IOLTA Audit

SOLVED

My client was randomly selected for a state audit of his IOLTA account. We followed their instructions and sent what we felt was more info than they asked for, but the auditor believes there is a $22,000 discrepancy in the selected months (I show a $7.86 discrepancy, which is an IOLTA interest sweep and we stated that).

Apparently we failed on the three point reconciliation. I ran a Funds Running Balance report from Timeslips and the IOLTA register with all detail from Quickbooks and cross checked everything. 

I have googled the info and came up with a document from my state (CT) and one from Trust Books. It sounds like I should do an Excel or even handwritten reconciliation to get the third point of reference. 

If anyone is familiar with IOLTA accounts I’d appreciate some input so we can resolve it to the states satisfaction.
Thanks so much
Parents
  • 0

    A Three Way Reconciliation is when your 1) Bank Statement, 2) Checkbook/Quickbooks, and 3) total of your individual client ledgers (Funds with Running Balances) all equal the same number, on the same day (adjusting for outstanding items).  

    Hard to tell from your post why you should be off, but perhaps that helps.

    Assuming that you are balancing the Quickbooks against the Bank Statement every month, does your Funds with Running Balances match the Quickbooks balance? I would start there.

    Nancy Duhon, Esq.
    Duhon Technology Solutions, LLC
    Master Certified Consultant for Sage Timeslips
    Providing individual Consultations and Third Party Remote Desktop Support - including older/unsupported versions.
    404-325-9779
    [email protected]

  • 0 in reply to Nancy Duhon

    Hi Nancy, Yes, I reconcile both Operating and IOLTA every month and they are fine.

    The only difference between the IOLTA in QB and the Funds with Running Balances report is the interest sweep in/out, which is not accounted for in Time Slips.

    The balance between the TS report and QB was just the sweep amount.

    I am following an "How to conduct a three-point reconciliation" document and I am wondering if ALL outstanding client balances should have been listed for the audit. We read it as we had to explain our deposits and disbursements for that time frame, which we did. But if they want to know who the additional balance belongs to, we did not do that and that would explain the roughly 22K difference.

  • 0 in reply to D1D
    SUGGESTED

    The "interest sweep" should not be the difference because each month it is a net zero transaction:  interest is earned and removed at the same time, with no change to the balance.

    Yes, you would need to show either the starting balance at the beginning of the time frame, or all previous entries for it to show the true total on had per client. That sounds correct. 

    Basically, how much money are you holding total (bank and checkbook) and who does it all belong to (funds with running balances).

    Not that you may need to include some closed clients as well if they had transactions in the period.  Some firms only run that report on Open Clients.

    Nancy Duhon, Esq.
    Duhon Technology Solutions, LLC
    Master Certified Consultant for Sage Timeslips
    Providing individual Consultations and Third Party Remote Desktop Support - including older/unsupported versions.
    404-325-9779
    [email protected]

  • 0 in reply to Nancy Duhon

    Since he is transitioning to retirement, we did a huge payout on over 30 clients on one day during the reporting period. That resulted in 8 outstanding checks and a voided check. So yes we had closed accounts in there too. I just didn't run all the open ones, I only ran the report on the ones that had activity during that time.  :-/

  • 0 in reply to D1D

    To really do a 3 way verification you can’t look at activity you have to look at balances. You also have to take into account uncleared checks and deposits. 

  • 0 in reply to Caren2

    Right but they asked for lists too.

    How do I have Timeslips do a Client Funds with Running Balances report as of a certain date in the past?

    If I run one for April without zero balances checked, I'm not getting the clients we zeroed out in June., even though they had a balance in April, even if I select a client specifically. It only works if I ask it to include zero balances, which takes a 9 page report to nearly 200 pages.

  • 0 in reply to D1D

    Instead of funds with running balance do a trust transaction list for the period. 

  • 0 in reply to Caren2

    Funds Transaction Listing?  That doesn't show balances, just a list of transactions, and it still doesn't eliminate zero balance clients. I'll look for a Trust Transaction again

  • 0 in reply to D1D

    Let's back up a bit.  What did the Bar ask you to provide for the Audit?

    Nancy Duhon, Esq.
    Duhon Technology Solutions, LLC
    Master Certified Consultant for Sage Timeslips
    Providing individual Consultations and Third Party Remote Desktop Support - including older/unsupported versions.
    404-325-9779
    [email protected]

Reply Children
  • 0 in reply to Nancy Duhon

    Hi all, sorry for disappearing. My client was away and the machine had a catastrophic hard drive failure while he was gone. He just got it back from the shop today and I was able to find the backup and install it on my machine for the time being. Side note - I'd like to put 2017 on his ancient machine but I can't find it to download. Do I have to call Sage? Not my most critical problem at the moment....

    Issue #1 with the audit: They claim they didn't get all the documentation, yet I have the zip file he sent them and it's all there. They say they are missing the Timeslips portion and that's why they couldn't balance. So we will resend.

    In the meantime we did find a couple of errors. I was advised to make corrections to the file as of Oct 31. which is the last day of the audit period. I have 3 checks that were payments on account and deposited into the Operating account correctly. But they were accounted in Timeslips in the funds account. This happened way before the audit period so I didn't pick that up originally.

    All three clients are paid in full. I would think this is all set, but I have no entries in Timeslips showing the sweep of these funds out of the funds account and am unsure how to show that correctly. The clients do show a zero balance. Is it as simple as deleting the incorrect funds payment and then making the correct AR payment? 

    Thanks for the help! 

  • +1 in reply to D1D
    verified answer

    Whew, okay, let's see what I can answer based on this new information.

    v2017 is no longer available from Sage because that version is no longer supported. Many of the consultants have the old downloads in our libraries.  You can contact one of us about it.

    What version was he running? What version are you running? Remember that as a general rule, once a database has been opened/converted into a higher version that it cannot then be reaccessed by a lower version.

    Unclear what your scenario is from your post.

    As for the 3 errors.  You say "I have 3 checks that were payments on account and deposited into the Operating account correctly." That is just slightly confusing to me because usually when I see the words 'to account' or 'from account' that is a tell tale that the payment is going in or out of the trust/funds account.

    Are you saying they were just paying their bill? I.e., paying what they already owed as an A/R?  If so, then yes, it should have been deposited into Operating and posted as a regular PAY- Payment Thank You A/R transaction.

    Sounds like instead they were posted as Payments To Account into the Timeslips funds account. Okay, I can then understand why this would be "wrong." But it should leave you with $$$ in the funds account to apply to the billed charges as a PFA - Payment from Account. So it confuses me when you next say "All three clients are paid in full. I would think this is all set, but I have no entries in Timeslips showing the sweep of these funds out of the funds account and am unsure how to show that correctly. The clients do show a zero balance."

    Were the payments ALSO entered as A/R transactions? How did the balance get to zero without a payment?

    If they were double entered as an A/R transaction as well as a Funds Transaction, and you just need to empty the funds without affecting the zero A/R balance, I would use a Withdrawal transaction to remove the funds and leave A/R alone along with a nice description detailing the error and how the Withdrawal is being put in to adjust for it.

    Beyond that, this thread is getting a bit complicated to handle as a bulletin board thread.

    Nancy Duhon, Esq.
    Duhon Technology Solutions, LLC
    Master Certified Consultant for Sage Timeslips
    Providing individual Consultations and Third Party Remote Desktop Support - including older/unsupported versions.
    404-325-9779
    [email protected]

  • 0 in reply to Nancy Duhon

    Hi Nancy, thanks for taking the time to reply. If you are suggesting we can talk, I am up for that.

    The three checks (they were done at the same time), yes they were paying their bill and *I* mistakingly posted it as Client Funds in Timeslips. And you gave me the clue I needed. While I put them in TS as payment to funds, and marked them on our sheet as payment to funds, I must've figured out my error and ALSO did a payment to account for each of those clients. I have no notes or emails about this so I can't explain why I didn't back out the funds entries right then.

    Two clients now have zero balances on AR, which is correct, but they are showing that they have funds. I will reverse those payments with a very detailed explanation.

    This gave the third client a double payment though, which I can see on the next set of bills. So I'll need to do the same and explain to the client, who thankfully is a good client and it wasn't a large payment. But still not a good error to make :( 

    I really think that clears up the most confusing part of my issues.

    I can deal with the IT stuff later, I just need to have a handle on these reports.

    Speaking of which, I was able to create a report that gave me the Funds Transaction listing in a format I liked, except I lost it in the crash. But I have a copy and can create it again.

    Now, is there any way to do a running total of ALL client payments, both AR and Funds? All the history reports I tried last week seemed to just print bills. Literally, a line by line list of all activity by client?

    Thanks again, I really appreciate your help!

  • 0 in reply to D1D

    <edit> I was able to reverse the ones who have the funds balance in error, but the third client who still does work with him, has a zero balance in both Funds and A/R at the moment. Reversing the wrongly entered entry would put their funds in the negative. Will this cause issues in Timeslips? Either way I do have the documentation for the review board.