Should Your Law Firm Hire a CPA for IOLTA Reconciliation?
By Peter Fider, CPA
Why trust accounting is different
If your firm holds client money in trust, a CPA is worth a serious look for your IOLTA reconciliation and bookkeeping. It's the one place where a small bookkeeping mistake can become a bar problem.
Most firm books are forgiving. If an expense lands in the wrong category, you fix it at tax time. A trust account is not like that. The money belongs to your clients, every dollar has to be tied to a specific client, and your records have to hold up if anyone asks to see them.
In Pennsylvania, Rule 1.15 calls for a monthly reconciliation of each fiduciary account, and that includes your IOLTA. That is a lot to carry on top of billing, court dates, and clients.
I'm a CPA who works with law firms on exactly this. Here is how I'd think about whether to bring one in.
What a CPA does that a regular bookkeeper may not
A bookkeeper records what happened. A CPA also brings training in controls, compliance, and review, and that matters most on the trust account.
Three-way reconciliation, done every month. Your trust bank statement, your trust ledger, and the total of your individual client ledgers should all agree.
Client-level tracking. Every dollar is tied to a specific client, so nothing sits unallocated.
Trust and operating money kept apart. Earned fees move out on time, and bank fees are paid from the operating account, not from client money.
A second set of eyes. Someone reviews the work and asks who has access to the account.
Records ready when asked. Deposits, disbursements, and reconciliations are documented and easy to find.
Software that agrees with itself. QuickBooks Online and Clio are set up so the numbers match, without double entry.
One thing a CPA can't do is take the responsibility off you. The attorney responsible for the account still reviews the monthly reconciliation. What a CPA does is make sure there is something accurate and clear to review.
In-house hire or a CPA-led outside firm
The right choice depends mostly on your firm's size and how much trust activity you have.
In-House Bookkeeper | CPA-Led Outside Firm | |
|---|---|---|
Cost | Salary, benefits, and training | A monthly fee, no hiring or benefits |
Trust account experience | Depends on the person, so ask | Built in when the firm specializes in law firms |
If someone is out or leaves | The work can stall, or go unreconciled | The firm keeps the work going |
Review and oversight | Often only the attorneys | CPA review is part of the service |
Usually fits | Larger firms with full-time volume | Solo and small firms |
The "if someone leaves" row is worth a second look. Disciplinary cases have involved a bookkeeper who left suddenly and a firm that then found its trust account hadn't been reconciled. A reconciliation process that depends on one person is a risk worth planning around.
Questions to ask before you hire anyone
Ask these of any bookkeeper or firm, and listen for specific answers.
Have you worked with law firm trust accounts before, and how many?
How do you do the three-way reconciliation each month, and what will I get to review?
What do you do when you find unallocated funds or a discrepancy?
Which software do you use, and do you have experience connecting Clio and QuickBooks Online?
Who will have access to my trust account records, and how is that protected?
What happens to my monthly reconciliation if the person on my account is out sick or leaves?
Is a licensed CPA involved, and who reviews the work?
Vague answers about being "detail oriented" are a red flag. You want someone who can describe the process step by step.
When it makes sense to bring in help now
Bring in help now if any of these sound familiar, because trust account problems get harder to untangle the longer they sit.
Your trust reconciliation is behind, or you're not sure last month's was done.
Your bank, ledger, and client balances don't match and you can't find why.
Your books show client money you can't tie to a specific client.
You're moving to Clio or QuickBooks Online, or the two don't agree.
Your bookkeeper left, or you've been doing the books yourself and want to stop.
A cleanup doesn't mean something is wrong. Often it's just books that fell behind during a busy stretch, and the earlier they're fixed, the simpler the fix.
If you've already found a problem that may affect a client, talk with your own counsel or your bar's ethics resources about what to do next. We handle the bookkeeping, not legal advice.
Next step
If you'd like a CPA to look at your trust account, start with our Financial 360 diagnostic. We review your current books, find any trust account discrepancies, and tell you what needs to be fixed before you commit to monthly service.
