Some Final Advice and Suggestions
Some suggestions to help avoid common trust accounting pitfalls:
Agree with your client on payment from trust funds. Confirm in the retainer letter that you will be entitled to take funds from trust to satisfy your bill, upon having issued and delivered the bill to the client.
Before issuing a trust cheque, review the individual client trust ledger card to ensure there are sufficient funds held for that client.
Do not rely on the client file for evidence of funds in trust. You risk a shortfall if you pay out trust funds on the strength of a mortgagee’s letter that funds will be advanced. Mortgagees do not always pay as and when they have committed.
Do not allow a mortgagee to credit your trust account directly. Such transactions can occur if you use the same bank branch. If your payout cheque clears the account before the mortgagee actually credits the mortgage proceeds, your account will be overdrawn and you will have a shortfall. You may also find that you have a shortfall if the financial institution claims that an amount was advanced in error and reverses the deposit through a debit memo. These situations cannot occur if you insist on payment by cheque instead of internal credit.
Do not operate many trust accounts. Operating too many trust accounts can lead to errors: funds are deposited to Account A, but cheques are issued on Account B.
Balance the statement of adjustment twice. Arithmetical errors on statements of adjustments, leading to over-disbursements, are easily avoided if you add and balance the statement twice: once in draft and again after it has been typed. Prepare a separate in/out analysis or just the cash actually coming in and being paid out.
Do not delay in depositing cheques. Do not keep cheques in the client file. Cheques can get lost, or payouts are made on the strength of the lawyer’s memory of having received the funds. A shortfall will result if the cheques have not actually been deposited.
Photocopy the front and back of cheques for deposit. It may be necessary to review details about a receipt, either to verify an endorsement, or get information about the drawer. Since this information is lost when a cheque is deposited, you should keep these photocopies as part of your receipt record.