Trust accounting is where good firms get into trouble. Not because they’re careless. Because the process is often undocumented, rushed, and handled “when we get a minute.” If your firm uses an IOLTA account, the single best monthly habit you can build is a 3‑way reconciliation.
In this guide, we’ll explain what 3‑way reconciliation means, give you a practical checklist your team can follow, and show the most common issues we see when firms come to us for cleanup. This is educational information, not legal advice. Always follow your jurisdiction’s rules.
What “3‑way reconciliation” means (simple definition)
A true 3‑way reconciliation means three totals match exactly, as of the same date:
- The reconciled bank balance for the trust/IOLTA account (after timing items)
- Your trust account register balance (the internal ledger/check register)
- The total of all client trust ledgers (every matter’s trust balance added together)
If these don’t match, you don’t have a clean picture of client funds. That’s the moment to slow down and fix the process, not “push it to next month.”
For an overview of how we approach this, see Trust Accounting Compliance.
The monthly IOLTA 3‑way reconciliation checklist (step-by-step)
We recommend running this process on a schedule (monthly at minimum). Pick a consistent close date, usually the last day of the month, and reconcile to that date.
Step 1 — Gather your reconciliation packet
Pull all reports and documents for the same ending date:
- Trust bank statement (PDF)
- Trust account register / check register report (ending balance)
- Client trust ledger report (each client/matter’s trust balance)
- Outstanding checks list
- Deposits in transit list (if any)
Step 2 — Reconcile the bank statement
Start with the bank statement ending balance and adjust only for legitimate timing items:
- Outstanding checks (issued but not cleared)
- Deposits in transit (received/recorded but not yet posted by the bank)
Rule of thumb: Don’t create a mystery adjustment just to make the numbers match. If it doesn’t tie out, you’ve found a posting error that needs to be corrected.
Step 3 — Reconcile the trust register (your internal ledger)
Your trust register should include every trust transaction with clean matter references. Confirm:
- Every bank statement transaction exists in your register
- No duplicate entries
- Voids and corrections are documented
- Transfers are clearly labeled and tied to a matter where appropriate
Step 4 — Reconcile the total of all client trust ledgers
Next, compare the reconciled trust balance to the sum of all individual client/matter trust balances.
If the totals don’t match, the culprit is usually one of these:
- A trust transaction posted to the register but not assigned to a client/matter
- A trust transaction assigned to the wrong client/matter
- A negative client trust balance (major red flag)
- Stale outstanding checks hiding problems
Step 5 — Investigate mismatches using a simple triage order
When we troubleshoot reconciliations, we don’t guess. We work a consistent order:
- Unassigned trust activity (no matter/client reference)
- Duplicate items (double-posted deposits or checks)
- Timing issues (posted in the wrong month, deposits in transit not documented)
- Stale checks (90+ days outstanding)
- Fees/interest handling (confirm how your bank processes these and how your rules treat them)
Step 6 — Save an “audit-ready reconciliation package”
Each month, save a single folder (or combined PDF) that includes:
- Bank reconciliation summary
- Trust register report (ending balance)
- Client trust ledger summary + detail
- Outstanding checks + deposits in transit lists
- Notes explaining corrections, stale items, and unusual transactions
This package is what makes trust accounting manageable. It turns stress into process.
Common trust accounting issues we see (and how to prevent them)
Here are the patterns that show up again and again:
- Commingling: mixing operating funds and trust funds, even briefly.
- Negative client balances: disbursements made before funds are available for that matter.
- Fees taken incorrectly: moving earned fees from trust without proper documentation and timing.
- Missing matter references: deposits/checks posted without clear client allocation.
- Stale checks: old checks that should be resolved and documented.
If your firm wants a stronger foundation, start with clean bookkeeping workflows. See our Bookkeeping Services for Law Firms page.
How MGA Consulting can help
We help law firms build an IOLTA process that’s repeatable, auditable, and realistic for a busy practice:
- Monthly 3‑way reconciliation with clean documentation
- Cleanup projects for historical trust account issues
- Ongoing bookkeeping support and coordination with payroll workflows
If you’d like us to review your current trust reconciliation process, contact us and we’ll map the gaps and next steps.
External reference
- American Bar Association — IOLTA resources: https://www.americanbar.org/groups/legal_services/iolta/
