Each month, you must compare your trust accounting records for the month with the trust account statement from your savings institution for that same month and figure out whether your records match the savings institution’s statement [Rule 5-43(2)]. If the records do not match, you need to figure out why.
Think of a reconciliation as the systematic comparison of the transactions in the book of original entry and the total of the balances in the client trust ledgers with transactions on the bank statement for the pooled trust account. The report explains the reasons for any differences among the three balances by recording ‘reconciling items’ to show that the balances are the same as the bank statement balance when the reconciling items are included.
You must balance exactly, to the penny.
Doing this each month is one way you might discover errors and omissions, outstanding cheques or missing deposits, and anomalies in the account such as improper withdrawals. Not only does this comply with the rules, it is easier to find and fix an error if you only have one month’s worth of records and supporting documents to check.
You have until the end of the next month to figure all that out [Rule 5-43(2)], and once you do, you must keep a permanent copy of the trust reconciliation report for that month with all the supporting documents.
Even if there has been no activity in the account or the balance is zero, you must do a monthly trust reconciliation for every trust account of the law firm.
More detailed explanation of a Monthly Trust Reconciliation
A trust reconciliation is sometimes called ‘a three-way reconciliation’, because the three main records are compared to each other every month. This means that:
a) the trust account bank statement,
b) the book of original entry, and
c) the total balance of all the client trust ledgers
must be reviewed to ensure that all three have the same balances, and if not, that the reconciling items are identified.
Trust Bank Account Balance = Book of Original Entry = Total of Client Trust Ledgers
Because the book of original entry tracks every transaction in the pooled trust account, it seems logical to think the statement from your savings institution showing the balance in the trust account would always be the same balance as the book of original entry at any given time. However, there are many reasons for the balances to be different.
The basic steps for completing a monthly trust reconciliation are explained in the following example: