The Monthly IOLTA Routine

This is an accounting routine, not a compliance opinion. Trust-account rules vary by jurisdiction and your state bar’s requirements govern. Run this alongside your own rules, and take questions of ethics and reporting to your ethics counsel.

Every time money moves

On a deposit. Record it in the trust bank account, in the trust liability account, and on the individual client’s ledger — all three, same day. Note what the funds are for.

On a disbursement. Confirm the client’s ledger has sufficient funds before the payment goes out. A disbursement that overdraws a client ledger has used someone else’s money, and the account total can still look fine.

On an earned-fee transfer. Move money from trust to operating only after the fee is earned and properly billed. Record it against the client’s ledger. Keep the invoice that supports it.

Never pay a firm expense from trust, and never let a merchant processor deduct its fee from a trust deposit.

Every month

1. Get the trust bank statement for the period.
2. Adjust the statement balance: add deposits in transit, subtract outstanding cheques. This is your adjusted bank balance.
3. Pull the book balance — the trust account balance in your accounting system as of the same date.
4. Print or export every individual client ledger with its closing balance as of the same date, and total them.
5. Compare all three. They must agree exactly.
6. Scan the client ledgers for negative balances. Any negative is a finding regardless of whether the totals reconcile.
7. Investigate any variance before month-end. Work backwards to the last month that reconciled.
8. Save the reconciliation with the supporting statement and ledger listing. The record matters as much as the result.
9. Note anything unusual in writing — an unexplained fee, a long-dormant balance, a client you cannot locate.

Every quarter

• Review balances that have not moved in six months or more. Dormant client funds have handling rules in most jurisdictions, and those rules have deadlines.
• Confirm the bank is not charging fees against the trust account.
• Confirm every open matter with funds in trust has a current, correctly named ledger.
• Check that earned fees are actually being transferred out rather than accumulating in trust.

Every year

• Confirm your trust account is properly designated with the bank under your jurisdiction’s rules.
• Review who has access and signing authority. Remove anyone who has left.
• Confirm your records retention period and that your records actually go back that far.
• Reconcile your ledger list against your open matter list — matters closed with funds still held are a common gap.

What to keep

At minimum: bank statements, the monthly three-way reconciliation, every client ledger, deposit records, cancelled cheques or payment records, and the invoices supporting each earned-fee transfer.

Retention periods vary by jurisdiction and are commonly measured in years after the matter closes, not after the transaction. Check yours.

The one that matters most

If you do nothing else on this list, do the monthly three-way reconciliation and save it.

Every problem this checklist is designed to catch shows up there first, and every one of them is an afternoon’s work in the month it happens and a genuine project a year later.