Comprehensive ledgers for your professional trust accounts are not only required by rule, but they also can be the best way to avoid the aggravation of a sua sponte grievance due to an inadvertent returned check.
A ledger is a document that accounts for all transactions associated with your bank accounts. If you manage or own a law firm, having a ledger for your operating accounts is a helpful and necessary management tool. If you maintain an attorney escrow account, having a ledger is mandated by the Rules of Professional Conduct.
Rule 1.15 (d) Requirements
Rule 1.15 (d) details the required bookkeeping records for attorneys. The basic idea is that you should track:
- All deposits and withdrawals
- The source of the money
- The purpose of any withdrawals
- For which client or matter the money is held
It is further directed that the entries in your ledger must be contemporaneous with the “time of the act, condition, or event recorded.” Rule 15 (d) (2)
Understanding Your Escrow Account
A simple way to think about your responsibilities is to look at your escrow account in two parts. You should know the total amount of money in your escrow account and make sure it covers your overall escrow liabilities. Further, you must know for which client or clients you are holding money and the exact status of those funds.
For example, assume that you are holding $10,000.00 for each of three clients: Smith, Jones, and Johnson. You need to be able to make sure that your account always has a total of $30,000 during the period you are holding the funds. You further must be able to show that the money due to each client is preserved and have documented every transaction related to their individual funds.
Producing Records on Demand
Importantly, you are required not only to maintain these records, but you must be able to produce them in demand to a grievance committee. Failure to maintain such ledgers or turn them over are per se violations of the RPC (RPC 1.15(j)).
Should a grievance investigation be commenced, they will usually conduct a 6-month audit of your trust accounts. If you have regularly reconciled your accounts and maintained proper ledgers, providing a timely response should be a simple task. A well-maintained ledger will enable you to demonstrate that each client’s funds were preserved and that there was no technical conversion by having drawn funds for a payout against another client’s funds because of an inadvertent shortage in your account.
Best Practices for Trust Account Ledgers
Trust account ledgers should be contemporaneous and detailed. The best course of action is to have a main ledger for each account, and a ledger for each client matter. The account ledger should reflect all individual transactions within the account in chronological order and the running balance after each transaction and at your weekly or monthly account reconciliation. The client / transaction ledger should reflect each transaction regarding those funds, from deposit through disbursement, leaving a zero balance.
Consequences of Mismanagement
The grievance committees and the courts are concerned with account mismanagement. A failure to properly maintain your accounts, and produce ledgers and other account records, can result in serious sanctions. Additionally, you, as stakeholder, remain civilly liable for any misdirected or unpaid funds.
Leveraging Technology for Compliance
The good news is that with today’s available technology there is no excuse to failing to maintain your accounts. There are easy to use software programs that are inexpensive, yet invaluable. They allow you to not only easily monitor your account but will also help in reconciliation and creation of the necessary ledgers.
