After reading this module on trust accounting and working through the examples given, you will be able to:
- identify trust money;
- explain the differences between a law firm’s trust bank account and a law firm’s general bank account;
- identify by name and explain the purpose for the required records to be maintained for a law firm’s trust bank account and general bank account;
- know where to find relevant rules about trust accounting including specific deadlines for filing and when entries must be recorded;
- use the checklist in the module to correctly perform a month-end trust account reconciliation;
- state the purpose of a specific trust investment account and identify the criteria to be considered before opening one;
- enter corrections in trust ledgers and the books of original entry; and
- explain the difference between the obligations of a trust account supervisor and of individual members.
The module is designed to contain all information that someone would need to know to be able to successfully complete the examination component of the trust account supervisor approval process.
It is important to understand and follow the Law Society rules in division 4: Financial Accountability.
Rule 5-56: Failure to comply with any of the rules in this division without reasonable excuse may constitute professional misconduct.
DID YOU KNOW?
Some firms have a policy of not accepting cash from clients. That is a business decision. If you do decide to accept cash, you must ensure the specific requirements regarding cash are adhered to for each and every transaction.
You are not permitted to handle trust money unless you have a pooled trust account. The pooled trust account is the trust bank account into which all trust money is paid before it can be used in any way.
As of April 1, 2019, only a firm with an approved trust account supervisor can open a trust bank account [Rule 5-42(1)].
In addition to the controls inherent in the Law Society rules, basic internal controls include but are not limited to the following:
- If you receive cash, it must be securely stored prior to deposit at your savings institution;
- Each and every disbursement of trust money must be supported by a source document that is reviewed by the cheque maker before affixing their signature to the trust cheque;
- Keep cheque stock in a secure location;
In computerized accounting systems, your accounting system itself typically has numerous internal controls built into it that should be used. For example, each user should have their own user name and password which is kept private and changed regularly, and different levels of users can be have different levels of access, depending upon their role. No user should be able to change or delete entries. If you have a staff member who leaves, their access to your system should be removed.
If a client provides you with one cheque to pay an outstanding account and for a retainer against future fees, the cheque must be deposited into the trust bank account and then, after an appropriate hold period, the monies can be transferred to the general bank account to satisfy the account.