Bookkeepers managing IOLTA accounts for law firms face common errors like failed reconciliations and retainers posted to operating accounts instead of trust. The fix: ditch spreadsheets for QuickBooks paired with legal practice management tools like Clio or LeanLaw, daily reconciliations, detailed sub-ledgers, and internal controls like multi-person approval steps.
Chapters
So you're back, which is a good thing. So this is a 3-part series on IOLTA bookkeeping, and this time I'm going to talk about the common challenges to doing IOLTA bookkeeping. What do you need to know when it comes to fixing the account, making it accurate? So mastering IOLTA bookkeeping is essential, and it's also an ethical practice for efficient financial management for legal professionals. So your attorneys, they need this done. It's a common challenge that a lot of bookkeepers will run away from working with attorneys and attorneys' books because nobody wants to touch it. It's like a hot potato. Tracking those multiple client accounts. If you have a bigger file, you're going to find out that that's a lot more work to manage. And attorneys may need a robust system to to perhaps track and keep accurate records, which I mean by that, I mean like a Clio or a LeanLaw or something of that ilk where they're actually tracking the trust accounts. Really an invaluable extra tool that you should convince your attorney-client to use if they're not using it. If they're trying to patchwork it with an Excel spreadsheet, that never works. So what are the errors that you may see in IELTA bookkeeping? You're going to see that The account can be inaccurate because it wasn't reconciled properly. If the bank took the money out of the bank account for a check order or a wire fee, those things have to be reimbursed. Some of the other things you might see is a client might put a duplicate entry in. They may deposit a retainer to the operating account and not move the money over to trust. That's just a few of the things that we see on a day-to-day basis that happen in the real world, real life. that you really want to make sure that you are tracking this very closely, and at least weekly or monthly, depending on the size of the client, sometimes daily, depending on the client size. So you really want to track it and really leverage the use of technology to automate any repetitive tasks. That's probably the most important. It also minimizes human error. So it's important. The second step I would recommend is to check the local bar rules, and in the accompanying article you will see that I've placed some interesting A way to link back. MyCase does a great job at this. It's another legal tech software where you can go onto their site and you can search for the bar rules right there for whatever state that your client is practicing law. So it's important that you follow all those rules. In a lot of the states, I had that little fun— Sarah and I did a fun video in the Accountants Law Lab Mastermind group where we just randomly with the group selected different states and looked up the rules. And it was really fascinating to see the different rules. So For sure, you want to get that link out of the article and save it, bookmark it, because as you grow your firm and start to pick up clients out of your typical state that you work, you want to know the rules around it. That's going to make you be a bookkeeper above and beyond any generalist bookkeeper because you're going to know, you're going to talk the talk, walk the walk, and know the rules. And the rules are very, very important. So that's, that's very important when you start to work with attorneys that you show that you know your stuff. We've had many conversations with attorneys that— conversations with attorneys where they say, I've never been asked that question by any of the people that I've interviewed. And that's usually— generally will be a great tip for you that you'll be able to actually get that client as ongoing because they're very impressed by the fact that you have this working knowledge, which is why you want to specialize in one industry like working with lawyers. So an effective practice to implementing— you want to implement a robust accounting system. So get away from spreadsheets, get away from manual, anything, and then add that legal tech. So you really want to add the legal technology onto this layer. If you pick QuickBooks, you're going to layer on top of it Clio or LeanLaw or MyCase or any of the other practice management tools that help keep the data clean. It keeps the attorneys out of the books. I mean, that's another big reason why you want to use that software, but it also has a better presentation. It's got a lot more— I mean, QuickBooks is a, is a, an accounting ledger for all. And then adding those other layers really make it specific to the industry, the legal industry. So you really wanna look into that. And LeanLaw and Clio integrate the best. There's no extra push of data. It actually stays and seamlessly connects to the product. You wanna do regular reconciliations. It's really crucial to be able to find those discrepancies. And when they happen, you're quick to catch them and to correct them. You have a client that had a check order come out, you wanna be able to go right to that client, say, "Hey, I see $27.95 came out. You ordered checks and it got deducted from trust." please move the money from operating to trust to keep the compliance, keep the books in compliance. So it's really important. You wanna catch those things early on so you can prevent any potential issues in fund management ongoing. In this way, you're gonna keep detailed records, that subledger that I mentioned in the prior video where you're gonna have the subledger view, you're gonna be able to show the client exactly how much each attorney's customer has inside of the trust account. You'll be able to provide the client that an accounting of it, the ins and the outs of it. And then have a system of internal controls. If you start as an outsourced bookkeeper working with a law firm, I highly recommend taking the time to set up protocol. If you work with an immigration firm, you're gonna see cash coming in the door. Work with the client to get some kind of a workflow where it's tracked, the money comes in, it's signed off on, there's multiple people that view it, that approve it so that there's no temptation to take the cash inside the attorney's office. Have those workflows, have those systems in place where you're on top of the trust accounting right from the get-go, and you, you're gonna show the client that you are just this elevated service, this value that you're providing to your client, because you're taking the time to actually go through and see from their perspective. You're protecting their trust accounting. They are so afraid. I've seen so many attorneys try to figure out how they can do their work without using trust accounting 'cause they're just so afraid of it. Show that you have these systems in place. Maybe you have a Google form in place where they can, the people in the office can register the money coming in and then it gets pushed to you where you can actually see the accounts, the amounts, and book it into the system, validate it back with the reconciliation. You're gonna show that you can handle the responsibility of, of the IOLTA transactions and give the lawyer a sense of a system of checks and balances. Mm-hmm. That enhances transparency between your product and what they're doing in their office. That's really important. And then it might even include you training the staff members in this new workflow. The attorneys are very happy to get that, that action of taking care of the trust accounting out of the office. So that's also a selling feature when you're having the conversation with them, saying, look, I'm gonna— I'm an outsourced person. I'm not in the office. I see the numbers. I see how much is coming in and how much is leaving. And none of that— that's kept very fully protected on our side. Great tip for when you do the, uh, when you do the discovery meetings with attorneys. So I hope this is helpful. If you want to learn more, please join us in the Accountants Law Lab. We have a great group of people, the mastermind group. We discuss all sorts of pro, uh, secrets of the trade, and you'll learn a lot from us. We learn a lot from our members too. So I hope you join us. Thank you.
