Trust Bank Reconciliation, Client Trust Listing and Trust Comparison- Rule 3-65

“Reconciliation” means checking the three basic records you are required to keep – the bank statements, the client trust ledger and the trust receipt and disbursement journal – against each other so you can find and correct any mistakes.  All three amounts must equal each other.

Mistakes happen! Even the banks can make mistakes.  To make sure that you find any mistakes, Rule 3-65(4) requires that you reconcile all the trust bank accounts monthly.  The theory is that it’s unlikely that the same mistake will be made in all three different records – so if you check all records against each other, any mistakes will show up.

This is one of the most important functions that you perform with respect to the accounting records.  It involves a simple arithmetical procedure that shows a three-part reconciliation and comparison of the following as at a certain date, usually at month end:

  • Bank Statement – The totals of the balances as shown on each pooled trust bank account and the up-dated statements for separate interest bearing accounts that have been adjusted for outstanding deposits and outstanding cheques and any other posting errors;
  • Trust Receipts and Disbursements Journal – The running balance shown in your Journal;
  • Client Trust Listing – The total of all client trust ledger balances shown on your trust listing composed of all your client trust ledger card balances including separate interest bearing trust account client trust ledger cards.

Step 1:        The Trust Bank Reconciliation

  1. Diarize and obtain the trust bank statements;
  2. Check off all returned cheques on the trust bank statement and the trust cashbook for the previous month, noting any discrepancies in the amounts;
  3. Identify any cheques that you have issued, but have not cleared the bank, from your trust receipt and disbursement journal;
  4. List the outstanding cheques including cheque number, date of issue, amount, payee, and client file reference; total the listing of outstanding cheques; these are your outstanding cheques to note on your trust bank reconciliation;
  5. From your bank deposit book, check off all deposits on the bank statements noting any discrepancies in the amounts;
  6. Identify any deposits that do not appear on the bank statement that you recorded in your Trust Receipt and Disbursement Journal;
  7. List the outstanding deposits for the previous month, by date and the amount, that are not recorded on the bank statement; these are your outstanding deposits to note on your trust bank reconciliation;
  8. List any bank errors and/or posting errors individually by date of occurrence and provide a brief explanation; copy any supporting documents and attach to your reconciliation;
  9. Enter the ending balance from the trust bank statement on your trust reconciliation form; 
  10. Calculate your reconciled trust bank balance – Subtract the outstanding cheques from the ending balance on the trust bank statement; add the outstanding deposits and adjust for any bank or posting errors.

Step 2:        The Trust Receipts and Disbursement Journal

Enter the following on the trust reconciliation form:

  • the beginning balance, balance at the end of the previous month;
  • the total deposits made in the current month;
  • the total cheques written in the current month;
  • the ending balance in the Journal;

Step 3:        The Client Trust Listing

  1. From the Clients Trust Ledger, identify and list the clients for whom you hold trust funds at the previous month end;
  2. List the client names/matters, client matter number, pooled trust account balances and separate interest bearing trust account balances, if any, for each client trust ledger card with the unexpended balance at month end;
  3. Include the date of the last trust activity to help you monitor inactive trust accounts;
  4. Total the client trust listing and enter the total on your trust reconciliation form.

Tip

   

Remember to balance each trust bank account amount to the total for that trust bank account in the client trust ledger.

To accomplish this, list your client trust ledger balances broken down by trust bank account.

   

Step 4:        The Comparison

  1. Compare your reconciled Trust Bank Balance to your Trust Receipts and Disbursements Journal Balance and your Client Trust Ledger Listing Balance.
  2. All three figures must be the same.  If there is a discrepancy, you must find and correct the discrepancy;
  3. When all numbers are in agreement, sign and date the reconciliation.

Regardless of who prepares the trust comparisons, good internal control requires that the lawyer in charge of trust review all supporting documentation to ensure:

  • the trust comparison is completed on time;
  • all client trust funds are included: pooled, pass book, GICs, term deposits, estate accounts, power of attorney accounts, if applicable;
  • reconciling items are cleared each month and are clearly explained and supported by documentation;
  • stale dated cheques can be monitored, and cancelled or re-issued if appropriate;
  • there are no overdrawn client trust ledger balances;
  • the balances listed in trust for each client are correct;
  • any client trust ledger balance with no activity in the previous 12 months can be investigated;
  • funds in trust for completed matters have been billed to the proper clients and the funds are either transferred to the general account or returned to the client as appropriate;
  • all trust funds are allocated to a client and there are no miscellaneous or suspense accounts or accounts  in the name of the lawyer or the practice, except for the trust float.

Tip

   

Prepare Trust Bank Reconciliations for every Trust Bank Account that remained open during the reconciliation period whether there is activity or not, including trust bank accounts with zero balances.

   

Tip

   

Prepare your Client Trust Listings by trust bank.

   

Tip

   

Create a Monthly Trust Reconciliation package: Bank Reconciliations, Trust Listings, copies of Bank Statements and GICs, Valuable Property Record, if applicable.

   

Tip

   

Organize bank statement and monthly reconciliations by bank account.

   

Tip

   

Ask the lawyer in charge of trust to review, sign and date the trust reconciliations and comparisons each month.

   

Tip

   

Maintain separate client trust ledger cards for separate interest bearing trust accounts.

   

Tip

   

Maintain GIC statements in a Separate Folder not in the client file.

   

Tip

   

Record trust reconciliations in ink.