THE TROUBLE WITH TRUST ACCOUNTS A step-by-step guide to cleaning up your IOLTA

10 STEP PROCESS ADMIT (YOU HAVE AN ELEPHANT) IDENTIFY (HOW MANY LAYERS OF THE ONION) DIG (GATHER INFORMATION) RECONCILE (BANK STATEMENTS TO CHECK REGISTERS) RECTIFY (CLIENT BALANCES w/BANK BALANCE) INVESTIGATE (WHO, WHAT, WHY, WHERE) REISSUE & REIMBURSE (UNCLEARED CHECKS & UNDISTRIBUTED FUNDS) REPORT (RESIDUAL OR LOST CONTACT) REFORM (TRUST ACCOUNTING METHODS) REPEAT (AT LEAST ONCE A YEAR) 10 STEP PROCESS IT’S LIKE EATING AN ELEPHANT Or PEELING AN ONION SHOVELING SNOW IN ERIE ON CHRISTMAS But, especially if you have had the account for a long time, the task for reconciling your IOLTA account is like eating an elephant – you just have to get started and take small bites I admit – once you get into it – squaring up your IOLTA account can be like peeling an onion – there are layers and layers involved. And – it can seem endless – like shoveling snow in erie on Christmas But not to worry - I have a “simple” ten step plan for your to follow. Just like AA’s 12 step plan – it starts with Admit!!!

Step #1: Admit BANK BALANCE How do you know there is a problem? Account Ledger Balances Identified Outstanding Transactions BANK BALANCE Step #1: Admit How do you know there is a problem?

RECENT OUTSTANDING TRANSACTIONS BANK BALANCE CLIENT #1 TRUST LEDGER CLIENT #2 TRUST LEDGER CLIENT # 3 TRUST LEDGER RECENT OUTSTANDING TRANSACTIONS RETURNED FUNDS UNCASHED CHECKS UNRECORDED DEPOSITS RESIDUAL? Step #2: Identify What is the extent of the problem?

Step #3: Dig Check Register Gather the information you need? Trust Account Ledger 10 years or more? This Photo by Unknown Author is licensed under CC BY-SA

Step #4: Reconcile Compare bank statement to check register Check off cleared checks & deposits List uncleared checks & missing transactions Compare bank statement to check register.

Record discrepancies in client trust account ledgers. Record residual funds to an unidentified client ledger. Reissue uncleared client or escrow checks. Reissue uncleared attorney fee checks. Step #5: Rectify Which client trust accounts are effected by your findings in step #4.

SAMPLE RECONCILED & RECTIFIED LEDGER CLIENT LEDGER BALANCE PRIOR to RECTIFY RECTIFIED SMITH 1,000 JONES 2,000 2,500 fee check not deposited ANDREWS 3,000 seller proceeds not clears JOHNSON 1,500 retainer deposit not recorded RESIDUAL 7,000 BANK BALANCE 10,000 SAMPLE RECONCILED & RECTIFIED LEDGER

Step #6: Research real estate escrows? unused/unearned funds? inheritance tax retained on divested property? balance on retainer? property deposit? To whom should this money belong? refunds received? HUD statements? This is where the onion part comes in! buyer or seller? address information? divorce escrow funds?

Step #7: Reissue & Reimburse Return money to the appropriate party. Write a letter and re write the checks or refund the escrows. Also counts as notice! Make sure to record under the appropriate trust account

Step #8: Report More than likely, you will either be unable to identify or find the rightful party to whom some funds belong. Escheat unidentified and unclaimed.

PA UNCLAIMED PROPERTY LAW DORMANCY 3 YEARS LOST CONTACT DUE DILIGENCE ADDRESS AVAILABLE VALUE >$50 120-60 DAYS NOTICE REQUIREMENT REPORTED ANNUALLY VOLUNTARY DISCLOSURE PA UNCLAIMED PROPERTY LAW

Set up and use sub-accounts within your financial system. Reconcile to IOLTA bank statements on a monthly basis. Use a trust account liabilities on your balance sheet to assure proper accounting. Use a separate company & sub-accounts in QuickBooks https://community.intuit.com/questions/1542528-set- up-trust-account http://www.intuitiveaccountant.com/tax-and-practice- management/quickbooks-reporting-for-client-funds- transactions/#.Wn84d-jwY2x Step #9: Reform Use technology to keep accounts straight going forward.

QUICKBOOKS IOLTA SAMPLE

Step #10: Repeat Audit accounts on a regular basis. Annually submit unclaimed funds to the PA Treasury Reconcile, reconcile, reconcile Step #10: Repeat Regular reconciliation of your trust ledger and IOLTA account will make it easier to keep clean records.

tsp@t2management.com 814-572-2294 THANK YOU tsp@t2management.com 814-572-2294