IOLTA reconciliation requires a specific set of records because state bar rules treat client trust funds differently than operating funds. Every dollar in the trust account belongs to a specific client or matter, and your records have to prove that at any moment in time. Missing or sloppy documentation creates real problems during a bar audit.

Start with the monthly bank statements for the trust account. You need the statement itself plus images of cleared checks and any electronic transfer confirmations. Statements should be downloaded and saved each month, not pulled from the bank portal a year later when you suddenly need them.

Individual client ledgers are the heart of trust accounting. Every client or matter holding funds in the trust account gets its own ledger showing every deposit, every disbursement, and a running balance. A client ledger should never go negative because that means you used one client’s money to cover another client’s expense, which is a serious ethics violation. The ledgers also show the date, amount, source or payee, and a description of what the transaction was for.

The trust account check register or general ledger captures every transaction across all clients in chronological order. This is your overall record of activity in the account and must tie to the bank statement after reconciling items.

Deposit documentation includes copies of checks received, deposit slips, wire confirmations, and a record of which client matter the funds belong to. Each deposit should be traceable from the source document to the client ledger to the bank statement. Disbursement documentation works the same way and includes check copies, wire details, written authorization for the disbursement, and the invoice or settlement statement supporting the payment.

The monthly three-way reconciliation is the document that pulls everything together. The adjusted bank balance, the book balance from the check register, and the sum of all individual client ledger balances must all agree to the penny. If they don’t match, the discrepancy has to be researched and resolved before the reconciliation is finalized. The signed reconciliation report becomes part of the permanent record.

You should also keep engagement letters, fee agreements, and any written client authorizations that support how trust funds are handled. Bank fee notices, interest remittance reports to the state bar foundation, and any correction or void documentation round out the file.

Most state bars require these records to be retained for several years after the matter closes, often six or seven. We handle IOLTA reconciliations and trust accounting as project work and can step in monthly or clean up periods that fell behind. Law firms that work with us alongside our small business accounting, bookkeeping and tax services in Jacksonville, NC get the trust account handled correctly while keeping the operating books on track at the same time.