The Importance of Transparency and Accountability in Trust Account Management

Trust Account Bookkeeping
December 19, 2023
December 29, 2023

There is no shortage of legal and ethical duties that are of a non-delegable nature that attorneys adhere to regarding clients. Client trust accounting remains a practice that attorneys must complete per regulations outlined in Professional Rules of Conduct 1.15, “Safekeeping Funds and Property of Clients,” and Rule 2.5, the CTAPP program. Fresh and updated regulations in trust account management serve as the reformation of legal professionals' foundational commitment to upstanding practices. 

In trust account management, safeguarding and administrating funds demands that transparency and accountability remain at the forefront of the practice. Implementing each of these fully influences every aspect of client trust accounting, so much so that it can be difficult to decipher one responsibility from another.

Perhaps most important are the numerous gains in successfully managing client trust accounts, funds, and property. 

The Role of Accountability in Trust Account Management

One such example that requires attorneys to be more accountable is Rule 2.5, stating: 

A licensee who: (i) represents a client in a matter in which funds have been received by the licensee or licensee’s firm on behalf of the client during the reportable time period; and (ii) has responsibility for complying with any of the requirements or prohibitions in rule 1.15 of the Rules of Professional Conduct— such requirements and prohibitions are not limited to recordkeeping duties and include, for example, the responsibility for giving notice to the client that funds were received on behalf of the client under rule 1.15(d)(1) of the Rules of Professional Conduct. 

Since this duty to clients is fiduciary, it requires licensed attorneys or law firms to remain prepared to promptly reply to clients or the State Bar regarding the status, activity, and amount of money being held. This keeps attorneys accountable as they must have this knowledge to meet the needs of their clients and remain in compliance with the State Bar. This knowledge and the ability to accurately record-keep is a required skill in holding client funds and will spotlight how accountable an attorney is willing to be. 

Accountability also helps to reduce the risk of errors. This form of accountability is structured via record-keeping standards and reconciliation practices, which present a written record of all transactions. If an attorney's work in trust account management is present, clear, and complete, the work can not only be understood but there are less likely to be errors. In the event of bookkeeping errors, having clear records offers a way to backtrack and pinpoint what went wrong and rectify.

In short, accountability can exist on its own. Still, in other ways, it creates or strengthens transparency in trust account management. Accountability is found in trust account account management when practices are transparent. 

The Role of Transparency in Trust Account Management 

clients meeting with bookkeeper in orange county for trust account management

Attorneys' practices must be transparent as the role depends on ethical obligations. This extends to the realm of trust account management as well. Transparency means there are clear procedures for licensed attorneys to follow. Transparency also serves as a preventative measure, often preventing multiple intentional or accidental mishandling of client funds or property. 

One main form of transparency for practicing attorneys involves an open dialogue and disclosure of financial transactions. When transparency is given via communication from the attorney or law firm, clients can be sure that their attorney is trustworthy and upholding their part of the relationship. When clients have updated information and receive open communication, they can be assured their legal professionals are working within their best interests and adhering to their ethical and legal obligations. 

The number of potential conflicts is reduced significantly by transparency, as well. Rule 1.15 gives direct information on conflicts of interest and instances of flat fees where an attorney must take their payment from client trust accounts at the earliest period once a schedule or fee term has been agreed upon.

There are such cases, such as contingency workers, where attorneys are cautioned against entering into agreements with clients in which they might be tempted to sway the clients' decision in a way that would earn them a higher payout, as this is a conflict of interest. Attorneys are advised to address conflicts of interests transparently and up front. Practices such as these eliminate the likelihood of attorneys ending up in situations where a potential personal gain could precede a client’s welfare. The transparency offered strengthens the ethical resolve of the attorney. 

Most notably, transparent reporting methods prevent any mishandling or misuse of funds. This includes spending any money the client may not have or using the wrong client's money to make payments if the attorney uses a pooled IOLTA account. At a moment's notice, if a client requests to review financial statements, they may do so. Thus, attorneys are inclined to keep accurate records because they are held solely responsible for anything within the account that appears to be amiss. 

Transparency, Accountability, and Compliance in Trust Account Management

Transparency and accountability converge crucially when it comes to trust management. Without the two, success in the practice is critically lower. The impact of managing and administering held funds on behalf of a beneficiary is infinite and yields in dividends. Thus, it must be done as outlined in the regulations.

Trust account management, where the attorney is both transparent and practicing accountability, helps keep the attorney compliant. To avoid any penalties, attorneys must remain vigilant on any updates on applicable regulations and laws regarding the safekeeping of client funds, record-keeping, and reporting. In addition to remaining in compliance, this establishes the attorney as knowledgeable, trustworthy, and professionally elite. They are also seen as ethically competent. In the case of held funds and client property, compliance is what matters most. 

Completing the regulations enhances the attorney’s practice as a reputable practitioner of the legal profession. Those with a history of transparent practices gain more business, avoid audits, and meet their fiduciary duties without complication. This is most rewarding, as remaining in compliance is key to retaining an active license to continue providing the public with legal services. Attorneys demonstrate their dedication to compliance, legal standards, and ethical obligations when practicing transparency and accountability. 

Trust Account Management with SmartBean®

Let our educated and knowledgeable team of Orange County bookkeepers at SmartBean® help you remain accountable and prepared to answer your clients and the State Bar of California transparently. We offer free consultation for our monthly, affordable Trust Account Bookkeeping (TAB) services in Orange County.

We at SmartBean® are not just bean counters; we are the Beans you can count on, and we will help you remain in compliance!

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