Reconciliation is the core of proper trust administration. Every single penny must be accounted for because “close enough” is not close enough when it comes to trust accounting. This zero tolerance for misplaced funds or omitted transactions gave rise to the most accurate way to track accounts: 3-way reconciliation. The best trust accounting software must include 3-way reconciliation to be up to the demanding task of escrow administration.
3-way reconciliation tends to be limited to trust accounts, but almost everyone has done 2-way reconciliation. You get your monthly checking account statement and then verify the bank balance against your book balance, which is the balance listed in your checkbook. After you adjust one of the two balances for the outstanding deposits and withdrawals, the two numbers should be equal. If they aren’t, then you’ve made a mistake.
Personal and business accounting software makes reconciliation a snap. All you have to do is pull up the account, click on transactions listed in the bank statement to clear them, and then compare the totals when you are done. However trust account software may include only 2-way reconciliation and that isn’t good enough for trust accounting.
The added complication of an escrow fund is that the fund may handle multiple matters. It’s not cost effective to set up individual accounts for every case, so trust administrators often combine smaller matters into one account. Each trust matter must balance and the overall account must balance, and this is the third way in 3-way reconciliation. The software has to be able to add up the individual matter balances to be sure they match the bank balance and the book balance. Not all law office management software includes this capability, and it is clumsy to administer 3-way reconciliation on legal software programs that don’t have the feature.
Easy Trust is our fully-featured trust administration software and it includes 3-way reconciliation. Users just have to check off cleared transactions and generate a reconciliation report to ensure all three balances agree. If they don’t, then it is time to go through the ledger and find the problem, whether it’s a missing transaction or a miskeyed amount or some other issue.
Don’t trust this critical aspect of trust management to software not designed to handle the job. Use Easy Trust to get all the tools you need to protect your clients and yourself from trust administration mistakes.