Trust Accounting and Other Ethical Issues in Finance/Accounting - Articles

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Posted by: Barry Kolar on May 8, 2014

Trust Accounting
One of the fastest ways to commit an ethical violation is a failure to properly maintain your trust accounting. Because the funds in your IOLTA account are not yours, it is absolutely imperative under TRPC Rule 1.15 that you accurately maintain this account. In fact, in order to participate in the IOLTA trust program, your bank must agree to report directly to the Board of Professional Responsibility any overdraft and/or dishonored instruments written from your IOLTA account. 

Fortunately, the Board of Professional Responsibility has issued a Formal Ethics Opinion that gives a step by step explanation of proper trust accounting. It is also crucial that you never, under any circumstances, deposit money that belongs to your client into your personal or operating accounts! 

Trust Accounting Guide
To assist with trust accounting, the Tennessee Bar Association has developed a guide for trust accounting procedures:

Receipts

Prepare Trust Account Deposit Form (See form TRUST-R).
• Post deposit to client’s Trust Transaction Form (which is maintained in the client file).
• Trust account deposit form and check (or cash) are submitted for deposit to the firm’s trust account.
• Prepare receipt voucher for client (if cash).
• Prepare Client Ledger for client/matter.
• Post deposit to Client Ledger and (bank) trust account journal and update balances.
• Complete deposit slip for bank and deposit check on date of receipt.
• Copy deposit slips and check prior to making the bank deposit.

Disbursements

Issue a check requisition (See form Trust-D).
• Pull client’s ledger card. Check to see:

• If there is a sufficient balance in client’s account
• When the client’s check was deposited into the Trust Account. If there has not been sufficient time after a deposit for the check to clear the bank, a check should not be issued until the deposit check has cleared.
• Once funds have been confirmed as available, prepare check.
• Present check to requesting attorney or managing partner or person authorized on signatory cards.
• As authorized signatory, review client’s ledger card to assure all transactions have been recorded and are correct and to confirm sufficient balance of account to fund disbursement.
• As authorized signatory, sign check.
• Record the amount of the check on the client’s ledger card and the firm’s (bank) trust account journal. Record check on the client’s Trust Transaction Form (which is maintained in the client’s file). Update balances.
• Prepare correspondence to client informing client of trust account transaction.

Monthly Reconciliation

• Reconcile the firm’s (bank) trust account journal and cash receipt book to bank statement monthly.
• Reconcile Client Ledger balances to cash receipt book and bank statement monthly.
• At month-end, reconcile Client Ledger sheet for each client with the client’s trust transaction form maintained in the client file and then filed in the client file.