Sunday, January 2, 2011

LSUC spot audits – Common errors - #5 of 7

Number 5 on the LSUC’s spot audit list of common errors is “Unreconciled items”. This mostly falls under the heading of good bookkeeping practices, except when a trust bank account is involved.

The wrong amount being keyed into PCLaw by staff or by the bank teller is the most common error. Correct the PCLaw entry or follow up with the bank to make sure their error is corrected by the time the next statement is issued.

Stale-dated cheques (confirm state-date rules with your bank) should be voided in PCLaw and a replacement cheque issued. Long before this date, you should have been confirming with the payee that the cheque was received. If it was lost in the mail, place a stop payment on the cheque, and issue a new one. 

Void client NSF receipts in PCLaw and request replacement funds from the client.  If the client’s NSF cheque was deposited into trust, make sure the client’s ledger does not have a negative trust balance. Perhaps you have already paid for some disbursements.  If the client’s ledger is in a negative balance, you must transfer funds from general to make up for the shortfall.

Sometimes a bank will erroneously debit bank charges into your trust account. Make sure the bank immediately reverses these charges and debits your general account instead. Remind the bank of the importance of debiting only your general account for any and all trust bank charges (your letter of direction should already be on file with the bank).

Most banks require you to bring errors to their attention within 30 days of the statement date. If, upon reviewing your firm’s PCLaw general bank reconciliations for this month, you find old outstanding errors listed, please remove them. Simply post to miscellaneous income or expenses as is appropriate, and clear the old errors.

Trust account errors are an entirely different matter. If old errors are listed on your PCLaw trust bank reconciliations, you must go back and find the source of those errors and correct them properly. Since these are client funds that are involved, you cannot simply post a correcting entry without adequate documentation to satisfy the LSUC.

As always, I invite your comments and suggestions for future posts. Next week – error #6 – Earned fees in trust.