News Post

By: Jordan Turk, Attorney & Director of Education, Smokeball 

Look, I know that trust accounting and IOLTA compliance are not the glamorous tasks we envisioned for our future selves during our law school tenure, yet here we are. I expected to be in a courtroom. I expected to be researching caselaw and consuming too much coffee. I did not expect that I would be getting anxiety attacks when trying to balance financial accounts. Ah, the joys of practicing law.

If you want to avoid my many trust account trials and tribulations (legal puns always intended), then I suggest you start embracing legal technology in the 21^st Century. With this software, you can log your hours, send out invoices, collect payments, and most importantly, reconcile your trust account with a few clicks of a button. And, the Alabama State Bar just made life a lot easier for Alabama practitioners by partnering with Smokeball to offer billing and trust accounting software, completely for free.

Trust Accounting Does Not Have to Give You Nightmares.

We are all aware of Rule 1.15 and how we need to protect and account for client funds. But, this is easier said than done. Now we have to figure out on our own how to perform a three-way trust account reconciliation. What does that even mean?

At its core, trust account reconciliation is really about protecting yourself from…yourself. Many times, accounting errors come from an attorney’s seemingly harmless action (or inaction – we lawyers contain multitudes), and these problems could have been easily avoided had the IOLTA been properly reconciled in the first place.

On its most basic level, three-way trust account reconciliation (the type most favored by state bars, including Alabama) involves comparing three accounts: your trust ledger, your individual client ledger, and your monthly bank statement.

Scenario

Let’s say a client comes and pays you a $10,000 retainer. You deposit that into the bank, but then, in a moment of butterfinger-itis, you log it as $1,000 in your individual client account, but then $10,000 into your general trust ledger. Unless you are checking these balances against each other, how would you know which figure is correct?

Enter three-way trust accounting. So now we can look at that $1,000 in the client account and notice the discrepancy in the trust ledger. Then, to figure out which figure is correct, we compare the entries to our monthly bank statement, which will reflect the $10,000 figure. Had you not caught this mistake, it could have been disastrous for your record-keeping. This entire reconciliation process is really just a checks and balances system for your firm’s financials.

What if My Numbers Don’t Match?

Don’t freak out. Most of the time, if your trust or client ledger doesn’t match your monthly bank statement, it’s because of an uncleared check or payment. E.g., a client paid their retainer on the 30^th of the month, so you logged it into your system on the 30^th, and deposited the check on the 30^th, but the funds didn’t clear the bank until the third day of the following month. Thus, the bank statement of the prior month will not reflect that check deposit, and your reconciliation will reflect that.

Smokeball’s trust accounting software (again offered for FREE to members of the Bar) helps you stay compliant easily by allowing you to plug in your monthly bank statement balance and giving you the ability to compare that with your trust ledgers. This helps ensure that all of your balances match up and that you are compliant.

More about Smokeball Bill and the Alabama State Bar

Smokeball, the industry-leading legal practice management software platform, in an exclusive partnership with the Alabama State Bar, is providing all Alabama State Bar members with free access to Smokeball Bill, Smokeball’s trust accounting and billing software solution for law firms. This tool will help solo and small firm practitioners effectively, efficiently and compliantly manage their client trust accounts for improved client service.

 

Disclaimer: This article was authored by Jordan Turk, Attorney & Director of Education at Smokeball, one of the Alabama State Bar’s member benefit providers. The views and opinions expressed in this post are those of the author and do not necessarily reflect the official policy or position of the Alabama State Bar.