Trust accounting is the one area of law firm finance where "mostly right" isn't acceptable — commingling or overdrawing client funds is a disciplinary issue, not a bookkeeping error. This checklist keeps IOLTA accounts clean.
Non-negotiables
- Separate accounts, always. Client funds in the IOLTA/trust account; earned fees in operating. Never pay a firm expense from trust — even "temporarily."
- A ledger per client matter. The trust balance isn't one number; it's the sum of individual client balances, and no client's ledger may ever go negative.
- Move fees only when earned. Invoice first, then transfer from trust to operating — with a paper trail for each transfer.
The monthly three-way reconciliation
Every month, three numbers must agree exactly:
- The trust bank statement balance,
- The trust account balance in your books, and
- The sum of all individual client ledger balances.
If any pair doesn't match, stop and resolve it that week — differences only compound. Keep the reconciliation report; most state bars expect these records kept for five-plus years.
Common traps
- Bank fees hitting trust. Set fees to charge the operating account; if one lands in trust, replace it immediately and document it.
- Retainers booked as income. An unearned retainer is a liability, not revenue — recognize it as it's earned.
- Case cost advances. Filing fees and expert costs advanced for a client need their own tracking so they're recovered at settlement.
- Stale balances. Small leftover client balances that sit for years — return them or follow your state's unclaimed property process.
- Settlement disbursement order. Deposit to trust, wait for clearance, then disburse per the settlement statement — liens and fees included.
Lemoti coordinates trust accounting alongside the firm's operating books — the three-way reconciliation happens every month as part of the close, and partners see clean reporting on both accounts.