7. Reconciliations
Trust Account Guidelines contents
Regular reconciliations
7.1 You should reconcile the trust account records regularly, as follows:
- Ensure that your prime receipt and payment records are up to date, including any money transfers originating in the bank statements.
- Post the entries from the prime records (receipts, cheque butts, electronic payment records and journal) to the ledger. Calculate the day-end balance for any ledger accounts with fresh entries. Write that balance in the “balance” column, opposite the last entry.
- Investigate and take action on any debit balances or other anomalies.
The frequency will depend on the system. Computerised systems can conveniently be reconciled daily. Manual records should generally be reconciled weekly or monthly, depending on circumstances.
7.2 Entries in the prime records should be made promptly and be in strict chronological order, but receipts should be recorded before payments within each day. In a manual system, pencil should be used only where it is provisional and to be later overwritten in ink. Erasing or correcting materials should not be used. Instead, you should neatly cross out an error and write the correct version next to it. The detail should be adequate for statements to be prepared from it.
Monthly reconciliations
7.3 You must reconcile the trust account as at the end of every month. The reconciliation must show clearly the outstanding items causing differences between the trust bank account balance shown in your records (ie, cash book summary or cash control account) and the corresponding balance shown by the bank statement.
Monthly reconciliations should be retained in total to form a permanent record, ie, work papers to evidence the reconciliation. Other records that should be produced and retained in support of the reconciliations include:
- reconciliation report
- copy of month-end trust account bank statement
- unpresented cheques list detailing for each cheque number, date drawn, payee and value
- details of other reconciling items, eg, unbanked receipts
- list of client balances (credits should in total equal the cash book summary or cash control account balance)
- cash book summary or cash control account.
And separately for each interest bearing deposit facility:
- control account for the month for each facility
- list of client ledger balances for each facility
- month end bank statements for each facility.
7.4 You must complete all monthly reconciliations except for the December reconciliation by the 10th working day of the following month. The December reconciliation must be completed by the 15th working day in January.
7.5 A suggested monthly reconciliation procedure is as follows:
- Obtain the trust bank account statement to the end of the month. Ensure that your records are up to date, including any entries originating in the bank statement.
- Total the prime records for the month, transfer their totals to the main cash book to arrive at a month-end cash book balance.
- Check all entries in the bank statements to the corresponding prime records, ticking both records in the process and note any apparent errors for correction.
- Ascertain and list the outstanding items in the prime records or the bank statements (see previous bullet point) and any brought forward from the previous month’s bank reconciliation. For example, a cheque drawn in July but not presented by 31 July, or a deposit on 31 July credited by the bank on 1 August, will be outstanding items and will feature in the bank reconciliation at 31 July.
- Prepare the bank reconciliation. Ensure that the bank reconciliation agrees with the cash book balance.
- Write up prime records and post the entries to the ledger, to the last day of the month (and no further).
- Ensure all journal entries for the month have been fully processed.
- Unidentified deposits are funds deposited to the trust account where the identity of the depositor is unknown. These should be itemised on the bank reconciliation for prompt follow-up action.
- Prepare a list of client balances in the ledger at month end and agree that total with the month-end cash book balance.
- If the cash book disagrees with either the bank reconciliation or the ledger total, recheck that record first. Note the amount of the discrepancy as this may be the amount to look for.
7.6 A sample month-end bank reconciliation is as follows:
Sample bank reconciliation as at 31 July 2010
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Balance as per bank statement as at 31 July 2010 |
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$83,129.45 |
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Add deposit not credited, |
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85,229.45 |
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Less unpresented cheques |
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Balance as per Cash Book Summary (or “Cash Control Account”) at 31 July 2010 |
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Unclaimed or unexplained balances
7.7 Unless otherwise directed, you have a duty to pay to the client any balance of money held after the task for which it was held has been completed. The procedure for reporting to the client and closing the file will normally include paying out any balance (s110(1)(b) of the Act; Regulation 12(7)).
7.8 Where an unexplained balance remains it may be due to disbursements allowed for but not yet paid or an estimation difference in costs or disbursements. Its origin should be identified and the amount taken as legitimate costs or paid to the client as appropriate.
7.9 Unclaimed balances (commonly called dormant or stale balances) retained in the trust ledger should be noted and regularly reviewed. Where you cannot find a person on whose behalf you are holding trust money, and you do not have authority to pay the money to any other person, you should follow the procedure set out in s337(2)–(4) of the Act (Payment to Inland Revenue). Good accounting practice requires any trust account balance left over to be dealt with promptly so as to avoid such situations.