If you’ve been doing trust account reconciliations long enough, the chances are high that you will come across one that just doesn’t work. You think you’ve done everything right – the way you you’ve always done it – but this time lady luck isn’t on your side.
I’ve listed all the reasons your trust account might not balance. Work your way through this list and you’ll be balancing in no time at all.
Your account closing balance has been entered incorrectly.
A transaction that’s in your bank statement hasn’t been entered into your trust accounting software in the same month. You overlooked it and therefore it hasn’t been ticked as reconciled – or included in your Adjustments figure.
You accidentally ticked something as being reconciled in your software, but it isn’t showing in your bank statement for that month.
The total of your Adjustments figure has not been added up correctly.
You accidentally ticked something as being reconciled – but the amounts vary slightly. For example, transposed figures can be easily overlooked.
The previous month’s bank reconciliation didn’t balance.
Were any cheques cancelled? This can sometimes cause your reconciliation to be out.
The bank made an error. I’ve seen situations where cheques have been presented for different amounts than they were written out for. I’ve also seen bank statement running balances that were incorrect and also amounts added or subtracted after that day has already passed.
Software glitches. Very occasionally there can be hiccups with accounting software that results in errors that you won’t be able to fix yourself.
When trust account reconciliations go well, it can be really satisfying. You know that everything lines up nicely and you’re on top of any issues that have happened throughout the month. However when they go wrong, it’s easy to panic. You might not know where to start or what to do after you’ve checked all the obvious places to find those pesky out of balance amounts.
The list above should get you on the road to hassle-free trust account reconciliations in no time.
And if you decide that sorting out trust account reconciliations problems isn’t for you – you can always outsource to a professional.
Happy bookkeeping…
Sarina
About the author.
Sarina Abbott is the owner of Festival Bookkeeping. She’s a registered BAS Agent and Xero adviser who has previously worked in the legal and conveyancing industry, as well as for a registered training organisation. She lives in Adelaide, South Australia with her husband and 2 sons.
You can find out more about Festival Bookkeeping here
Conveyancing is such a fast-paced and dynamic industry. I don’t know where my conveyancing clients get their energy from sometimes. I know they often work long hours in order to meet tight deadlines. I also know that they often absorb a lot of the stress from being the ‘middle man’ when dealing with banks, clients, mortgage brokers, real estate agents and other conveyancers.
One aspect of conveyancing that can cause a lot of stress for conveyancers is managing their trust account. It’s very easy for conveyancing trust accounts to get into a mess. No one intends it to get that way, but over time a few small problems add up and then you “blink” and your trust account has turned into a headache that won’t go away.
I’ve compiled a list of my 7 favourite ways to ensure a conveyancing trust account doesn’t become a mess.
1. Descriptions
Use the description field in your software well. Ensure your staff are taught to also enter accurate descriptions of all transactions entered into your trust accounting software. When you provide your conveyancing client with their trust account report, it needs to be clear how their money was spent. Your auditor also needs to see a clear audit trail of everything that has been entered into your software and why. If discrepancies turn up when doing your monthly trust account reconciliation, you don’t want to make it any harder than it has to be by having incomplete records to refer to.
2. Regular reconciliations
Trust account reconciliations must be done regularly. The longer any issue goes unidentified and uninvestigated, the longer your list of problems becomes and then those problems sit there rolling over month after month. The more time that has passed, the less chance you or your staff have of remembering what actually went on with that file.
3. Training
Everyone that has a log in to your software should have been trained in the basic principles of trust accounting and should also have been been trained in how to use the software. Not everyone has an eye for numbers or a mind for details. And not everyone is good with technology. However the ramifications from 1 person entering incorrect information into your software can be great. If this person is also responsible for reconciling your trust account – you may have even bigger problems than you realise.
4. Outsourcing
In many circumstances, it’s just not a good idea to keep doing your own trust account reconciliations. It’s not the best use of your time or your staff members’ time. When you rush or are pre-occupied you make mistakes, that then take even longer (and can be expensive) to fix. The time you spend on doing it yourself means less time spent building your business or managing your staff. Your staff may be overwhelmed and disgruntled because they don’t have the training or the knowledge. If you outsource to a bookkeeper, be sure to check if they have experience with working with trust accounts. It’s a specialised area of accounting and not all bookkeepers have been exposed to the nuances and regulations of the conveyancing or real estate industry.
5. Checklists & procedures
One of the most effective ways to ensure that a task is done consistently, thoroughly and correctly is to set up a good system. An easy way is to start with a checklist or series of checklists. Make sure that your checklists and procedures are kept up to date – it’s a good idea is to write the date of each update or version on your documents and to include the file path and document name in the footer so it’s easily found for updating each time.
6. Trust accounting software
Some trust accounting software is better than others. I know I have my favourites that I prefer to work with. Don’t be afraid to change if you need to – but ensure you’re not left to your own devices to set it up. A reputable software provider will make the process of changing easy for you and be readily available for training and ongoing support if needed.
7. Reports
Have a good system for saving reports. If you, your staff or your bookkeeper can’t get hold of any previous reports it can make it much more difficult to figure out how to fix problems. The harder it is to fix problems, the more likely they are going to be left in the “too hard basket” and keep rolling over month after month. Not to mention your auditor will need copies of your reports – and you don’t want to make the audit process any harder than it has to be.
Happy bookkeeping…
Sarina
About the author.
Sarina Abbott is the owner of Festival Bookkeeping. She’s a registered BAS Agent and Xero adviser who has previously worked in the legal and conveyancing industry, as well as for a registered training organisation.
She lives in Adelaide, South Australia with her husband and 2 sons.
You can find out more about Festival Bookkeeping here.
I’ve been providing bookkeeping services to conveyancers now for several years, and have witnessed the transition from desktop software and paper forms to eConveyancing and cloud based practice management software. In fact I worked in the conveyancing and legal industry 20 years ago and the changes from then to now have been substantial.
In 2018, Deloitte made the prediction that by 2022 there would a big shift towards cloud based subscription practice management software (see graphic below). That is certainly proving to be true, with a little bit of extra help from COVID-19 to push this trend along as well.
CATS Trust Accounting Software
CATS is a “complete practice management system written by conveyancers for conveyancers”. It was initially created in 2005 by a conveyancer who used it as a tool to run his own firm. The name CATS is derived from Conveyancing and Trust Account System.
It’s one of the software programs I’ve seen make the move to going 100% cloud-based. Making life easier for conveyancers and their staff – and also much easier for bookkeepers, accountants and auditors.
Over the years I’ve picked up a few tricks and tips along the way and I’d like to share 8 tips for a successful CATS trust account reconciliation. You might be thinking that I’m doing myself out of clients by freely sharing my “tricks of the trade”, however I believe that if a business owner is ready to outsource their bookkeeping, they’ve already weighed up the pros and cons carefully and know that outsourcing is the best option for them.
So this is for the conveyancers and conveyancing staff that are still doing their CATS trust accounting and bookkeeping themselves.
8 Tips for Successful CATS Trust Account Reconciliations
Sortyour list of transactions by amount before you start ticking off items. Especially helpful when you’re reconciling Payments, as this tends to be a longer list to scroll through than deposits.
Tick off bank statement amounts with a pencil or pen at the same time as you tick off the amount in CATS. This reduces the risk of losing your place and having to start from the beginning. It also makes it easier to go back and find what you’ve missed, in the event that you get to the end of your reconciliation and have a discrepancy. If you’re working off of a PDF copy of your bank statement, you can highlight the amounts instead of ticking.
Circle any items that are on your bank statement but that you can’t reconcile in CATS. For example, if the amount is missing altogether in CATS, or is for a different amount. Then you can come back at the end and easily work through your discrepancies.
You don’t have to reconcile a whole month in one go. There are several scenarios where reconciling a couple of days or a couple of weeks at a time is a good idea. For example, you may have a lot of transactions and attempting to do a whole month’s worth in one go can be overwhelming. You may be new to reconciling trust accounts, or new to CATS software. You might find that doing a smaller amount every couple of days suits you better or gives you greater peace of mind than knowing you have one big job to do at the end of the month.
If you have 1 figure in CATS that matches the total of 2 or more figures in your bank statement (or visa versa), then make a note of this next to the amount on your bank statement.
Keep thorough notes of any discrepances. If you find you have a lot of transactions that make up your “Adjustments” figure, consider using an Excel spreadsheet so that the total of your discrepancies is automatically added up and therefore leaves less room for error. At a minimum, I ensure I have the date, the amount and the payor or payee. Ideally I will know the file number as well and be able to note that (sometimes this isn’t possible, for example a deposit may be made into your trust account and you won’t know who it was received from or what it was for). I also go the extra step and make a note of what the issue is and, if I can, what date it was fixed.
When finished, check that the amounts on the first page of your Trust Account Reconciliation report do in fact match the totals of the other 3 pages of your report – the Trust Account Ledger Balances list, the Unpresented Cheques list and the Outstanding Deposits list. There have been rare instances of these amounts not matching up – so taking the extra time to check these amounts now can save you a whole lot of headaches and time later.
Save electronic copies of your reports in well-named folders that will be easily accessible come audit time and in the event that someone has to dig back through previous reports for information. Don’t forget to back-up these folders somewhere safe.
Should I get a bookkeeper to do my CATS trust account reconciliations?
After reading the above tips, you may be thinking that reconciling your own CATS trust account correctly is too difficult or too time consuming.
The clients that have outsourced their trust account reconciliations to Festival Bookkeeping, have done so for some of the following reasons:
1. Errors
They’ve been picking up errors whilst doing their own trust accounting reconciliations, but don’t have the time to work through those errors and track down which files they relate to, or how the problem came about. Outsourcing to a bookkeeper who specialises in CATS trust account bookkeeping means a fresh set of eyes are looking over the figures – picking up problems early and being able to easily track down the information needed in order to fix the problems.
2. Growth
The conveyancing firm has grown to the point that doing the trust account reconciliations themselves is no longer viable. They’re losing time and money by continuing to do it themselves, when an experienced CATS trust account bookkeeper can step in and do it quickly and efficiently.
3. Deadline Management
Conveyancers often have other priorities – they need to get their settlements across the line for their clients and are often working to tight deadlines. Whenever another month goes past and the trust account reconciliation has been put on the “backburner” again, there’s a huge weight added onto their shoulders. Handing over their CATS trust account reconciliations to our firm has removed that weight. Their trust account is now on OUR calendar, and we help keep everything moving along, as it should, so that when audit time rolls around everything is ready to go.
These are some of the things you need to weigh-up when deciding whether to continue doing your trust account reconciliations yourself, or whether you should be outsourcing to a bookkeeper. As with any outsourcing, you should ensure the firm you’re outsourcing to has experience in your particular area of bookkeeping. Trust account bookkeeping is a specialised area, and not all bookkeepers have been exposed to the nuances and regulations of the conveyancing industry and trust accounting.
Happy bookkeeping….
Sarina
About the author
Sarina Abbott started her bookkeeping firm Festival Bookkeeping in 2015. She’s a registered BAS Agent, Xero adviser and self-confessed numbers nerd. She’s been sharing her bookkeeping tips via The Savvy Bookkeeping Blog since 2013. You can find out more about Festival Bookkeeping here:
It’s a great feeling when your trust account is in order and reconciled!
Smokeball is online software, primarily for those working in law and conveyancing. It integrates with Xero accounting software. If you haven’t seen their promotional video with Calista Flockhart, you can check it out here http://www.smokeball.com.au/calista.html. I got a giggle out of it!
If you’re new to Smokeball, here are my 10 tips for reconciling your trust account.
If you’re moving towards a paperless practice, work from an electronic copy of your trust account bank statement instead of printing off a hard copy. If you open your Statement with Adobe Acrobat Reader you can use the Highlight Text tool to highlight discrepancies or use the Sticky Note tool to add notes. For your first few reconciliations you may feel more comfortable working from a hard copy that’s been printed out, and then progress to using electronic copies later.
Once you select RECONCILE you can’t undo that action. So be sure to fix any discrepancies within that date period first if you can.
Anything that is on your bank statement but missing from Smokeball will have to be recorded in the ADJUSTMENTS tab until it has been fixed and can therefore be ticked at a later date.
Make use of the SAVE DRAFT feature – this will enable you to come back and finish reconciling when you’re ready. You’ll be able to pick-up your reconciliation where you left it.
If you have to reverse a transaction to fix a mistake, it will default to the current day’s date and this date can’t be changed or backdated. You won’t be able to reconcile these entries until you complete the reconciliation for that period.
Don’t select RECONCILE until you have a “0” variance in the brackets below the Reconciliation Balance figure on the right-hand side.
Always record the details/reasons for any Reversals or Adjustments. If someone else logged into your software, would they be able to see a complete story of what has occurred and why? You’re aiming for an easy to follow audit-trail of all your clients’ trust monies and any problems that you’ve fixed.
You can go back and print off your Bank Reconciliation reports at any time, regardless of whether you’ve closed off (clicked RECONCILE) or not.
Save electronic copies of all your bank statements and reconciliation reports in one place and in date order so that they’re easy to find.
Reconcile regularly. The more transactions you have, the more often you should be reconciling to keep on top of it. You don’t want to let your reconciling grow into a bookkeeping monster that you’re afraid to face!
For further information on working with trust accounts, you might like to read my post Working with trust accounts
Festival Bookkeeping specialise in helping Australian conveyancing firms with their bookkeeping needs – including trust account reconciling using software such as Smokeball and CATS. You can find out more about us on our website: http://www.festivalbookkeeping.com.au/
Those working in the legal or real estate industry would be familiar with trust accounts.
I started working with trust accounts in my teens when I was employed by law firms. Now as the owner of Festival Bookkeeping I’m once again working with trust accounts on behalf of clients.
It’s important that the money held on behalf of clients can be fully accounted for every step of the way. In fact in many circumstances firms must have their trust accounts professionally audited once a year to ensure trust account legislation is being complied with. So by working with trust accounts you are taking on another level of responsibility, in addition to the usual tax responsibilities that come with small business bookkeeping.
With that in mind, here are some of my top tips for working with trust accounts:
Do not overdraw (cause a deficiency of) a client’s trust ledger
Perform regular backups of trust accounting software & store a copy off-site as well
Ensure you have the details of every client whose money you hold
Avoid single trust transfers between unrelated parties if possible (eg vendor to purchaser)
Keep all cheque butts and ensure all cheque numbers are accounted for in sequential order
Do not pay general office expenses, debts or bank fees from trust monies
Check with the governing body of your industry as to what accounting software is suitable for your trust accounting. In some circumstances the software you use to track your business income and expenses is not suitable to use for your trust accounting.
Keep the details of any errors or discrepancies that have occurred and/or been fixed
Don’t draw “cash” cheques
Finally – reconcile regularly
Be sure to do your research and check which legislation applies to your industry and state.
As with any small business bookkeeping, errors can occur but if they do make sure you have a “paper trail” or explanation of what occurred and how it was fixed. Fix mistakes promptly and don’t hang onto client’s money any longer than necessary. Regular reconciling will help pick up any differences between your bank account activity and your accounting records. A good bookkeeper can help you with this task.
Festival Bookkeeping specialise in helping Australian conveyancing firms with their bookkeeping needs – including trust account reconciling using software such as Smokeball and CATS. You can find out more about us on our website: http://www.festivalbookkeeping.com.au/
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