IOLTA Reconciliation

How the three-way reconciliation works

Matching the bank statement to the books is only a two-way check. The third leg, the client ledgers, is where trust accounting problems actually hide, so all three are proved together every month.

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1

Gather the three records

The bank statement, the trust journal, and every individual client ledger are pulled as of the same date, the last day of the month. Records from different dates can never prove anything.

2

Adjust the bank balance

Deposits recorded in the journal but not yet on the statement are added, and outstanding checks and disbursements are deducted. The result is the adjusted bank balance, the amount the bank will show once everything clears.

3

Sum the ledgers and prove it

Every client ledger balance is added up. The adjusted bank balance, the journal balance, and the client ledger total must agree exactly. Any difference is investigated and resolved before the report is signed.

What the monthly package includes

Receipts and disbursements journal

Every deposit recorded with its date, source, and description, and every disbursement with its date, payee, client matter, and purpose.

A ledger for each client

Receipts and disbursements journal

Each client's funds tracked separately from receipt through disbursement, with a running balance that can never borrow from another client's money.

Bank statement and check images

Receipts and disbursements journal

Bank statement and check images

The month's statement filed with images of the checks written against the account, matched to the journal.

Electronic transfer records

Signed reconciliation report

Bank statement and check images

Wires and electronic payments documented with the client matter, the amount, and the name of the person who authorized the transfer.

Client ledger trial balance

Signed reconciliation report

Every client balance listed and totaled each month, so the third leg of the reconciliation is proved rather than assumed.

Signed reconciliation report

The finished three-way reconciliation, ready for the responsible attorney to review, sign, and date.

Red flags checked every month

Negative client balances

Disbursements against uncleared funds

A pooled account can be comfortably positive while one client's ledger is below zero, which means that client's disbursement was covered by someone else's money.

Disbursements against uncleared funds

Paying out on a deposit that has not yet cleared spends money the firm does not yet hold. Deposits are confirmed cleared before funds go out.

Commingled firm funds

Disbursements against uncleared funds

Stale outstanding items

Firm money sitting in the trust account beyond what the rules allow for bank charges puts every client balance in the account at risk.

Stale outstanding items

Checks and deposits that sit uncleared for months are aged and followed up. Old outstanding items are often where recording errors and forgotten obligations surface.

Unmatched bank lines

Stale outstanding items

Dormant client balances

Anything on the bank statement that does not trace to a journal entry, a fee, or interest is flagged and explained before the month is closed.

Dormant client balances

Stale outstanding items

Dormant client balances

Balances sitting untouched long after a matter closes usually belong to someone. They are listed for the firm to resolve, return, or handle under the rules for unclaimed funds.

Why it matters

Client trust funds are the one part of a law firm's finances where the rules are strict, the records are prescribed, and the consequences of a shortfall fall on the lawyer personally. The account is not the firm's money. It is many clients' money sharing one bank account, and the records are what prove whose money is whose.

The ABA Model Rules for Client Trust Account Records set the standard shape of those records: a receipts and disbursements journal, a ledger for each client, bank and electronic transfer records, and regular trial balances and reconciliations. State rules build on that model, and they vary, so the responsible attorney should confirm the requirements in the firm's own jurisdiction.

A monthly three-way reconciliation is how a firm shows the work. It catches errors while they are still small and explainable, and it produces the signed, dated record that the reconciliation was actually reviewed by the responsible attorney, not just prepared.

IOLTA three-way reconciliation, done monthly for law firms.

How the three-way reconciliation works

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What the monthly package includes

Receipts and disbursements journal

Receipts and disbursements journal

Receipts and disbursements journal

A ledger for each client

Receipts and disbursements journal

Receipts and disbursements journal

Bank statement and check images

Receipts and disbursements journal

Bank statement and check images

Electronic transfer records

Signed reconciliation report

Bank statement and check images

Client ledger trial balance

Signed reconciliation report

Signed reconciliation report

Signed reconciliation report

Signed reconciliation report

Signed reconciliation report

Red flags checked every month

Negative client balances

Disbursements against uncleared funds

Disbursements against uncleared funds

Disbursements against uncleared funds

Disbursements against uncleared funds

Disbursements against uncleared funds

Commingled firm funds

Disbursements against uncleared funds

Stale outstanding items

Stale outstanding items

Stale outstanding items

Stale outstanding items

Unmatched bank lines

Stale outstanding items

Dormant client balances

Dormant client balances

Stale outstanding items

Dormant client balances

Why it matters

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