If you’re responsible for trust accounts, you’ve no doubt experienced the ordeal that is an audit.

All solicitors’ trust accounts are subject to an external examination every year. Depending on your processes, this audit can be incredibly straightforward or both time consuming and costly.

Put simply, if everything isn’t exactly where it’s supposed to be, the audit becomes a pain.

After managing hundreds of these examinations, we at Bentley’s haveA identified what works and what doesn’t. This article walks you through simple steps to ensure your trust account is maintained correctly.

1. Train your staff

At an absolute minimum, you need to make sure staff have the appropriate skills and knowledge to maintain your records. Check they have the proper accounting qualifications and understand the correct controls and documentation.

Next, you need to make sure their skills are current. If you’re updating or changing your systems, check your staff are familiar with the new processes.

Finally (this is one step most firms forget) you need to ensure you have a backup plan. That is, if only one person can maintain the records, what will you do when they take leave or are suddenly unavailable? Train another staff member or write detailed procedural notes for someone to follow – preferably both.

2. Identify and order your transaction data

Does your transaction data include codes, shorthand or office jargon? If so, you need to ask yourself whether an outsider could understand the information.

You should ensure there is a clear system for identifying each transaction in the account.

Make sure you can easily retrieve source records, whether paper or electronic, and keep detailed notes for each transaction.

Finally, if you aren’t already using a digital system, it’s time to make the switch. Yes, the upfront cost is often substantial, but the improvements to productivity are significant:

  • All records can be searched and sorted
  • You can easily manage internal controls, ensuring all transactions are obtained and recorded
  • You’ll reduce the storage space requirements of your office
  • And much, much more, depending on your system of choice

3. Check your trust account name

Ensure that the full trust account name is on all cheques, receipts, bank accounts and financial reports. Although this appears a relatively simple thing to do, it is a commonly overlooked area.

4. Don’t forget to send out statements

Trust-account compliance requires statements to be sent out on 30 June each year, on completion of the matter or when requested by the client. However a number of firms often overlook the sending of statements on 30 June. Simply diarising this event can help overcome this compliance breach (you can do it right now).

5. Complete your reconciliations sooner rather than later

The earlier you reconcile your trust accounts, the sooner issues can be identified – so this shouldn’t be left to the last minute. Trust accounts need to be reconciled within 15 working days after month end, however we recommend doing so within two.

If you have a large number of transactions you should also consider reconciling the account on a more frequent basis such as fortnightly, weekly or even daily.

Finally, you should avoid manual reconciliations as they’re slow and prone to error. Talk to your bank about streamlining this process for you. Electronic statements are often available next day while snail mail can be delayed by a week.

Above all else…

Establishing the right control environment around your trust account will minimise potential errors and ultimately save you money. If you need help in any of these areas please speak to your auditor – don’t, I repeat: don’t, wait for audit time.

About Bob Evett

bob_evett_400x412Bob is an Audit and Assurance Director at Bentleys. He specialises in audit, taxation and accounting advice for clients in the small to medium enterprise market. He has acted as Company Secretary for ASX-listed companies and professional advisor to a range of businesses. He also advises large overseas subsidiaries in relation to taxation, accounting and outsourced payroll requirements.

If you would like to run a Trust Account Management Health check, give Bob a ring on 02 9220 0700.

This is not advice. You should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide and should be regarded as confidential and not made available to any person without prior approval. This article is written by Bentleys NSW Pty Ltd. A member of Bentleys, an association of independent accounting firms in Australia. The member firms of the Bentleys association are affiliated only and not in partnership.