Trust Audit

What is a trust audit?

A trust audit is an examination of a firm's client trust account records by a bar association, licensing authority, or independent auditor. Some jurisdictions audit randomly, some on a cycle, and most on receipt of a complaint or a bank notice of an overdraft. The audit tests whether client funds are intact, properly recorded, and never commingled. It is a records examination before it is anything else.

What the auditor asks for

Bank statements and cancelled checks, the trust journal of receipts and disbursements, individual client ledgers, monthly three-way reconciliations, and the invoices supporting every transfer to operating. Missing reconciliations are a finding on their own, independent of whether the money is correct. Auditors also look for personal or firm funds in the account, disbursements against uncleared deposits, and negative client balances.

Being ready without preparing

The only reliable preparation is monthly discipline, because an audit covers past years and those records either exist or do not. Reconcile three ways every month and keep the signed reconciliation. Keep invoices with transfers. Resolve negative ledgers immediately. If a bank reports an overdraft on a trust account, most states require the bank to notify the regulator directly, so the audit arrives whether or not you report it first.