  LEG 1: Bank Statement Balance                  │
│  Ending balance per bank statement as of        │
│  reconciliation date                            │
│  +/- Timing items (outstanding checks,          │
│       deposits in transit)                      │
│  = Adjusted bank balance                        │
└──────────────────┬──────────────────────────────┘
                   │ must equal
┌──────────────────▼──────────────────────────────┐
│  LEG 2: Trust Ledger Balance                    │
│  Running balance in firm's accounting system    │
│  for the trust account                          │
└──────────────────┬──────────────────────────────┘
                   │ must equal
┌──────────────────▼──────────────────────────────┐
│  LEG 3: Sum of Individual Client Ledger Balances│
│  Each active client/matter has a sub-ledger     │
│  All sub-ledger balances must sum to trust      │
│  ledger total                                   │
└─────────────────────────────────────────────────┘

If Leg 1 ≠ Leg 2: bank recording error or timing item error. If Leg 2 ≠ Leg 3: a client ledger entry is missing, duplicated, or misposted. If any leg shows a negative balance: immediate escalation required.

Step-by-step procedure

1. Pull bank statement for the trust account as of the reconciliation date.
2. Identify outstanding items: checks written but not yet cleared; deposits received by firm not yet credited by bank.
3. Compute adjusted bank balance: bank ending balance + deposits in transit − outstanding checks.
4. Pull trust ledger from accounting system; confirm ending balance matches adjusted bank balance.
5. Pull all client sub-ledger balances as of the same date; sum them.
6. Compare sum of sub-ledgers to trust ledger; they must be equal.
7. Document all timing items with dates and descriptions.
8. Sign off (authorized signatory — typically managing partner or CFO) with date.
9. File the completed reconciliation with supporting documents per jurisdiction retention rules.

Inputs required

Flags and exception handling

Output format

TRUST ACCOUNT RECONCILIATION — [Account Name/Number] — [Date]

LEG 1: Bank Statement
  Bank statement ending balance:    $X
  + Deposits in transit:            $A
  − Outstanding checks:             $B
  Adjusted bank balance:            $C

LEG 2: Trust Ledger
  Trust ledger balance per system:  $C  [must equal Leg 1]

LEG 3: Client Sub-Ledgers
  [Client/Matter 001]               $D1
  [Client/Matter 002]               $D2
  ...
  Sum of sub-ledgers:               $C  [must equal Leg 2]

RECONCILIATION STATUS: ✓ BALANCED / ✗ EXCEPTION

EXCEPTIONS (if any):
  [Exception description, amount, action required, owner, deadline]

PREPARED BY: [Name]        DATE: [Date]
REVIEWED BY: [Name]        DATE: [Date]

Retention and access

• Reconciliation records: retain minimum 7 years (matches typical bar retention rules; some jurisdictions require longer).
• Access: restrict to finance staff and partners; attorney-client privilege may attach to trust balances.
• Audit trail: all adjusting entries must be logged with user, timestamp, and reason.

Limits and escalation

• This skill generates the report and flags exceptions. Detected violations (commingling, shortfall) must be escalated immediately to the managing partner and firm counsel — they may trigger mandatory bar reporting obligations.
• Do not attempt to "cure" a shortfall by moving office funds into trust without partner authorization and documentation — that action itself may require disclosure.

Related skills

• [[efirm-finance-realization-rate-tracker]]
• [[efirm-finance-wip-aging-report]]
• [[efirm-engagement-letter-draft]]
• [[efirm-conflict-check]]
• [[efirm-matter-creation-flow]]