Four Main Requirements of Trust Accounting Software for Lawyers
Lawyers have quite a few attorney-specific accounting duties. However, attorneys often try to meet those requirements by using off-the-shelf accounting software in the hopes they can take generic business software and make it conform to specialized requirements.
The appeal is understandable: regular accounting software is widely available and you can easily import and export data. However, this is an unsatisfactory approach for two key reasons. First, when you don’t have software that is purpose-built for legal trust accounting, your workarounds can take an immense amount of time to implement and use. More importantly, however, you run the risk of serious errors—the kind of errors that can result in attorney discipline.
Good attorney-specific trust accounting software should be able to perform four key tasks.
1. All Money In and Out Must be Attached to a Matter/Client
Lawyers have different fee and payment arrangements for different types of clients, and those arrangements can be very complex. At heart, though, all arrangements have one thing in common: they need internal controls to ensure fees and costs are properly attributed to the appropriate client. Lawyer-specific trust accounting software, such as Cosmolex, ensures once you specify a choice of account, the software will not let you accidentally post to a non-matter or non-client account.
2. There Must Be Safeguards Against Overdrafts, Commingling Funds, and Duplicate Checks
Manual methods and general accounting software do not necessarily provide built-in protection against common errors like overdrafts and commingling of trust funds. Those methods also do not automatically impose rigid internal controls that ensure every individual in the firm performs their trust accounting duties in the same fashion. Trust accounting software should automate these controls to ensure that common mistakes are avoided.
3. It Must Perform Monthly Reconciliations
Monthly bank reconciliation is a mandatory task for lawyers. It is, of course, possible to handle that task manually, but the potential for error skyrockets. Given that a request for reconciliations is a common when lawyers are audited, ensuring those are bullet proof is key.
Good trust accounting software should allow you to upload an electronic bank statement, define a monthly period, and easily auto-reconcile an account’s transactions.
It must also automatically lock your books after you close out the month.
4. It Should Be Easy to Create a Three-Way Reconciliation Report
Like all businesspeople, lawyers must reconcile their bank balance with their check register. However, lawyers must also keep individual client ledgers for each of their client trust accounts. In many states, lawyers must reconcile those individual ledgers against the bank balance and the check register in a process known as three-way reconciliation. Last month, we explained how to use Cosmolex to perform that task. It is possible to do it manually—Massachusetts has a form you can use, for example—but going that route difficult, clunky, and error-prone. Trust accounting software will allow you to create this sort of report with one click.
Software that safeguards against financial mistakes and allows for easy reconciliation is critical. In short, lawyers should choose trust accounting software that minimizes the risk of error and maximizes efficiency.
Featured image: “Business Research Data Economy Statistics Concept” from Shutterstock.
Four Main Requirements of Trust Accounting Software for Lawyers was originally published on Lawyerist.com.
Source: https://lawyerist.com/101445/four-main-requirements-of-trust-accounting-software-for-lawyers/
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