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CosmoLex keeps trust accounts audit-ready

By AdvocateDaily.com Staff

CosmoLex helps lawyers keep their trust accounts audit-ready, according to Erica Birstler, the firm’s director of strategic communications.

Birstler tells AdvocateDaily.com that the special nature of trust accounts — which see lawyers acting as fiduciaries for their clients’ money — adds an extra layer of responsibility for legal professionals.

“The many rules and regulations surrounding trust accounting can be overwhelming for lawyers and can cause even more anxiety in the event of an audit,” she says. “The good news is, with some planning and technology, you can keep your accounting ready for an audit at a moment’s notice.”

While regulations differ by province, Birstler says every Canadian law society takes trust account violations very seriously as part of their duty to protect the public.

“With strict audits and severe consequences for violations, it can be extremely helpful for lawyers to leverage legal-specific technology to take a proactive approach to keep audit-ready trust accounts,” she says, explaining that CosmoLex’s cloud-based practice management software is designed specifically for Canadian accounting rules.

Having made its name in the U.S. market as a total law practice solution, incorporating time and expense tracking, billing, business accounting, trust accounting, calendaring, and task, email and document management in a single cloud-based application, CosmoLex recently moved into the Canadian market.

Starting out in Alberta, where the province’s law society named it an approved practice management vendor, CosmoLex now serves a range of law firms in Canada, principally solo practitioners and small firms.

“Trust accounts are a unique accounting function that other industries don’t have to worry about, so generic accounting software usually isn’t able to handle it without some significant workarounds,” Birstler says.

Even without the prospect of an audit on the horizon, she says it’s best practice for lawyers to keep on top of things. Here are some of Birstler’s tips for keeping your trust accounting in order:

Pay attention to individual client ledger balances

Keeping your individual client ledgers balanced is just as important as tracking your overall trust account levels, Birstler says.

“As a fiduciary, you’re expected to keep track of the funds going in and out of their account,” she says. “At any point, should your client request it, you should be able to provide a current balance as well as a ledger of deposits and disbursements, along with their purpose.”

Conduct monthly reconciliation and reporting

In addition to providing a clear paper trail for law society auditors, running regular reports on items including receipts, disbursements and transfers can help lawyers spot any potential problems early on, says Birstler.

“It’s much better to evaluate your bookkeeping for accuracy internally rather than having an auditor do it and find discrepancies,” she says.

Trust reconciliations are among the most important reporting components of trust accounting, Birstler adds.

“Designed to prevent fraud and misappropriated funds, these reports are very similar to traditional two-way reconciliations,” she explains. “In addition to the bank balance and the general ledger balance, three-way trust reconciliations also require comparing the balance of the sum of the individual client ledgers. If all of these amounts match, the reconciliation and books are accurate and complete.”

CosmoLex software even allows users to run daily reconciliations at the click of a button, helping lawyers to nip large-scale problems in the bud, Birstler says.

Address uncleared or unclaimed funds

The onus is on law firms to follow up and determine why cheques have failed to clear after the disbursement of funds, Birstler says.

“These funds should not be allowed to remain in a trust account indefinitely,” she says. “Once you’ve determined the underlying cause, you can then fix it.”

Ensure credit card merchant compliance

Not all credit card merchants are created equal, according to Birstler, who says credit card payments involving trust accounts have their own unique treatment for chargebacks and processing fees.

“If your merchant isn’t set up to handle trust accounts, you could find yourself unintentionally overdrafting a client’s ledger or having a very hard time reconciling your records with your bank’s,” she says.

Make use of technology

“Relying on memory alone to recall all of the many compliance requirements is a sure-fire way to make a mistake, especially if you have employees handling trust accounts,” Birstler says. “The burden falls directly on the law firm, no matter who is doing the bookkeeping.

“Prevent these issues by using programs that have built-in mechanisms to avoid common pitfalls such as commingled funds or account overdrafts,” she says.

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