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Why You Should Care About Three-Way Reconciliation Reports

Three-way reconciliation reports are necessary when administering client trusts, but difficult to produce unless you are using specialized trust account software like CosmoLex.

Trust accounts require significantly more attention to detail than standard operating accounts. Since these funds are not yours to spend, at least until they are earned, you must be able to account for every penny belonging to each client. One of the key tools used is the three-way reconciliation report, which is required in most states for attorneys administering trust accounts.

What Is A Three-Way Reconciliation Report?

You’ve probably performed two-way reconciliation, comparing your own account ledger against your monthly bank statement. Once you adjust the balances for any outstanding checks and deposits, the two totals should equal.

When you administer a trust account such as an IOLTA, you put the trust funds from several clients into a single bank account. You must keep individual ledgers for each client trust as well as a business ledger that tracks bank fees and other costs that should not come out of client funds. The sum of the client ledgers plus your business ledger produces a third total, which should equal the totals of your overall account ledger (the book balance) and your monthly bank statement (the bank balance) (you still need to account for outstanding checks and deposits). The three-way reconciliation report not only helps you find errors but shows auditors that you are administering the trust account correctly.

How Do You Generate Three-Way Reconciliation Reports?

Virtually any business or personal finance software can produce two-way reconciliation reports, but trust administration is such a specialized practice that three-way reconciliation reports are rarely available.

Some practices try to get around this limitation by manually tracking of client ledgers and doing the three-way reconciliations by hand. This is slow, inefficient and prone to mistakes. Not only that but it borders on violating bar association rules that require attorneys to make use of available technology for the benefit of their clients. You need to use specialized legal practice management software such as CosmoLex, which includes trust accounting functions.

Generating Three-Way Reconciliations With CosmoLex

Three-way bank reconciliation reports don’t have to be hard when you are using the right tool. CosmoLex’s built-in trust account management functions include easy reconciliation report generation. On the Reports tab, you’ll find the Three-Way Reconciliation Report under Banking. Click Generate and save the report in PDF format. You can see at a glance if the balances don’t agree, which gives you the chance to find the problem. Archive the reports for later examination by an auditor.

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