In this presentation, a legal bookkeeping specialist explains the critical compliance responsibilities that law firms face when handling client (trust) funds. The speaker outlines the regulatory framework governing trust accounts—ABA, state bar rules, and local variations—and stresses the necessity of using approved banks and maintaining a dedicated trust account. They describe a best‑practice workflow that includes separate client ledgers, sub‑liabilities, and a three‑way bank reconciliation that ties together QuickBooks, the bank feed, and practice‑management software such as Clio or LeanLaw, often automated with LiveFlow. Common pitfalls are highlighted, including commingling, mis‑recorded wire fees, transposed amounts, and the misuse of QuickBooks’ “reconcile now” shortcut. The speaker also covers audit readiness, reporting obligations that differ by jurisdiction, and the importance of transparent client communication to build confidence. Throughout, the tone is instructional and pragmatic, with a supportive, slightly urgent sentiment aimed at preventing ethical violations and audit failures.
Chapters
This week we're going to talk about compliance for attorneys and really how we can assist as legal bookkeepers. It really feels like I talk about trust a real lot, and it's really not the only thing you need to know as a legal bookkeeper, but I think a lot of times it lands people here. They get their first attorney client and they're like, "Yay, I've got my client." And I really know that there's a lot of complexity with law firm clients, but how hard can it be? Kind of leads back to last week's post, but managing client funds for an attorney is one of the most vital aspects of running a law firm. It's also the one aspect that kind of frightens them. They'll go out of their way to figure out how to not have to do trust accounting if they can, aligning with the goals of— aligning with the rules and regulations of the bar. So I think a lot of times the part of working with attorneys is the compliance is heavy on us because of the fact that law firms are really entrenched in bar regulations and rules. You know, American Bar Association, they have to follow those rules. They have to follow the local rules, whether it's state or county or depending on the state. And as a legal bookkeeper, we need to know that. So I'm in Florida. I've got clients in California. I've got clients in Oregon. There's clients all over with our firm. And I need to know the rules of each state. They're very similar, but they're also different. So you really need to make sure that you're educated in that. So this process of handling trust is crucial, and we've had quite a few clients, potential clients, come to us and they know that their workflow isn't working right. They know that the way they're set up isn't right. They know that if they ever had a random bar audit, they wouldn't be able to pass it because they're not sure what's in that bank account. And truly, that's the most important piece. So the importance, the main importance, is you have to have a dedicated bank account for your trust account funds. And these are funds that you take as a retainer upfront deposit that the law firm is holding until they do the work. So it's a prepayment, basically, and it has to be kept in a special bank account. And those bank accounts are bank accounts usually by— depending on the state, it could be Bank of America, it could be Chase, it could be a local bank. There's only certain banks that the Bar Association allows to have trust accounting. Some of these banks don't even let us— they let us connect the bank feed in QuickBooks, but they don't allow us to have an accountant's view, which makes it real difficult to be able to follow the money when we are trying to track that. But when it comes to law firms and attorneys, they have to protect the client's asset, which is the money that they've been paid upfront. So the client funds. And the best thing you can do is to simplify the legal financial tracking. So having a separate account on the ledger is the best way to keep that manageable. We see it sometimes every— you know, Clio dumps it into one main file, and it's our practice at our firm, especially because we deal with bigger firms, that we make the individual client ledgers, the sub-liabilities, and then we roll them all up and show that one amount, and that one amount has to equal that bank account balance. If it doesn't, we have a problem and we need to fix it. We also use LiveFlow. We created a complete kind of a hands-off product with LiveFlow. It is called the Proper Trust 3-Way Bank Reconciliation. So if you want to buy into that, you can. Pen, and it helps us connect that third piece. So a 3-way bank reconciliation, you're looking at the money that's in the bank and in the bank statement, plus or minus any money that's in transit. So when you're looking at the books in QuickBooks, if you've got a deposit entered on the last day of the month, but it doesn't physically hit the bank until the next day, those are those in-transit transactions. And then you want that liability account, and that liability account has to equal what is shown in the bank and in your outside software, your Clio, your LeanLaw. You have to make sure it tracks and looks right there as well. So we like to have the 3 pieces, especially since QuickBooks is the one connected to the bank and not Clio or LeanLaw. So that connection of the software to QuickBooks is critical, as well as having the bank feeds to validate the money's coming in and out. It's really easy for an attorney to collect a bunch of money, apply payments, do a whole bulk amount of payments, and then make a transfer and they transpose the number or they don't put the exact amount in, and that causes problems on our side that we have to fix. And that's definitely where we come in handy, where we are the one to notice the mistake and then help them correct it, whether it's correcting the Clio or the lien law side, or whether it's because it happened at the bank and the money went in the wrong amount, having to fix that amount and then put a lot of notes so that you can follow the money. And then if you're ever audited, you can remember what the reason why the transaction didn't land the way it was supposed to. So we're also— part of the work that the attorney does is they have to make sure that they have the proper fund segregation. They have to prevent any ethical violations. Then one of the ones that we see all the time is the bank account— I'll use Chase for an example— and they have a wire fee go out and they'll take the wire fee out of the IOLTA account, but that's not the attorney's money. This is where the attorney is allowed to keep a small nominal amount in most states. You have to look up the rules and then that will cover that fee and then And it usually gets reimbursed by the operating account. Really important. It helps build client confidence. So the clients are gonna need to know what they have, what money's being held, almost like a bank tells you when they send the statement, what, what's the balance in the account? The same thing. The attorneys have that obligation, let the client know how much money is in there. So it's important for those things, and it's really a best practice with attorneys that they manage the client funds properly. They select the proper bank institution for their trust account. They don't try to use another bank account, call it a trust, but it really isn't. It's a savings account. You cannot do that. Maintain the comprehensive records. You want to make sure that the records are pristine and kept very cleanly. Beautiful ledgers. You get an audit, you only get like 2 weeks to produce the data for the auditor. You are able to pull that right out of QuickBooks because the little ledger is there and there's a little ledger in Clio or LeanLaw and they look identical. Mm-hmm. Especially with LeanLaw, it's going to look identical 'cause of the way it feeds in. It feeds in in that style of all the accounts being on the balance sheet, but then in Clio, we recreate that using the reclass tool. You wanna stay on top of any reporting requirements. Some states require formalized reporting, some do not. So just know what your state regulations are, monitor those regulations. They can change. Recently, California changed quite a bit. And then try to avoid any mistakes. —any of that client fund management. Make sure you're never commingling the funds. Have that proper documentation and make sure the client is informed. So even if there's no money transferred, in some states you still have to let the client know that the money sits there and it's existing. So really look up the rules. That's the most important thing you can do if you're landing a new law firm client. And this ethical, ethical foundations here, um, to keep the client happy, uh, you really wanna follow all the rules to the letter. You wanna make sure you reconcile every penny to exact. You cannot use reconciliation discrepancy. I've seen that in a lot of files this year where the bookkeeper doesn't know what they're doing, like, oh, I'm way off, and they hit that reconcile now button even though it's not reconciled. So you really can never use that button. I wish it wasn't even there in QuickBooks, but you have to figure out what the difference is and make sure it aligns. Hope that's helpful, and we'll see you all next week. Bye now.
