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Ten trust accounting mistakes that lead to bar audits and discipline

Most trust account discipline does not start with theft. It starts with routine errors repeated month after month: a bank balance checked instead of a reconciliation done, earned fees left sitting in trust, one client's money quietly covering another client's check, a disbursement made before the deposit cleared. Every one of them is visible on a client ledger kept current and a three-way reconciliation done on schedule.

For managing partners, office managers and bookkeepers at firms that hold client money · Reviewed November 5, 2026

How trust account problems usually come to light

Three things put a firm's trust account in front of the bar. The first is the bank: most states have adopted an overdraft notification rule, under which the bank holding a trust account reports to the bar when a trust check is presented against insufficient funds, and that notice alone can open an investigation and an audit of the whole account. The second is a client who was paid late, or not at all. The third is a review the bar starts on its own; California, for example, randomly selects attorneys for trust account compliance reviews without any complaint, under a Client Trust Account Protection Program that also requires annual reporting and a self-assessment.

In each case the examiner asks for the same things: the account journal, a ledger for every client, the bank statements, and the reconciliations. Missing or stale records are a finding on their own, even when no client lost money.

The ten mistakes

  1. Checking the bank balance instead of reconcilingA bank balance that looks right says nothing about whether each client's money is there. Only a three-way reconciliation, bank against the trust journal against the sum of client ledgers, shows that. The control: reconcile on the schedule your state requires and keep the signed record. See how to do a three-way reconciliation.
  2. Leaving earned fees in trustOnce a fee is earned and the client has been told, it belongs to the firm. Leaving it in the trust account mixes firm money with client money, which is commingling. The control: move earned fees to operating promptly, with the matter and the bill recorded on the transfer.
  3. Putting firm or personal money into trustRent refunds, office reimbursements and payroll withholding do not belong in a trust account. Most states allow only a small amount of firm money to cover bank charges, and some set a cap. The control: anything that is not client or third-party money goes to operating.
  4. Paying bank fees from client moneyWire fees, check printing and returned-item charges taken from the trust account are paid with client funds unless the firm has its own recorded cushion there. The control: have the bank charge fees to operating, or keep a recorded firm balance for them and track it like a client ledger.
  5. Letting one client's money cover another client's checkIf a disbursement goes out for a client whose own balance is short, the account total can still look fine while that client's ledger goes negative. That means another client's money paid it. The control: no disbursement without a ledger check for that client, and any negative client balance treated as an exception to fix the same day.
  6. Disbursing against funds that have not clearedWriting checks against a settlement deposit before the bank has collected it uses other clients' money in the meantime, and if the deposit is returned, the account is short. Many states have good funds rules that set when deposited funds can be disbursed. The control: disburse only against collected funds, by your state's rule.
  7. Paying the client against a conditional lien figureIn personal injury matters a Medicare conditional payment letter is not the amount Medicare will collect; the final demand is. Paying the client's share against the conditional figure can leave the firm short when the final demand arrives. The control: hold the amount at issue in trust until the final figure is known. See what a Medicare conditional payment letter means for your disbursement.
  8. Splitting a mixed checkWhen one check includes both client money and fees or reimbursements owed to the firm, the whole check generally goes into trust first, and the firm's portion comes out after it clears. Depositing part of it into operating is a common audit finding.
  9. Disbursements that do not name the clientA trust check or wire with no client or matter on it cannot be tied back to a ledger, and an examiner will ask. The control: every trust disbursement carries the client and matter it is charged to.
  10. Holding undisputed money too longRule 1.15 requires lawyers to deliver promptly the funds a client or third party is entitled to receive. California goes further: absent good cause, it presumes a violation if undisputed funds are not distributed within 45 days of becoming undisputed, and it requires notice to the client or other person with an interest within 14 days of receiving the funds. When part of the money is disputed, only the disputed portion stays in trust; the rest is paid.

A ten-minute monthly self-check

  • Pull the trust bank statement and compare it to the trust journal and the total of all client ledgers for the same date. All three should agree.
  • Sort client ledgers by balance. Any negative balance is an exception to resolve today.
  • List balances that have not moved in 90 days. Each one should have a reason: a pending lien, a dispute, a client who cannot be reached.
  • Look for fees billed and approved but still sitting in trust.
  • Check that every disbursement this month names a client and matter.
  • Sign and date the reconciliation and file it with the month's records.

Where software fits

None of these mistakes needs judgment to catch; each one shows up in the numbers. That is the work suss. does every day: it reconciles bank, book and client ledgers, flags negative or stale client balances and any disbursement prepared before funds have cleared or liens are settled, and keeps the signed record. A named person at the firm still approves anything that touches money.

Common questions

What is the most common trust accounting violation?

Commingling and poor recordkeeping are among the most common findings in trust account reviews: firm money mixed with client money, earned fees left in trust, missing client ledgers and reconciliations that were never done or never documented.

Is a negative client ledger balance a violation if the account total is positive?

It is treated as a serious problem in most jurisdictions, because it means another client's money paid that client's disbursement. The account total can look fine while one client's funds have been used for another.

Can a bank report my trust account to the bar?

In most states, yes. Under trust account overdraft notification rules, which most jurisdictions have adopted, the bank must notify the bar when a trust account check is presented against insufficient funds, and that notice can lead to a review of the whole account.

See these checks run on your own trust account.

suss. reconciles bank, book and every client ledger daily, flags the exceptions in this guide, and keeps the record your bar asks for.

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Sources and rules cited (7)
  1. Checklist of Common Trust Account Errors, by a North Carolina State Bar staff auditor (1997 reprint, State Bar of Michigan)
  2. ABA Model Rule of Professional Conduct 1.15, Safekeeping Property
  3. ABA Model Rules for Trust Account Overdraft Notification
  4. California Rule of Professional Conduct 1.15
  5. ABA Model Rule on Financial Recordkeeping
  6. State Bar of California, Client Trust Accounting Resources and Training
  7. State Bar of California, Handbook on Client Trust Accounting for California Attorneys

General information, not legal or tax advice. Rules vary by state and change; confirm the current rule for your jurisdiction.

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