The Three Trust Records a Bar Auditor Asks For, and Where Each One Comes From

A trust account examination comes down to three records that have to agree on a date the examiner picks: the bank statement balance, the trust account balance in the firm’s own books, and the sum of every individual client ledger. A firm that can produce all three and show them agreeing has answered the examination. A firm that can produce two of them has a problem, and it’s almost always the third one that’s missing.

The useful thing about that structure is how small it is. Three numbers, one date.

Record one: the bank statement

The easiest of the three, because someone else produces it.

What examiners look for beyond the closing balance: outstanding items, and whether the firm’s adjustments for them are documented. An uncleared trust check from four months ago is a question, not a violation, but you should be the one who already asked it. Long-outstanding trust checks eventually become an unclaimed property issue, and our guide to handling old uncashed checks from the trust account covers the sequence.

Cancelled check images matter too. Several jurisdictions require the firm to retain them, and an examiner reviewing a specific disbursement will ask to see the item.

Record two: the trust account balance in your books

This is the firm’s own general ledger record of the trust account, and it should be a mirror image of the bank account: a trust bank asset on one side, a client trust liability on the other, always equal.

Where this record goes wrong is at setup rather than in operation. If the trust bank account is mapped to an income account, trust deposits post as firm revenue and no liability is ever created. If there’s a trust bank account but no client trust liability account, the balance sheet reports client money as firm equity. Both are configuration errors that produce a clean-looking bank reconciliation and an indefensible balance sheet.

In QuickBooks Online this record comes from the balance sheet and the account register for the trust bank account. If the trust liability doesn’t equal the trust bank asset, stop and find out why before doing anything else.

Record three: the individual client ledgers

This is the leg firms can’t produce, and it’s the one the examination actually turns on.

An individual client ledger shows, for one client, every receipt into trust, every disbursement out, and the running balance. Add all of them up and the total must equal records one and two. Any single client ledger showing a negative balance means that client’s disbursement was funded by another client’s money, which is the finding that produces discipline rather than a correction letter.

Two things make this record hard:

It has to exist per client, not in aggregate. An accurate total tells the examiner nothing about whether individual balances are intact. Our guide to client ledgers and what they prove covers what a complete ledger contains.

It has to be a record, not a reconstruction. A ledger assembled in Excel the week the examiner writes is not the same artifact as a ledger that existed continuously. Examiners can tell, and the reconstruction usually surfaces errors nobody knew about.

Producing this record depends entirely on whether every trust transaction carried its client and matter at the moment it was created. Attribution assigned later, from a bank feed, by someone working out what a payer name probably referred to, is where the gaps come from. Our step-by-step guide to tracking individual client trust liabilities in QuickBooks covers the structure that keeps them intact.

The fourth thing, which is really the first

The three records agreeing on a chosen date is a three-way reconciliation, and in many jurisdictions the completed reconciliation is itself a required record. Performing it monthly and retaining evidence that you performed it are separate obligations.

That’s worth saying directly, because it changes what “being ready” means. A firm that can assemble the three records on request is in better shape than one that can’t. A firm with twenty-four consecutive documented monthly reconciliations has already answered the question before it was asked.

To be clear about where the work happens: the reconciliation runs in QuickBooks Online, where your accountant already works, and QuickBooks Online is a hard requirement for running LeanLaw. What LeanLaw does is upstream of it. Trust activity arrives in QBO already tied to a client and a matter, so record three exists as a byproduct of the work rather than as a project someone starts when the letter shows up.

Our state bar IOLTA audit preparation guide covers what to do if you’re starting from behind.

Frequently asked questions

What records does a bar examiner ask for in a trust audit? The bank statement with cancelled items, the firm’s own trust account ledger, and individual client ledgers for every client whose funds were held, all as of a date the examiner selects. Most jurisdictions also require the completed monthly reconciliations.

What is the most common trust audit finding? A client ledger with a negative balance, meaning one client’s funds covered another client’s disbursement.

Can I reconstruct client ledgers if I don’t have them? Sometimes, from bank records and matter files, and it’s slow and it usually surfaces errors. Reconstruction is a remedy, not a substitute.

Where do these records come from in QuickBooks Online? The trust bank register and balance sheet give you the firm’s ledger; customer and sub-customer detail under the trust liability gives you the individual client ledgers. Both depend on transactions having been attributed to a client and matter when they were entered.

How far back will an examiner look? It depends on the jurisdiction and on what the examination turns up. Assume the full retention period required by your state’s trust accounting rule.