In short
Under rule 48 of the Legal Profession Uniform General Rules 2015, which apply in New South Wales and Victoria, a law practice must reconcile each general trust account as at the end of every month. It prepares two statements: bank balance against the trust cash books, and total trust ledger balances against the cash books. Both must be prepared within 15 working days after month end.
Key takeaways
- Rule 48 of the Uniform General Rules requires a reconciliation of each general trust account as at the end of each month, in two dated statements.
- The first statement reconciles the bank balance with the trust account cash books; the second reconciles the total of the trust ledger balances with the cash books and lists every ledger with its balance and matter.
- Both statements must be prepared within 15 working days after the end of the month and kept by the practice.
- Section 147 of the Uniform Law requires trust records to be kept in permanent form for seven years after the last entry or the finalisation of the matter, whichever is later.
- Section 155 requires an external examination of trust records each year; in Victoria the trust examination year runs from 1 April to 31 March, with end of year documentation due to the Board by 31 May.
The Uniform Law framework
Trust money held by law practices in New South Wales and Victoria is governed by the Legal Profession Uniform Law and the Legal Profession Uniform General Rules 2015, which apply in the same terms in both states. Part 4.2 of the Uniform Law sets the duties. The Uniform General Rules set the detail of the records, reconciliations and external examination. A law practice is the business through which lawyers practise, whether a sole practitioner, a partnership or an incorporated legal practice.
Trust money is money entrusted to a practice in the course of legal practice, such as settlement funds, money for a property purchase or advances for costs. Most trust money is held in a general trust account: one pooled account at an authorised deposit-taking institution (ADI), meaning a bank, building society or credit union. Separate rules apply to controlled money, which a practice receives with a written direction to deposit it in an account other than its general trust account and which it controls, and to transit money, which it receives only to pass on to someone else.
The monthly reconciliation under rule 48
Rule 48 requires a practice with one or more general trust accounts to reconcile the trust records for each account as at the end of each month, by preparing two statements. The first reconciles the balance of the general trust account in the ADI's records with the balance in the practice's trust account cash books, and shows the date it was prepared. The second reconciles the total of the trust ledger account balances with the cash book balance. It lists each trust ledger account with its name, reference, balance and a short description of the matter, and also shows the date it was prepared.
Rule 48(3) requires both statements to be prepared within 15 working days after the end of the month, and rule 48(4) requires the practice to keep them. Taken together, the two statements are a three-way reconciliation: bank against cash book, then client ledgers against cash book. The same structure in US practice is explained in our guide to three-way trust account reconciliation.
| Requirement | Rule | Timing |
|---|---|---|
| Statement 1: ADI balance reconciled with trust cash books | r 48(2)(a) | As at the end of each month |
| Statement 2: total trust ledger balances reconciled with cash books, listing every ledger | r 48(2)(b) | As at the end of each month |
| Prepare both statements | r 48(3) | Within 15 working days after month end |
| Keep the statements | r 48(4) | With the trust records, for seven years (s 147) |
| Controlled money monthly statement, reviewed by a principal | r 64(8) and (9) | Within 15 working days after month end |
The trust records the reconciliation depends on
A rule 48 reconciliation is only as good as the records behind it. Rule 36 requires a receipt to be made out as soon as practicable after trust money is received. Rule 44 requires each receipt to be entered in the trust account receipts cash book within five working days of the receipt being made out. Rule 47 requires a separate trust ledger account for each person in each matter. Every receipt, payment and transfer must be recorded in it within five working days, with the balance shown after each entry. Rule 46 requires every transfer between ledger accounts to be recorded in a transfer journal with its authorisation.
Payments have their own controls. Under rule 43, trust cheques must be payable to a named person, never to cash or bearer, crossed not negotiable and marked as a law practice trust account. Each cheque or electronic transfer must be signed or directed by an authorised principal, or by authorised associates where no principal is available. Under rule 42, money for legal costs may be withdrawn after the client has been sent a bill and has not objected within 7 business days, or in the other circumstances that rule sets out.
Keeping records and reporting irregularities
Section 147 of the Uniform Law requires a practice to keep trust records in permanent form, in a way that discloses at all times the true position of trust money held for each person and allows the records to be conveniently and properly investigated or examined. They must be kept for seven years after the last entry or the finalisation of the matter, whichever is later. Keeping trust records includes making and keeping backup copies.
Section 154 requires a legal practitioner associate of the practice, the ADI or the external examiner to give written notice to the designated local regulatory authority as soon as practicable after becoming aware of an irregularity in any of the practice's trust accounts or trust ledger accounts. A legal practitioner associate is a lawyer working in or for the practice, such as a principal or an employee. A monthly reconciliation that finds a ledger overdrawn or money unaccounted for is the point at which that duty is triggered. Each difference should be investigated and recorded as described in our guide to reconciliation break management.
Worked example: the August reconciliation
A 35-lawyer commercial and property practice in Melbourne holds one general trust account. As at 31 August the ADI statement shows $3,286,140.00. Settlement funds of $185,000.00 received on 31 August are in the receipts cash book but not yet credited by the ADI, and electronic transfers of $212,460.00 directed on 31 August have not yet been processed. Statement 1 reconciles the ADI balance to the cash book balance of $3,258,680.00.
Statement 2 lists 214 trust ledger accounts totalling $3,258,680.00, with no ledger in debit. Both statements are dated 9 September, inside the limit of 15 working days after 31 August. Had one ledger shown a debit balance, the practice would have had to correct it, find out how it happened and consider whether section 154 required notice to the regulator.
| Line | Amount (AUD) |
|---|---|
| Statement 1: ADI balance at 31 August | 3,286,140.00 |
| Add: deposits not yet credited | 185,000.00 |
| Less: payments not yet processed | (212,460.00) |
| Reconciled balance | 3,258,680.00 |
| Trust cash book balance at 31 August | 3,258,680.00 |
| Statement 2: total of 214 trust ledger accounts | 3,258,680.00 |
| Ledgers in debit | 0 |
| Difference | 0.00 |
| Date both statements prepared | 9 September |
External examination
Section 155 of the Uniform Law requires a practice's trust records to be examined by an external examiner once in each financial year. A practice whose only trust money in the year was transit money does not need an examination for that year. Under section 156, only people designated under the Uniform Rules can be examiners, and an associate of the practice cannot examine its own records. Rule 69 leaves the timing of reports to the Legal Services Council.
The Victorian Legal Services Board states that the trust examination year runs from 1 April to 31 March and that external examiners must provide end of year documentation to the Board by 31 May. Reporting is completed through LSB Online, where the practice completes Parts A and B before the examiner submits the report. Where a practice stops being authorised to receive trust money, a final examination report is due within 60 days after the end of the relevant period under rule 68(4). The examiner will test the twelve monthly rule 48 statements, so gaps in them are the first finding a practice can avoid.
Other trust duties that affect reconciliation
Rule 50 requires a practice to give written notice to the regulator within 14 days of establishing a general trust account, and rule 51 sets duties when it stops holding trust money. Rule 49 forbids keeping a trust ledger in the practice's own name except in limited cases, and money for the practice's own costs held in such a ledger must be withdrawn within one month. Rule 52 requires a trust account statement to be sent to each person for whom money is held, as soon as practicable after the matter is completed and after 30 June each year.
Firms with offices in other countries face similar monthly duties: see our guides to Law Society of Ontario trust reconciliation and IOLTA trust account rules in the United States. Safeheld reconciles client money every day for regulated firms, works every difference to its cause and keeps the record auditors ask for, and is extending that work to law practice trust accounting in Australia. If your practice holds trust money under the Uniform Law, talk to us about trust account reconciliation.
Frequently asked questions
How often must a law practice reconcile its trust account in Australia?
Monthly. Rule 48 of the Uniform General Rules requires a reconciliation of each general trust account as at the end of each month in New South Wales and Victoria.
What is the deadline for a trust account reconciliation under the Uniform Law?
Both rule 48 statements must be prepared within 15 working days after the end of the month concerned.
What must a rule 48 reconciliation show?
A statement reconciling the ADI balance with the trust cash books, and a statement reconciling the total trust ledger balances with the cash books that lists every ledger with its balance and matter. Both must be dated.
How long must Australian law practices keep trust records?
Seven years after the last entry or the finalisation of the matter, whichever is later, under section 147 of the Uniform Law.
When is the external examination of trust records due in Victoria?
The trust examination year runs from 1 April to 31 March, and external examiners must provide end of year documentation to the Victorian Legal Services Board by 31 May.
Who must report a trust account irregularity?
A legal practitioner associate of the practice, the ADI or the external examiner must give written notice to the designated local regulatory authority as soon as practicable after becoming aware of it, under section 154.
References
- NSW Legislation, Legal Profession Uniform General Rules 2015
- Legal Profession Uniform Law (NSW), section 147: Trust records
- Legal Profession Uniform Law (NSW), section 154: Reporting irregularities
- Legal Profession Uniform Law (NSW), section 155: External examination of trust records
- Victorian Legal Services Board and Commissioner, Completing the external examination
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.