Lynda Artesani walks legal bookkeepers through monthly reconciliation for trust and operating accounts. The 3-way reconciliation compares bank statements, accounting software, and individual client balances to catch red flags like duplicate entries, negative balances, and timing issues. She outlines the workflow: download statements, reconcile operating accounts first, then trust accounts, document everything, and get attorney sign-off.
Chapters
Hi everyone. Welcome back to the Accountant's Law Lab. My name's Lynda Artesani, and welcome back to our Back to Basics legal bookkeeping series. This is the last one of this month. So if you're a bookkeeper working with law firms, you already know that monthly reconciliations are make or break. One missed reconciliation or a sloppy 3-way bank reconciliation can create compliance issues and bar complaints and major trust account problems. Sometimes it seems like you can't even fix them, they get so bad. So in today's video, I'm going to walk you through practical monthly best practices specifically for legal bookkeepers. You'll learn how to do proper trust and operating reconciliations, red flags, some of the ones I see on occasion, and then I'll share a simple checklist that you can start using immediately. So reconciliation isn't just about clicking the boxes in QuickBooks or batching the bank feeds. I've had people even tell us that, oh, I reconcile, my bank feed matches, and they don't even do the reconciliation process. That's not the right way to do it. You have to prove that your client funds are safe and properly managed, and it protects the attorney from bar complaints. So it gives you confidence in your numbers. And that's the main part from our perspective as bookkeepers is we want to make sure our numbers are accurate. And it'll also help make any audit painless. You can get a random audit, and then if you're able to pull that data up and it's correct, it makes a world of difference. Most state bars expect monthly reconciliations, but they only usually annually ask you to do that, although Californians ask to At 6-month mark, they want to see that listing. So just do what's both smart and required. Even if your state says quarterly, do the monthly. So what is a 3-way bank reconciliation? For trust accounts, IOLTA accounts, you need a 3-way bank reconciliation. So that means the numbers have to match in 3 places, right? So your bank statement, plus or minus anything that's in transit, your accounting software, basically your trust ledgers. And then every individual client matter balance. That could be in your external software like Clio or LeanLaw, or it can be inside of QuickBooks as well. So for the operating account, just do a standard bank-to-books reconciliation, but you still need to pay attention because sometimes that can show unusual activity. So get this right every month and that's going to help you have a good process. Now I can tell you if you start to see transfers, so the person booked in a transfer and then booked in a transfer so that Transferring money from bank to bank, that's not the right way to keep track of a trust reconciliation. I can tell you that right now. We have to undo trust transfers all the time. So download the latest bank statement for both the trust and the operating, and then start with the operating account. Clear out those transactions, check for bank fees, and reconcile. Find your mistakes if you have any. It should be a very quick process, especially if you're using QuickBooks. Very simple, very quick. I have not yet mastered The automatic bank reconciliation where you upload the statement, it's good if you're missing transactions or if you don't have a bank fee, but if it's actually connected, I've had more issues with it than not. But maybe by the time this video comes out, it's been improved tremendously. I know it's going to, but right now it's not my favorite. But then you want to move to the trust account and then run the full 3-way bank reconciliation. Verify the client balances adds up to the total trust account balance. And then investigate any differences. It could be outstanding checks, timing issues. It can be that somebody booked in something out of the trust account to an operating account transaction, like a bank service fee, when it was actually IOLTA interest clearing that you needed to book to. Make any necessary adjustments. For example, if the client bought checks with IOLTA and they took the money out of the IOLTA account, that money needs to be reimbursed and usually just make a sub-liability account. Bank or wire fees that need to be reimbursed, and then you put it in there and then you just clear that out. And then make sure you make any necessary adjustments and document everything. That's the most important thing. Do a final review of the reconciliation and get the attorney to look at it and sign off on it. Google Sheets, great place to do that. Or a spreadsheet, you can do either one. So some of the red flags that I see is I get books from other clients and then they've had other bookkeepers in. I've seen clients where the bookkeeper doing a catch-up will, instead of doing the monthly reconciliations, they just do one bulk one. And then I noticed on the account that some of the fees for payroll didn't clear. So there had to be a duplication in there and they cleared the duplication instead of the actual payroll transaction that was QuickBooks payroll. Those are things you have to look for. Just don't do it every single— you should be looking at it, do it every month, and then look at what's left over to see if there is a duplicate entry in there. But if there's any outstanding or old checks that are never going to clear, you need to bring that to the attorney's attention. Any client balances that go negative definitely need to be brought to the attorney's attention. Transactions coded in the wrong account, that's a red flag. Timing differences that aren't properly tracked and any missing documentation. Watch out for these red flags every month and catch them early. Sometimes when we have bigger accounts, we make a project list and we give the client, let them know Exactly what's going on in the account and what needs to be fixed or changed or addressed. And then we have a very clear form for that where the client, we go monthly with that and give them access to the Google Sheets so they can look at it and take care of those items right away. And then how do you make it easier on yourself? Find a day or a time around the 10th of the month and block that on your calendar to do reconciliations is really important. Use a standardized checklist. So have an SOP for this, for these tasks that what you do every month to make sure the books are correct. Keep a dedicated folder with all the reconciliation files. We have Google Drive and Google Folders on all our clients. We hold and house those things because they may be needed in the future. And then don't forget the recommended tools. Look at Clio, look at LeanLaw, look at TrustBooks, look at PracticePanther. Any of those products are good. We like Clio and LeanLaw because they work the best with QuickBooks and Xero, but it's up to you. Work with whatever works best in your workflow. So monthly reconciliations are your safety net. When you do them consistently and thoroughly, you protect client money, you support your attorneys, and you become that reliable bookkeeper that every law firm wants. Your action this week is to make your own monthly checklist for each client. Make your SOP, schedule it out for next month. Don't forget to download the monthly reconciliation checklist that I created for you. The link is in the description. And then drop a comment below. What is the hardest part of your reconciliations right now? I read every comment. And if this was helpful, please like our video or subscribe so you don't miss any other videos in this series, Back to Basics. I hope it was helpful. I know sometimes it's good to revisit the basics, right? So thank you for watching. Keep those books clean and compliant, and I'll see you on the next one. Bye now.
