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Trust Account Disbursement and Client Funds Checklist
The controls around money leaving the trust account: authorization, independent approval, fee transfers, negative balances, and the records that hold up in a bar audit.
The Monthly Baseline
- Run a three-way reconciliation every month: trust ledger, individual client ledgers, and the bank statement.
- Have someone other than the preparer review and sign the reconciliation, with the date.
- Reconcile every client ledger that moved during the month, not just the total.
- Confirm no client ledger shows a negative balance, and resolve any that does before the month closes.
- File the reconciliation with the bank statement and the ledger schedule together.
Before Any Disbursement
- Match the disbursement to an invoice, a fee agreement, or a written client authorization.
- Confirm the matter has funds available before the check is written or the transfer is sent.
- Require a second approval for any disbursement above the threshold your firm sets, recorded with the approver's name.
- Never pay a firm expense from the trust account, even temporarily.
- Keep the supporting document with the transaction, not in a separate folder someone has to remember.
Fee Transfers
- Transfer fees only after the work is billed and the invoice exists.
- Match the transfer amount to the invoice, and record both in the client ledger.
- Confirm the fee basis in the engagement letter before the first transfer.
- Review any transfer taken within a week of a deposit, since that is where the pattern shows up.
- Document who authorized each transfer.
Negative Balances and Uncleared Items
- Treat any negative client balance as an event: find the cause, correct it with a dated entry, and record who approved the correction.
- Do not adjust a client ledger to force agreement with the trust total.
- List outstanding checks and deposits in transit on every reconciliation.
- Follow up on items outstanding more than 90 days and document what you found.
- Investigate any check that appears to have been written against funds belonging to another matter.
Records and Retention
- Keep the reconciliation, the bank statement, the ledger schedule, and any correction notes together.
- Keep a written explanation for anything that did not tie in a given month.
- Retain records for the period your jurisdiction requires, on the assumption they will be requested years later.
- Keep the record of who prepared and who reviewed each month, so the sequence of months is visible.
- Store the records where a partner can produce them on request without asking the bookkeeper to reconstruct them.
Reviewing the Control
- Pull the last six reconciliations each quarter and confirm each was reviewed independently and on time.
- Test three fee transfers against their invoices.
- Check that the person who prepares the reconciliation is not the only person who ever reads it.
- Confirm new staff handling client funds are trained on the firm's trust procedures before they touch the account.
- Log the review and give any finding a named owner and a date.