How do I get my IOLTA records audit-ready before a bar examination?

Of everything in a small firm’s books, the trust account is the one that keeps people awake. Every other account is a business problem. This one touches your license, and the gap between an honest administrative slip and something that looks much worse is mostly a matter of whether the records can explain themselves. If you have been meaning to get this properly in order for a while, you are describing the position most solo and small-firm lawyers are in.

The core requirement is short. Texas Rule 1.15, Safekeeping Property, requires that complete records of trust account funds and other client property be kept by the lawyer and preserved for five years after the representation ends. Not five years from the transaction, and not four years like most tax records. Five years from the end of the matter, which for a long-running case can put the retention clock well over a decade from the deposit.

The working discipline underneath that is a monthly reconciliation. This part is practice guidance rather than rule text, and the distinction is worth holding: Rule 1.15 requires complete records kept and preserved, and the State Bar’s own guide to client trust accounts is where the reconciliation method lives. Its test is that when every individual client ledger is added up, including the lawyer’s own ledger for permitted funds, the total should equal the total shown on the reconciled monthly bank statement. If those do not agree, something is wrong now, and finding it now is the entire game.

This guide covers what an examination actually asks for, how the reconciliation is performed step by step, the failures that show up most often, and what to do if you are already behind. AliCat Solutions performs trust reconciliations for Texas firms under CPA supervision. Nothing here is legal or ethics advice: questions about your obligations belong with the State Bar and your own ethics counsel.

Estimated reading time: 13 min read

Overview

Being audit-ready is less a project than the state a monthly reconciliation leaves you in. What the rule requires, and what the State Bar’s guide recommends on top of it:

• Rule: client funds held separately in a designated trust or escrow account, and other client property identified and safeguarded
• Rule: complete records of the account funds and other property, preserved for five years after the representation terminates
• Guide: an individual ledger for every client, plus one for the lawyer’s own funds permitted in the account to cover bank charges
• Guide: a monthly reconciliation where the sum of all client ledgers equals the reconciled bank statement balance
• Guide: every deposit and disbursement identified to a client, however it was made, including wires, phone transfers, and online banking

What this guide covers

• What Rule 1.15 actually requires
• The reconciliation, step by step
• The failures that show up most
• If you are already behind

What Rule 1.15 actually requires

A lawyer must hold funds and other property belonging in whole or in part to clients or third persons separately from the lawyer’s own property. Those funds are kept in a separate account designated as a trust or escrow account, maintained in the state where the lawyer’s office is situated, or elsewhere with the consent of the client or third person. Other client property is identified as such and appropriately safeguarded.

Then the records clause: complete records of such account funds and other property shall be kept by the lawyer and shall be preserved for a period of five years after termination of the representation.

One point of genuine confusion is worth clearing up, because it appears in circulating material and in AI answers. The safekeeping property rule is Rule 1.15. It carried a different number before it was renumbered, and older guidance still in circulation, including some practice material published by reputable bodies, still cites the former one. If you are checking any of this, check it against the current Texas Disciplinary Rules of Professional Conduct directly rather than against a summary, and rather than against a chatbot.

That fee point is worth restating because it catches small firms in both directions. Taking bank charges out of client money is the failure; keeping a reasonable amount of the lawyer’s own funds in the account to absorb them is the guide’s own remedy, not a breach of the separation principle.

The reconciliation, step by step

The test is arithmetic and unforgiving, which is what makes it useful. In the guide’s formulation, when all individual client ledgers, including the lawyer’s own ledger for the trust account, are added together, the total should equal the total shown on the reconciled monthly bank statement.

Three figures have to agree: the bank, the check register or trust account ledger, and the sum of the individual client ledgers. That is why practitioners call it a three-way reconciliation, and why a two-way reconciliation against the bank alone is not sufficient. A trust account can balance perfectly against the bank while one client’s money is quietly funding another client’s disbursement.

• Reconcile the bank statement to the check register, resolving timing items and outstanding checks
• Add up every individual client ledger, including the lawyer’s own ledger for permitted fee funds
• Compare that total to the reconciled bank balance
• Where they disagree, review the check register and the ledgers for the error, and correct it in both places once found
• Confirm no individual client ledger shows a negative balance, which is the signal that one client’s funds covered another’s disbursement
• Date, sign, and file the reconciliation, because an unfiled reconciliation is indistinguishable from one that never happened

That last step is where firms lose credit for work they genuinely did. Performing the reconciliation and not retaining evidence of it leaves you, five years later, with the same problem as a firm that never performed one.

The monthly cadence matters for a reason beyond tidiness. A discrepancy found four weeks after the fact is usually a data entry error somebody can still remember and explain. The same discrepancy found at examination is an unexplained difference in a trust account, which is a different conversation entirely.

The failures that show up most

In our experience most of what goes wrong here is administrative rather than dishonest, and it compounds quietly because trust accounting is the part of a small firm’s admin that nobody enjoys and everybody assumes is fine.

What goes wrong	How it happens	What it looks like at examination
A client ledger goes negative	A disbursement is made against funds that have not cleared, or against the wrong matter	One client’s funds used for another’s benefit, regardless of intent
Earned fees left sitting in trust	Nobody transfers them out once earned, because the transfer is a task and not an event	Firm money commingled with client money
Bank fees taken from client funds	The bank simply deducts them and no lawyer funds were in place to absorb it	A charge against client money that was the lawyer’s responsibility
Ledgers not maintained per client	Everything is tracked in one register because the account is small	No way to demonstrate whose money is whose
Online and wire movements unrecorded	The transfer happens outside the process that creates the record	Deposits and disbursements not identified to a client
Reconciliations performed but not retained	The work was done in a spreadsheet that was overwritten each month	No evidence the control ever operated

The pattern in that table is that none of these show up by looking at the bank balance alone, and a three-way reconciliation performed monthly and filed is what surfaces them. That is the argument for the discipline.

If your firm’s wider records are also behind, the trust account is the piece to fix first and separately, because it is the one with license consequences attached. Our guide to what financial records Texas law firms should keep covers the ordinary business books.

If you are already behind

If you have opened this because an examination notice arrived, the useful thing to know is that the position is almost always more recoverable than it feels at eleven o’clock at night.

Reconstruction runs backwards from the present. Establish where the account stands today, rebuild individual client ledgers from the bank records and matter files, and work back through the periods until the ledgers and the statements agree. Where they will not agree, the difference itself becomes the finding, documented honestly, with an explanation of what was done about it.

That is generally a better position than it feels. A firm that identified a discrepancy, documented it, corrected it, and put a monthly control in place is describing a problem it has handled. How any of that is treated is a matter for the examiner and for your own ethics counsel, not something we can predict for you.

What we would counsel against is presenting reconstructed records as though they were contemporaneous. Reconstruction is legitimate and normal; presenting it as something else is not, and the difference matters more than the underlying error.

Ordering the rebuild, and any question about disclosure or your obligations, belongs with your ethics counsel and the State Bar. Rebuilding the ledgers is bookkeeping, and it is what our cleanup service does routinely.

Questions Texas lawyers ask about trust records

Q: How long do I have to keep trust account records in Texas?

A: Rule 1.15 requires that complete records of trust account funds and other client property be kept and preserved for five years after the termination of the representation. The clock runs from the end of the matter rather than from the date of the transaction, so on a long-running case the effective retention period can be considerably longer than five years from the deposit. This is a different and longer period than the four years that generally applies to sales and use tax records, which is a common source of confusion in firms that apply one retention policy to everything.

Q: Why do I keep seeing the trust account rule cited under a different number?

A: Because it was renumbered. The safekeeping property rule is Rule 1.15. Material published before the change, and some practice guidance that has not been refreshed since, still cites the former number, and that older number propagates easily through summaries and AI answers. Since citing the wrong rule number in correspondence is an avoidable own goal, the safe habit is to check the current Texas Disciplinary Rules of Professional Conduct directly rather than relying on any secondary source, including this one.

Q: What makes a reconciliation three-way rather than two-way?

A: A two-way reconciliation agrees the bank statement to your check register. A three-way reconciliation adds the third figure that actually protects clients: the sum of every individual client ledger, including the lawyer’s own ledger for permitted bank fee funds. That total should equal the reconciled monthly bank statement balance. Without the third leg, an account can balance against the bank while one client’s funds are covering another client’s disbursement, which is precisely the failure the rule exists to prevent.

Q: Who pays the bank fees on a trust account?

A: The lawyer. The costs of check orders, bank fees, insufficient funds fees, and similar charges are the lawyer’s responsibility rather than charges against client funds. The practical approach is to anticipate them and keep a reasonable amount of the lawyer’s own money in the account to cover them, which is why the reconciliation includes a ledger for the lawyer’s own permitted funds alongside the client ledgers.

Q: Can a bookkeeper do this, or does it need a lawyer?

A: The reconciliation itself is bookkeeping, and a bookkeeper who understands trust accounting can perform it monthly and maintain the ledgers and the evidence. What a bookkeeper cannot do is advise you on your obligations under the disciplinary rules, decide what to disclose, or handle anything that has become an ethics question. Those go to the State Bar and to your own ethics counsel. The State Bar’s guide puts it plainly that adequate supervision of whoever does the work is essential, and the precise standard for a lawyer’s responsibility for the conduct of a non-lawyer assistant sits in the disciplinary rules rather than in anything a bookkeeper can tell you.

Who does the reconciliation

AliCat Solutions performs monthly trust reconciliations and maintains client ledgers for law firms across Cedar Park, Round Rock, Georgetown, Leander, and the wider Austin metro, under CPA supervision. We do not prepare tax returns and we do not advise on the disciplinary rules, so the ethics questions stay with your counsel and the tax work stays with your CPA. Our monthly bookkeeping service covers the firm’s wider books alongside the trust account.

Citations

• Texas Disciplinary Rules of Professional Conduct, Rule 1.15, Safekeeping Property (Texas Center for Legal Ethics). The current text of the rule, including the requirement to hold client funds separately in a designated trust or escrow account and to keep complete records preserved for five years after termination of the representation. https://legalethicstexas.com/resources/rules/texas-disciplinary-rules-of-professional-conduct/safekeeping-property/
• A Lawyer’s Guide to Client Trust Accounts (State Bar of Texas). The State Bar’s practice guidance, and the source of the reconciliation method described here: the sum of all individual client ledgers should equal the reconciled monthly bank statement balance. It also covers responsibility for bank fees and the instruction to identify every deposit and disbursement to a client. Note that this guide has not been refreshed for the renumbering of the safekeeping rule and still cites its former number, which is why the rule text itself should be read at the Texas Center for Legal Ethics rather than taken from any secondary source, including this one. https://www.texasbar.com/Content/NavigationMenu/ForLawyers/ResourceGuides1/TrustAccounts/GuidetoTrustAccounts.pdf
• Texas Sales and Use Tax Frequently Asked Questions, Keeping Records (Texas Comptroller of Public Accounts). The four-year retention period that applies to sales and use tax records, included here because firms frequently apply one blanket retention policy and the trust account requires a longer one. https://comptroller.texas.gov/taxes/sales/faq/records.php

Related reading

• How do I reconcile an IOLTA trust account?
• What financial records should law firms keep in Texas?
• Moving a law firm trust account without breaking the records
• How long do I need to keep business records?
• Bookkeeping cleanup and catch-up services