Image
  • Features
    • Legal Billing & Payments
    • Business Accounting
    • Trust Accounting
    • Practice Management
  • Pricing
  • Happy Customers
  • Compare To
    • Desktop Systems
      • CosmoLex vs PCLaw
      • CosmoLex vs Quickbooks
      • CosmoLex vs Tabs3
      • Other Desktop Software
    • Cloud-based Systems
      • CosmoLex vs Clio
      • CosmoLex vs MyCase
      • CosmoLex vs PracticePanther
      • CosmoLex vs Rocket Matter
      • Other Cloud-based Software
    • Manual Systems
    • Starting a New Law Firm
Login
Try For Free

What are the most common issues found during trust account audits?

CosmoLex TeamNovember 2, 2020

You are here:
  • Main
  • Trust & Retainer Accounting
  • What are the most common issues found during trust account audits?

Trust Accounting Audit

Improper handling of a trust account can lead to an ethics violation, and many states conduct random audits. While some trust accounting issues are the result of a deliberate misuse of funds, many others are mistakes that result from poor record keeping or not understanding the regulations surrounding a trust account’s use. Some of the most common issues are discrepancies between bank statements and the law firm’s internal records, commingling of funds, and misappropriation of funds. Record keeping issues. Poor record keeping can lead to trust fund violations when bank statements and internal records don’t match up. It is important to reconcile accounts monthly using a special type or reconciliation known as three-way reconciliation. This reconciliation process takes into account the trust ledger, the client ledgers, and the trust bank statement. Record keeping issues can also make the source of funds in the trust account unclear, which can prevent the three-way reconciliation. Commingling of funds. Commingling of client funds and attorney funds is another common issue. This can happen if an attorney has deposited funds in a trust account unrelated to a client matter. It also occurs if an attorney leaves funds in the trust account that now belong to the firm. When funds held in trust are earned by a law firm, they should be withdrawn from the trust.[1] Misappropriation of funds. Misappropriation of funds can also occur accidentally, for example, if client funds are being used to pay the law firm’s bank account charges. For example, if a firm accepts credit card payments and doesn’t have a method for accounting for credit card fees, the firm is now charging operating costs to the trust account, which is a misappropriation of funds. The trust account should also not be used to cover a firm’s other operating costs. This can happen if litigation disbursements filing fees or search fees are being advanced for the client from the operating account.[2] Additional common issues that are found during an audit include:

  • Lack of quarterly reconciliations or inaccurate reconciliations
  • Using trust accounts for personal transactions
  • Insufficient memo descriptions on checks
  • Outstanding checks for over six months
  • Interest not remitted to the state created bar foundation
  • Not maintaining financial data for at least 7years

References

1. Common Deficiencies That Are Often Picked Up During a NJ Attorney Trust Account Audit 2. Would You Pass a Trust Account Audit?

Tags:
  • trust account audit
  • trust accounting audit

Search Resources

Categories

  • Business Accounting
  • Case Management
  • Cloud Computing & Security
  • Legal Billing
  • Running a Law Office
  • Trust & Retainer Accounting

Recent Articles

  • 5 Key Benefits of Streamlining Your Billing & Accounting Workflow (29:41)
  • How can my law firm keep track of all our cases?
  • How can we get our clients to pay our law firm?
  • When should my law firm outsource bookkeeping?
  • What expenses are tax-deductible for law firms?
Table of Contents
Image
CosmoLex is cloud-based law practice management software that integrates trust & business accounting, time tracking, billing, email & document management, and tasks & calendaring, in a single application.
+1 866-878-6798
Company
  • About CosmoLex
  • Additional Services
  • Bar & Affinity Partners
  • Partner Portal
  • Enterprise-grade Security
  • Pricing
  • CosmoLex Careers
Resources
  • All Resources
  • Business Accounting
  • Cloud Computing & Security
  • Case Management
  • Legal Billing
  • Trust & Retainer Accounting
  • Running a Law Office
Support
  • Knowledge Base
  • Blog
  • Training Classes
  • Find a Certified Consultant
  • Share Your Experience
  • New Feature Request
  • USUS
  • CACA

© 2021 CosmoLex Cloud, LLC. | CosmoLex is a Division of Software Technology, LLC. | Legal | Privacy Policy | GDPR | Subscription Agreement

1100 Cornwall Road, Suite 215 Monmouth Junction, NJ | All product names and trademarks are the property of their respective owners.

[1] For new LawPay customers only. The monthly fee is absorbed by CosmoLex only for active LawPay users (which is defined as processing at least one credit card transaction within CosmoLex each month).CosmoLex may deactivate inactive users LawPay account or charge LawPay’s normal monthly fees of up to $20/month.

[2] If your external accountant or bookkeeper qualifies to become “CosmoLex Accounting Partner”, he or she can access your account remotely (with your explicit permission), without any cost to you or them. Call us for details.

  • Features
    • Legal Billing & Payments
    • Business Accounting
    • Trust Accounting
    • Practice Management
  • Pricing
  • Happy Customers
  • Compare To
    • Desktop Systems
      • CosmoLex vs PCLaw
      • CosmoLex vs Quickbooks
      • CosmoLex vs Tabs3
      • Other Desktop Software
    • Cloud-based Systems
      • CosmoLex vs Clio
      • CosmoLex vs MyCase
      • CosmoLex vs PracticePanther
      • CosmoLex vs Rocket Matter
      • Other Cloud-based Software
    • Manual Systems
    • Starting a New Law Firm