In our years of experience working closely with law firms, we’ve heard all kinds of horror stories about attorneys whose shoddy accounting practices cost them a great deal of stress and added expenses. Ann Irons, a CPA who provides escrow accounting in Bellingham, MA, shares basic guidelines for avoiding costly mistakes.

Outsourcing Escrow Accounting Duties

If this seems like a lot of work—it is. For this reason many law practices prefer to outsource their escrow accounting to a CPA with legal experience. Doing so saves a considerable amount of time that could be better spent on business development, continuing education, and reviewing important cases. You’ll also reduce the risk of committing a trust account violation, a misstep that could have serious legal and financial repercussions for your practice.

What You Can Do to Prevent Violations

Outsourcing your accounting is generally more economical than hiring someone to handle accounting full time or in house, which explains why so many solo attorneys and small practices take this route. If you choose to handle escrow accounts internally, observe these guidelines.

Start by writing each case number on the corresponding check for deposit. File a copy of each check, along with a deposit slip and the slip provided by your bank when you make the deposit. A handwritten deposit slip is also needed when depositing several checks at one time. Case numbers should also be included any time your practice issues a check to a client or on behalf of a client.

To make monthly reconciliations more efficient, keep a dedicated folder with all relevant documents. These include the monthly bank statement, a photocopy of each check that you void or cancel, and copies of all checks for deposit along with the corresponding deposit slip (handwritten and bank-issued).

You can also maintain a detailed bank reconciliation folder. Ann recommends including the three-way report prepared each month, a list of outstanding checks, adjustments, and check registers. Include any receipts and file ledgers, and take note of open cases for which you have yet to receive payment. Your reconciliation folder doesn’t necessarily need to be comprised of paper documents unless required in your state. Many practices find it easier to organize and store these documents electronically.

Questions about escrow accounting for lawyers? To learn more about our accounting and tax services, or to schedule a meeting with Ann Irons, CPA, LLC, contact us at (508) 966-0700. We proudly serve law firms, businesses, and individuals based in Bellingham, Woonsocket, Medway, Milford, and the surrounding areas.