---

name: efirm-finance-trust-account-reconciliation
description: Use when a law firm accountant or compliance officer needs to perform or verify the three-way reconciliation of client trust/escrow accounts. This is a P0 compliance skill — failure exposes the firm to bar discipline, regulatory sanction, and civil liability. Covers IOLTA (US), SRA Accounts Rules (UK), DFSA client-money rules (DIFC), FSRA client-asset rules (ADGM), and KSA/UAE bar segregation requirements. Produces a reconciliation report, exception list, and remediation actions.
license: MIT
metadata:
id: efirm-finance.trust-account-reconciliation
category: efirm-finance
jurisdictions: [US, UK, DIFC, ADGM, KSA, UAE, LB]
priority: P0
intent: [trust, compliance, IOLTA, client-money, reconciliation, segregation]
related:
- efirm-finance-realization-rate-tracker
- efirm-finance-wip-aging-report
- efirm-engagement-letter-draft
- efirm-conflict-check
source: Louis — HAQQ Legal AI (github.com/sboghossian/mini-claude-for-legal)
version: "1.0"

Trust Account Reconciliation

When to use this

This is a mandatory compliance procedure, not an optional financial report. Use it:

• Monthly (minimum), as required by most bar/regulatory rules.
• Whenever a discrepancy is suspected (negative balance, client complaint, staff departure).
• Before any bar audit or regulatory inspection.
• On firm merger, acquisition, or dissolution — every open balance must be resolved.
• When onboarding a new matter that involves client funds (retainer, escrow, settlement proceeds).

Critical: Never treat trust account work as routine bookkeeping. Commingling, overdrafts, or unexplained shortfalls can result in disbarment, criminal prosecution for misappropriation, and civil liability to clients.

Regulatory framework by jurisdiction

Jurisdiction	Regime	Key rules	Frequency
US	IOLTA (Interest on Lawyers' Trust Accounts)	State bar rules implementing ABA Model Rules 1.15; IOLTA interest goes to legal aid	Monthly three-way reconciliation
UK	SRA Accounts Rules 2019	Designated client accounts; client money must not be mixed with office money	Reconcile promptly; formal review at least every 5 weeks
DIFC	DFSA Client Money Rules	General client account; fiduciary duties under DIFC Trust Law	Monthly
ADGM	FSRA Client Asset Rules	Similar to DFSA but under ADGM regulatory framework	Monthly
UAE onshore	UAE Federal Law on Legal Profession + Bar rules	Segregation required; enforcement inconsistent but trend toward stricter rules	As per firm policy; recommend monthly
KSA	Saudi Bar Association rules	Client funds segregation required; Sharia-compliant accounts (no interest-bearing accounts)	As per bar guidance
Lebanon	Beirut Bar Association rules	Segregation expected; regulatory framework less formalized	As per firm policy; recommend monthly

Note on Sharia compliance (KSA / GCC): Interest-bearing IOLTA-style accounts are not permissible. Use non-interest-bearing client accounts. In the UAE and KSA, consult whether any interest accrued must be returned to the client or donated to charity.

The three-way reconciliation

All three balances must agree within penny-tolerance at month-end. Any difference is an exception requiring immediate investigation.

┌─────────────────────────────────────────────────┐
│  LEG 1: Bank Statement Balance                  │
│  Ending balance per bank statement as of        │
│  reconciliation date                            │
│  +/- Timing items (outstanding checks,          │
│       deposits in transit)                      │
│  = Adjusted bank balance                        │
└──────────────────┬──────────────────────────────┘
                   │ must equal
┌──────────────────▼──────────────────────────────┐
│  LEG 2: Trust Ledger Balance                    │
│  Running balance in firm's accounting system    │
│  for the trust account                          │
└──────────────────┬──────────────────────────────┘
                   │ must equal
┌──────────────────▼──────────────────────────────┐
│  LEG 3: Sum of Individual Client Ledger Balances│
│  Each active client/matter has a sub-ledger     │
│  All sub-ledger balances must sum to trust      │
│  ledger total                                   │
└─────────────────────────────────────────────────┘

If Leg 1 ≠ Leg 2: bank recording error or timing item error.
If Leg 2 ≠ Leg 3: a client ledger entry is missing, duplicated, or misposted.
If any leg shows a negative balance: immediate escalation required.

Step-by-step procedure

1. Pull bank statement for the trust account as of the reconciliation date.
2. Identify outstanding items: checks written but not yet cleared; deposits received by firm not yet credited by bank.
3. Compute adjusted bank balance: bank ending balance + deposits in transit − outstanding checks.
4. Pull trust ledger from accounting system; confirm ending balance matches adjusted bank balance.
5. Pull all client sub-ledger balances as of the same date; sum them.
6. Compare sum of sub-ledgers to trust ledger; they must be equal.
7. Document all timing items with dates and descriptions.
8. Sign off (authorized signatory — typically managing partner or CFO) with date.
9. File the completed reconciliation with supporting documents per jurisdiction retention rules.

Inputs required

Input	Source
Bank statement (monthly)	Bank portal or paper statement
Trust ledger / general ledger extract	Accounting system (Clio, Elite, SAP, etc.)
Client sub-ledger listing	Accounting system
Prior month's reconciliation	Firm records
List of outstanding items from prior period	Prior reconciliation file

Flags and exception handling

Exception	Severity	Action
Negative client balance (any sub-ledger)	CRITICAL	Immediate escalation to managing partner; investigate and cure within 24 hours; may require bar notification
Three-way imbalance	HIGH	Trace every transaction since last clean reconciliation; do not release funds until resolved
Stale balance (>6 months with no activity)	MEDIUM	Return to client or follow unclaimed property / dormant funds rules by jurisdiction
Missing payee identification	MEDIUM	Obtain documentation before disbursement
Interest credited to trust (non-Sharia markets)	MEDIUM	Confirm it is being swept to IOLTA fund or returned to client per agreement
Commingling: firm funds in trust account	CRITICAL	Regulatory violation; cure immediately; assess reporting obligation
Disbursement without sufficient client funds	CRITICAL	Potential misappropriation; legal counsel required

Output format

TRUST ACCOUNT RECONCILIATION — [Account Name/Number] — [Date]

LEG 1: Bank Statement
  Bank statement ending balance:    
  + Deposits in transit:            
  − Outstanding checks:             
  Adjusted bank balance:            

LEG 2: Trust Ledger
  Trust ledger balance per system:    [must equal Leg 1]

LEG 3: Client Sub-Ledgers
  [Client/Matter 001]               
  [Client/Matter 002]               
  ...
  Sum of sub-ledgers:                 [must equal Leg 2]

RECONCILIATION STATUS: ✓ BALANCED / ✗ EXCEPTION

EXCEPTIONS (if any):
  [Exception description, amount, action required, owner, deadline]

PREPARED BY: [Name]        DATE: [Date]
REVIEWED BY: [Name]        DATE: [Date]

Retention and access

• Reconciliation records: retain minimum 7 years (matches typical bar retention rules; some jurisdictions require longer).
• Access: restrict to finance staff and partners; attorney-client privilege may attach to trust balances.
• Audit trail: all adjusting entries must be logged with user, timestamp, and reason.

Limits and escalation

• This skill generates the report and flags exceptions. Detected violations (commingling, shortfall) must be escalated immediately to the managing partner and firm counsel — they may trigger mandatory bar reporting obligations.
• Do not attempt to "cure" a shortfall by moving office funds into trust without partner authorization and documentation — that action itself may require disclosure.

Related skills

• [[efirm-finance-realization-rate-tracker]]
• [[efirm-finance-wip-aging-report]]
• [[efirm-engagement-letter-draft]]
• [[efirm-conflict-check]]
• [[efirm-matter-creation-flow]]