--- name: efirm-finance-trust-account-reconciliation description: Use when a law firm accountant or compliance officer needs to perform or verify the three-way reconciliation of client trust/escrow accounts. This is a P0 compliance skill — failure exposes the firm to bar discipline, regulatory sanction, and civil liability. Covers IOLTA (US), SRA Accounts Rules (UK), DFSA client-money rules (DIFC), FSRA client-asset rules (ADGM), and KSA/UAE bar segregation requirements. Produces a reconciliation report, exception list, and remediation actions. license: MIT metadata: id: efirm-finance.trust-account-reconciliation category: efirm-finance jurisdictions: [US, UK, DIFC, ADGM, KSA, UAE, LB] priority: P0 intent: [trust, compliance, IOLTA, client-money, reconciliation, segregation] related: - efirm-finance-realization-rate-tracker - efirm-finance-wip-aging-report - efirm-engagement-letter-draft - efirm-conflict-check source: Louis — HAQQ Legal AI (github.com/sboghossian/mini-claude-for-legal) version: "1.0" --- # Trust Account Reconciliation ## When to use this This is a **mandatory compliance procedure**, not an optional financial report. Use it: - Monthly (minimum), as required by most bar/regulatory rules. - Whenever a discrepancy is suspected (negative balance, client complaint, staff departure). - Before any bar audit or regulatory inspection. - On firm merger, acquisition, or dissolution — every open balance must be resolved. - When onboarding a new matter that involves client funds (retainer, escrow, settlement proceeds). **Critical**: Never treat trust account work as routine bookkeeping. Commingling, overdrafts, or unexplained shortfalls can result in disbarment, criminal prosecution for misappropriation, and civil liability to clients. ## Regulatory framework by jurisdiction | Jurisdiction | Regime | Key rules | Frequency | |---|---|---|---| | US | IOLTA (Interest on Lawyers' Trust Accounts) | State bar rules implementing ABA Model Rules 1.15; IOLTA interest goes to legal aid | Monthly three-way reconciliation | | UK | SRA Accounts Rules 2019 | Designated client accounts; client money must not be mixed with office money | Reconcile promptly; formal review at least every 5 weeks | | DIFC | DFSA Client Money Rules | General client account; fiduciary duties under DIFC Trust Law | Monthly | | ADGM | FSRA Client Asset Rules | Similar to DFSA but under ADGM regulatory framework | Monthly | | UAE onshore | UAE Federal Law on Legal Profession + Bar rules | Segregation required; enforcement inconsistent but trend toward stricter rules | As per firm policy; recommend monthly | | KSA | Saudi Bar Association rules | Client funds segregation required; Sharia-compliant accounts (no interest-bearing accounts) | As per bar guidance | | Lebanon | Beirut Bar Association rules | Segregation expected; regulatory framework less formalized | As per firm policy; recommend monthly | **Note on Sharia compliance (KSA / GCC)**: Interest-bearing IOLTA-style accounts are not permissible. Use non-interest-bearing client accounts. In the UAE and KSA, consult whether any interest accrued must be returned to the client or donated to charity. ## The three-way reconciliation All three balances must agree within penny-tolerance at month-end. Any difference is an exception requiring immediate investigation. ``` ┌─────────────────────────────────────────────────┐ │ LEG 1: Bank Statement Balance │ │ Ending balance per bank statement as of │ │ reconciliation date │ │ +/- Timing items (outstanding checks, │ │ deposits in transit) │ │ = Adjusted bank balance │ └──────────────────┬──────────────────────────────┘ │ must equal ┌──────────────────▼──────────────────────────────┐ │ LEG 2: Trust Ledger Balance │ │ Running balance in firm's accounting system │ │ for the trust account │ └──────────────────┬──────────────────────────────┘ │ must equal ┌──────────────────▼──────────────────────────────┐ │ LEG 3: Sum of Individual Client Ledger Balances│ │ Each active client/matter has a sub-ledger │ │ All sub-ledger balances must sum to trust │ │ ledger total │ └─────────────────────────────────────────────────┘ ``` If Leg 1 ≠ Leg 2: bank recording error or timing item error. If Leg 2 ≠ Leg 3: a client ledger entry is missing, duplicated, or misposted. If any leg shows a negative balance: **immediate escalation required**. ## Step-by-step procedure 1. **Pull bank statement** for the trust account as of the reconciliation date. 2. **Identify outstanding items**: checks written but not yet cleared; deposits received by firm not yet credited by bank. 3. **Compute adjusted bank balance**: bank ending balance + deposits in transit − outstanding checks. 4. **Pull trust ledger** from accounting system; confirm ending balance matches adjusted bank balance. 5. **Pull all client sub-ledger balances** as of the same date; sum them. 6. **Compare sum of sub-ledgers to trust ledger**; they must be equal. 7. **Document all timing items** with dates and descriptions. 8. **Sign off** (authorized signatory — typically managing partner or CFO) with date. 9. **File** the completed reconciliation with supporting documents per jurisdiction retention rules. ## Inputs required | Input | Source | |---|---| | Bank statement (monthly) | Bank portal or paper statement | | Trust ledger / general ledger extract | Accounting system (Clio, Elite, SAP, etc.) | | Client sub-ledger listing | Accounting system | | Prior month's reconciliation | Firm records | | List of outstanding items from prior period | Prior reconciliation file | ## Flags and exception handling | Exception | Severity | Action | |---|---|---| | Negative client balance (any sub-ledger) | CRITICAL | Immediate escalation to managing partner; investigate and cure within 24 hours; may require bar notification | | Three-way imbalance | HIGH | Trace every transaction since last clean reconciliation; do not release funds until resolved | | Stale balance (>6 months with no activity) | MEDIUM | Return to client or follow unclaimed property / dormant funds rules by jurisdiction | | Missing payee identification | MEDIUM | Obtain documentation before disbursement | | Interest credited to trust (non-Sharia markets) | MEDIUM | Confirm it is being swept to IOLTA fund or returned to client per agreement | | Commingling: firm funds in trust account | CRITICAL | Regulatory violation; cure immediately; assess reporting obligation | | Disbursement without sufficient client funds | CRITICAL | Potential misappropriation; legal counsel required | ## Output format ``` TRUST ACCOUNT RECONCILIATION — [Account Name/Number] — [Date] LEG 1: Bank Statement Bank statement ending balance: $X + Deposits in transit: $A − Outstanding checks: $B Adjusted bank balance: $C LEG 2: Trust Ledger Trust ledger balance per system: $C [must equal Leg 1] LEG 3: Client Sub-Ledgers [Client/Matter 001] $D1 [Client/Matter 002] $D2 ... Sum of sub-ledgers: $C [must equal Leg 2] RECONCILIATION STATUS: ✓ BALANCED / ✗ EXCEPTION EXCEPTIONS (if any): [Exception description, amount, action required, owner, deadline] PREPARED BY: [Name] DATE: [Date] REVIEWED BY: [Name] DATE: [Date] ``` ## Retention and access - Reconciliation records: retain minimum 7 years (matches typical bar retention rules; some jurisdictions require longer). - Access: restrict to finance staff and partners; attorney-client privilege may attach to trust balances. - Audit trail: all adjusting entries must be logged with user, timestamp, and reason. ## Limits and escalation - This skill generates the report and flags exceptions. Detected violations (commingling, shortfall) must be escalated immediately to the managing partner and firm counsel — they may trigger mandatory bar reporting obligations. - Do not attempt to "cure" a shortfall by moving office funds into trust without partner authorization and documentation — that action itself may require disclosure. ## Related skills - [[efirm-finance-realization-rate-tracker]] - [[efirm-finance-wip-aging-report]] - [[efirm-engagement-letter-draft]] - [[efirm-conflict-check]] - [[efirm-matter-creation-flow]]