Linda Artesani shares five tips for keeping law firm trust accounts accurate and compliant. Common mistakes include using IOLTA funds for check orders or fees, and confusing a reconciled account with a truly balanced one. Use legal-specific software like LeanLaw or Clio instead of QuickBooks, monitor accounts regularly, and hire a trust accounting professional.
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Hi there, Linda Artesani, Artesani Accounting and the Proper Trust. Today I'm going to share with you my top 5 tips of solving the Rubik's Cube that is trust accounting. So let's dive in. So can trust accounting be like a Rubik's Cube? Yes, it can be. I'm always fascinated when I see somebody who can just flip that around and get it right, all aligned in like 2 seconds, because I've never been that person. However, I'm pretty good at fixing and figuring out when trust accounts go awry. Sarah, my business partner, and I really kind of pair up and work together, tag team it, so to speak. So over the years, I've had many attorneys come to me, and they'll say things like, yes, I, I know my trust account is balanced. It's balanced because it's got— the bank's balanced, and it's all reconciled. Well, reconciliation doesn't always equate to it actually being balanced. Sometimes It's reconciled, but you don't know what's in that bucket of money that's in the bank account and how to divvy it out per client. So sometimes that is not always the case, that it's actually in alignment 3 ways. Sometimes attorneys will come to us and they'll just flat out say, hey, I thought it was balanced. It's not balanced. I don't really know why it's not balanced. And they'll either admit that they did it and they weren't tracking it properly. Or they'll blame it on some person that worked in the office and say that this person didn't really know how to do trust accounting. But regardless, they come to us and we start to see patterns. And there's definitely patterns when it comes to trust accounting and things we see over and over repeatedly. So I want to share those 5 tips with you. So the first one is just a check order. You might have a check order come out of the bank account and it'll come out of the IOLTA. You ordered Checks to be able to write, you know, refund clients, and they take the check order out of trust. Should never have any funds come out of trust, and in that case you'd have to reimburse the operating from operating to trust to cover those checks because that's an operating fee. Sometimes it's merchant services that will be if you don't have a properly set up and you're not using like a gravity legal, the fees will come out of the IOTA account. But you can't use money that's not yours to pay for your operating expense of merchant. Account fees, so you get Gravity Legal and Gravity is set up so that the fees come out of operating and the money, the whole amount of money goes into your trust account. So definitely recommend Gravity Legal, great company, and they have a great website for our perspective. Very good for us to see who's paid and make sure everything's aligned the way we want to see it. So sometimes we find that the attorney will record something in Lean Law or Clio, our two preferred softwares. For attorneys to track and do their billing, and then they transfer a different amount as they move the funds over because they're earned. So the invoice, they record the payment, and then when they make the payment transfer to earn that money and move it from trust to operating, they transpose a number or they put the wrong number in, or they forget to even do that step. Sometimes they do that step and don't do the part inside of the accounting. They don't actually do the They'll make the invoice but not record the payment, and they just transfer the money over and they skip the step of recording the payment. So there's lots of different scenarios there. It's just usually somebody missed a step in the workflow, and that will cause the trust to be out of alignment. And if somebody forgot to— if they moved the money but didn't do the other side of it, we can see that because it will come into the banking. If they do the work in the file, but they don't actually Move the money. We can tell them to move the money because we will see that. So that's important to know that you want to make sure that you keep on top of this, right? You stay on top of it monthly. And this is typically how these accounts get really messed up. It's because nobody's really watching it or caring for it on a daily basis, weekly basis, depending on the volume, monthly basis. That's why you want to hire a pro— an accounting professional to do that. Sometimes the money's transferred in different amounts, and we have to make those corrections. Missing transactions are always one of the things. The biggest mistake attorneys make is they try to bypass paying for the software itself. So they don't want to pay. They'll buy QuickBooks and say, oh, this is good enough. I don't really want to pay for the legal software. And they're really not saving themselves anything. They'll end up with more heartache because it's more steps, more workarounds. You may have 7 different steps you have to do to accomplish what's happening with the software in a click. And it's a lot of time wasted. And if you're looking— if I'm looking at a file that's just using QuickBooks and no external software to really track and manage the trust, I have to charge more because it's more time for our staff to actually do that work. So it's something to think about. The software has so many other benefits involved, and you're really missing out if you don't pay for the software, the legal tech software, purchasing LeanLaw. Not even that expensive. Clio, not that expensive for what value you get back. Tracking metrics, financial strategies, and all of that will go along with being able to maybe even with like LeanLaw has the most amazing attorney compensation features. Those are the things if you're looking for a good attorney software, that's what you want to look at. So can your trust accounting be like a Rubik's Cube? Absolutely. Do lawyers work really hard doing their legal work? Yes, and that's how sometimes they're so busy in their business that they're not hiring the right person to take care of managing such an important part of their workflow— trust accounting. So hiring the right professional, not your generic bookkeeper, but somebody who knows what you do, is important. And that's what we do. So if you're interested in finding somebody or a solution, or you need help, fixing your trust accounting, we're just a phone call or contact sheet away. And on that note, I hope you all have a wonderful, wonderful week. Bye now.
