Are you prepared to pass a Trust Account Audit?? - Part III
To continue with our Trust Accounting Audit’s series, we are going to close with the last 3 areas you need to ensure you are doing correctly in order to successfully go through an Audit.
The proper way to invoice a client is including the Accounting summary of your client’s trust funds. You, as an Attorney, have the duty to inform your client in detail how and when you have used their funds. This should be simple since most Practice Management Systems have this feature. Make sure when you create your template for your client’s invoices to include:
Invoice detail of work performed (time entries)
Total amount due (new charges)
Amount applied to pay the invoice (payment)
Remaining client trust balance
If your Practice Management Systems doesn’t allow you to include it, you can always attach a Client’s Ledger Report.
Best practice for invoicing is always sending the bill before applying the trust funds to get the client’s consent. After the client's approval, apply funds from the trust account and resent the paid invoice with their current Trust balance. If the current balance is zero or with a low balance, you should send a Trust Request if you anticipate more work needs to be done.
Do you accept Credit Card payments for Retainers in your IOLTA/Trust Account? If so, how are you managing the merchant fees?
If this is the case you have two options; you can use a friendly Legal Payment software like Lawpay, that allows you to redirect all the merchant’s fees charges to your operating account in order to avoid any reduction of your client’s funds.
Now, if you use a regular merchant website like Stripe or Venmo, you will need to create a matter into your Legal Management System and add funds to the bank to cover all your merchant fees and charges. You need to keep records for this on a monthly basis just like any other matter. This is considered the only exception to the rule regarding lawyers depositing their own funds into IOLTA accounts.
Last but certainly not least, Do you identify each check or transfer link to IOLTA/ Trust Account?
Even though this may look unnecessary, it is best practice for issuing and receiving checks and transfers to/from your Trust Account. Adding the name of your client and matter, allows you, if necessary, to look back after a long period of time and still be able to identify who the funds belong to. Imagine getting an audit to review the books of the previous 4 years, will you remember each single one of those disbursements and the related matter? Or, what if the software you are using to keep your client’s ledger gets wiped out? Cover your back, save yourself time of excruciating searching for information, and be one step ahead of the auditor.
We hope this has served you with information to better understand what to do and how to do it in order to be always Audit Ready. If you think you still need further assistance with this please do not hesitate to contact us by email or schedule a quick call. We are always happy to assist you and save you time to focus on what really matters to you. Your Firm and your clients.