Getting your IOLTA accounting wrong can lead to fines, financial losses, ethics violations and even disbarment. Find out how to avoid the most common errors and how to keep on top of your IOLTA accounting with our app in our blog.
No-one wants to be disbarred, or worse spend time in jail, because they got an IOLTA accounting rule wrong. Although the rules may vary state by state it’s important to understand what the common IOLTA errors are and how to avoid them.
1. Bad Recordkeeping
Every single transaction in and out of your IOLTA accounts must be detailed, no matter how small. These records need to be available to your state bar on request. Each client’s account needs to have a separate ledger and each check will need to have that clients reference number on it. You may be required by your state bar to be able to demonstrate how much money is in each individual client’s account at any given point in time.
2. Borrowing Money
You are not allowed to borrow money from your clients IOLTA accounts UNDER ANY CIRCUMSTANCES, this includes withdrawing fees that have as yet not been earned. This is one of the most common reasons attorney’s get disbarred.
3. Failing to keep separate accounts for your business and your client accounts.
Your clients accounts need to be entirely separate from your own. You cannot use the clients IOLTA account as a savings account for your business, nor can you use your clients IOLTA account as an operating account.
4. Charging clients for payment fees
There are some IOLTA friendly merchants who will charge fees to your operating account when depositing funds into your clients’ accounts, however if you are working with a merchant that doesn’t offer this service you must ensure that you are charging the fees to the appropriate account.
5. Recording a Trust deposit as an income
Funds deposited into an account are funds you owe your client, not funds you can claim as an income, even if this makes your accounting more straight forward.
Now you know what the pitfalls are of IOLTA accounting how can you avoid them? The simple and easiest answer is by accurate record keeping. You are probably thinking at this point AHHH another spreadsheet to juggle. But there are options – take a look at our Escrow Trakker APP. This is a multi-platform, ERP cloud management financial software tool that allows you to take control of your IOLTA accounting and ensure that you can track multiple clients whilst monitoring the performance of your attorney’s. It allows you to move away from juggling spreadsheets and ledgers and gives you oversight of up to 200 Trust and IOLTA accounts.