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The Trust Accounting Handbook

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The Trust Accounting Handbook The Trust Accounting Handbook A handbook designed to assist lawyers and their staff in understanding the procedures and rules for operating a trust account. Trust Assurance Department V9 – September 2019 © The Law Society of British Columbia. See lawsociety.bc.ca > Terms of use. Foreword and Acknowledgements This handbook was developed by Brenda L. Hersh. As the discussion of the basic principles of trust accounting in British Columbia is similar to other provinces and their respective rules, some materials included are modeled after other law societies’ guides or handbooks. Updates have been made by Krista Adamek, Daniel Chow, Felicia Ciolfitto, Dominique Fry, Tina Kaminski, Eva Milz and Angela Porco, of the Trust Assurance Department. We gratefully acknowledge the contributions of law firm accounting staff for their valuable input in the development of this handbook. We also wish to thank Carla Chiang, Candice Hamilton, Jessie Nguyen and Gillian Pierce of the Trust Assurance Department and Kasia Sztaba of the Information Services Department for their help in formatting this handbook. Please contact the Trust Assurance Department at [email protected] for further information. Table of Contents Table of Contents Introduction ...................................................................................................................................... 1 Key definitions .................................................................................................................................. 2 Significant trust accounting rules ...................................................................................................... 6 The Legal Profession Act ................................................................................................................ 17 Client identification and verification ............................................................................................... 19 Financial classifications and accounting systems ........................................................................... 20 Chapter 1 - Setting up Trust Accounts......................................................................................... 21 Setting up a pooled trust account .................................................................................................... 21 Setting up a separate interest bearing trust account (SIBTA) ......................................................... 22 Foreign currency accounts .............................................................................................................. 24 Setting up online banking access .................................................................................................... 25 Chapter 2 - Operating a Trust Account ....................................................................................... 26 Deposits ........................................................................................................................................... 26 Certified vs. uncertified cheques ..................................................................................................... 28 Electronic deposits into trust ........................................................................................................... 29 Interest on trust accounts ................................................................................................................. 29 Withdrawals .................................................................................................................................... 29 Forms of withdrawal ....................................................................................................................... 30 Electronic withdrawal of trust funds ............................................................................................... 31 Cheques, wire transfers and bank drafts .......................................................................................... 32 Signing authority on trust accounts ................................................................................................. 33 Payment of fees from trust .............................................................................................................. 33 Shortages and overdrafts ................................................................................................................. 33 Other valuable property ................................................................................................................... 34 Credit card transactions ................................................................................................................... 35 Cash transactions ............................................................................................................................. 35 Unclaimed trust money ................................................................................................................... 40 Handling aged trust accounts .......................................................................................................... 40 Annual reporting requirements ....................................................................................................... 41 Table of Contents Compliance audits ........................................................................................................................... 42 Other trust fund regulations ............................................................................................................ 42 Closing a trust account .................................................................................................................... 43 Chapter 3 - Setting Up and Operating a General Account ........................................................ 44 Signatories to the general account ................................................................................................... 44 Deposits to the general account ....................................................................................................... 44 Rendering accounts to clients .......................................................................................................... 45 Payment of fees and disbursements ................................................................................................ 46 Withdrawals from the general account ............................................................................................ 47 Capital contributions ....................................................................................................................... 47 Loans ............................................................................................................................................... 47 Payroll ............................................................................................................................................. 48 Chapter 4 - Trust Administration Fee.......................................................................................... 49 Law Society Rules - Trust Administration Fee ............................................................................... 49 Chapter 5 - Recordkeeping ........................................................................................................... 51 What do you keep? .......................................................................................................................... 51 Additional accounting procedures and reports ................................................................................ 54 Maintaining an audit trail ................................................................................................................ 56 Chapter 6 - The Reconciliation Process ....................................................................................... 57 How to perform a trust account reconciliation ................................................................................ 57 Monthly Trust Reconciliation Sample ............................................................................................ 60 How to review a trust account reconciliation .................................................................................. 61 Appendix A - Trust Accounting Samples ..................................................................................... 63 Trust receipts and disbursements journal – Rule 3-68 (a) ............................................................... 63 Client trust ledger – Rule 3-68 (b) .................................................................................................. 64 Trust transfer journal – Rule 3-68 (c).............................................................................................. 64 General receipts and disbursements journal – Rule 3-69(1) ........................................................... 65 Cash receipt book of duplicate receipts (Rule 3-70) ....................................................................... 67 Valuable property record ................................................................................................................. 68 Trust Account Reconciliation Template ......................................................................................... 69 Table of Contents Appendix B – Checklists and Forms ............................................................................................ 70 Electronic Transfer of Trust Funds ................................................................................................
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