IOLTA Compliance Check
Answer 10 questions covering the trust account controls bar auditors check most. Any No is a finding worth fixing.
- 01
You perform a three-way reconciliation (bank, book, client ledger) every month.
- 02
Every client has an individual ledger with a running balance.
- 03
No client ledger has ever shown a negative balance.
- 04
Firm funds and client funds are never commingled — including earned fees.
- 05
Earned fees are transferred out of IOLTA promptly and documented.
- 06
Deposits and disbursements are supported by signed authorization or engagement docs.
- 07
You never advance firm cash from IOLTA to cover a client shortfall.
- 08
Records are retained for the minimum period required by your state bar (typically 5+ years).
- 09
Only lawyers (never non-lawyer staff alone) can sign IOLTA checks.
- 10
You (or a qualified bookkeeper) review IOLTA controls at least annually.
Free — takes 10 seconds
IOLTA trust accounting rules and what auditors check
An IOLTA account holds client funds that do not belong to the firm, and every state bar treats mishandling those funds as a serious disciplinary matter — often regardless of whether any client lost money. Most trust account violations are not theft; they are recordkeeping failures. A missing individual client ledger, a reconciliation nobody performed, or an earned fee left sitting in trust is enough to trigger a finding.
The questions above track the controls bar auditors actually test, starting with three-way reconciliation. This is a self-audit tool, not legal advice: your state bar's rules govern, and Texas firms should read this alongside the Texas Disciplinary Rules of Professional Conduct and the State Bar's trust account guidance.
The controls that matter most
Three-way reconciliation
Bank balance = Book balance = Sum of client ledgers
Performed monthly, in writing, and retained. All three must agree exactly — a difference of any size is an exception to investigate.
Individual client ledgers
Every client with funds in trust needs their own running-balance ledger showing each receipt and disbursement. No ledger may ever go negative.
No commingling, prompt transfer
Firm money stays out of trust; earned fees come out of trust promptly, documented, and only after the work supporting them is billed.
How to read your result
A negative client ledger is the red flag
If one client's ledger goes negative, another client's funds paid that client's expenses. Auditors treat this as misappropriation even when the total account balance was never overdrawn and nothing was intended.
Reconciliation must be documented, not just done
Reconciling in your head or in the bank app leaves no record. Bar examiners ask for signed, dated three-way reconciliations going back years — in Texas, trust records are generally retained for five years after the representation ends.
Timing errors are the most common finding
Leaving earned fees in trust, or sweeping them before the invoice is issued, both cause problems. Transfer on a defined schedule after billing, and keep the supporting invoice with the transfer record.
Frequently asked questions
+What is a three-way reconciliation?
A monthly comparison of three figures: the bank statement balance, the trust account balance in your books, and the total of all individual client ledger balances. All three must match. It is the single control most state bars examine first.
+What are the most common IOLTA violations?
Failing to perform or document monthly three-way reconciliation, not maintaining individual client ledgers, leaving earned fees in trust, paying firm expenses from the trust account, and allowing an individual client ledger to go negative.
+How long must trust account records be kept?
Retention periods are set by state rule and commonly run five years after the representation ends — the Texas standard. Keep bank statements, canceled checks or images, client ledgers, and the signed monthly reconciliations for the full period.
+Can I keep firm money in an IOLTA account?
Generally no, with one narrow exception: most states permit a small firm-funds cushion strictly to cover bank service charges. Anything beyond that is commingling. Check your state bar's rule for the permitted amount.
+Does a solo practice need a bookkeeper for IOLTA?
Not necessarily, but you do need the discipline of a monthly documented three-way reconciliation and per-client ledgers. Most solo attorneys who fail an audit had good intentions and no monthly process — outsourcing the reconciliation is the cheapest way to close that gap.
Want your trust reconciliation handled monthly?
We perform documented three-way reconciliations, maintain individual client ledgers, and keep the records your state bar expects — so a trust account review is a filing exercise rather than an emergency.
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This calculator is only as accurate as the books behind it. Here's where to go next.
- Bookkeeping for law firmsMonthly three-way IOLTA reconciliation with trust and operating kept separate.Open Bookkeeping for law firms
- Monthly bookkeeping & cleanup servicesTrust compliance documented so a Bar inquiry finds records, not a rebuild.Open Monthly bookkeeping & cleanup services
- Law firms in The WoodlandsTrust accounting support for area practices.Open Law firms in The Woodlands