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Preparing for a Trust Account Audit
Let’s be honest—a trust account audit sounds terrifying. Even if you’re doing everything by the book, the idea of someone combing through your financial records is stressful.
But here’s the truth: Audits don’t have to be scary if you’re prepared.
In this guide, we’ll break down what triggers an audit, what records you need to have ready, and how to avoid red flags. Plus, we’ll dive into Tennessee and South Carolina’s trust account rules so you can stay compliant and stress-free.
Why Do Attorneys Get Audited? (And How to Avoid It)
Most attorneys think audits only happen to lawyers who steal client funds. Not true.
Here are the most common audit triggers—and how to stay off the bar’s radar:
Client Complaints- If a client suspects mishandling of funds, they can report you. Even if you’re innocent, an audit will follow.
- How to Avoid It: Be transparent with clients and notify them immediately when receiving or disbursing their funds.
Bank-Reported Overdrafts- Your bank is required to report overdrafts in your trust account. Even if it was a simple math mistake, it could trigger an audit.
- How to Avoid It: Reconcile your account monthly so you always know your balance before issuing checks.
Random State Bar Audits- Some states randomly select attorneys for trust account audits.
- How to Avoid It: You can’t. But if your records are in order, there’s nothing to worry about.
Discrepancies in Reporting- If your annual compliance report doesn’t match up, it raises red flags.
- How to Avoid It: Double-check your annual reports before submitting them.
What Documents Will the Bar Ask For?
If you get audited, here’s what they’ll want to see:
Client Ledgers – A detailed record for each client showing their deposits, withdrawals, and remaining balance.
Bank Statements – Monthly statements for all trust accounts for at least 5 years.
Three-Way Reconciliation Reports – Proof that your bank balance, general ledger, and client ledgers match every month.
Deposit Slips & Disbursement Records – Copies of every transaction in and out of the trust account.
Retainer Agreements – Proof of how you handle client funds according to their agreement.
Tip: Audits usually cover the past three to five years—so keeping detailed, organized records is a must.How to Prepare for a Trust Account Audit Like a Pro
If an audit happens, don’t panic. Just follow these steps:
Step 1: Gather All Records in One Place- Have all ledgers, statements, and reconciliation reports ready to go.
Step 2: Reconcile Your Accounts (Before They Do)- Perform a three-way reconciliation to catch errors before they do.
Step 3: Review Your Transactions- Ensure no client funds are missing and all transactions are properly documented.
Step 4: Organize Your Documentation- Keep physical and digital copies of everything in a secure location.
Step 5: Get Expert Help If Needed- If you’re missing records or have discrepancies, consult an expert to fix issues before the audit happens.
Tennessee Trust Account Rules: What You Need to Know
Tennessee attorneys must comply with Rule 1.15 of the Tennessee Rules of Professional Conduct, which outlines strict trust account management rules.
The Must-Follow Rules for Tennessee Attorneys
IOLTA Participation is Mandatory – If you hold nominal or short-term client funds, they must be deposited into an IOLTA account. Approved Financial Institutions Only – Your trust account must be at a bar-approved bank that reports overdrafts. Interest Goes to the Tennessee Bar Foundation – Attorneys cannot keep any interest earned on IOLTA accounts. Strict Record-Keeping Requirements – All trust account records must be kept for five years and be available for audit.What Happens If You’re Non-Compliant?
- Failure to comply can lead to bar discipline (including suspension).
- Missing records or unexplained transactions can trigger a deeper audit.
Full Tennessee IOLTA Guidelines: South Carolina Trust Account Rules: What’s Required?
South Carolina has similar rules, but with some unique requirements. Attorneys must follow the South Carolina Rules of Professional Conduct Rule 1.15.
South Carolina Trust Account Must-Knows
IOLTA Accounts Are Required for Nominal Funds – Any small or short-term client funds must be placed in an IOLTA account. Annual Certification Required – Every attorney must report compliance to the South Carolina Bar annually. Monthly Reconciliation Is Mandatory – Attorneys must reconcile trust accounts every month and maintain proof. Trust Account Records Must Be Kept for Six Years – Longer than Tennessee! Ensure all bank statements, ledgers, and records are stored securely.Non-Compliance Consequences
- Attorneys can be disciplined for failing to maintain proper records or reconciling accounts monthly.
- Unexplained overdrafts will automatically trigger a bar audit.
Monthly Checklist to Stay Audit-Ready
If you want to avoid last-minute panic, here’s a simple monthly checklist to keep your trust account 100% audit-ready:
WEEKLY TASKS:
Review all deposits & withdrawals – Double-check that client ledgers match transactions. Keep ledgers updated – Don’t wait until the last minute to log transactions. MONTHLY TASKS: Perform a full three-way reconciliation – Bank statement, general ledger, and client ledgers must match. Review compliance with Tennessee & South Carolina IOLTA rules – Make sure you’re following state-specific trust account guidelines. Fix any errors immediately – Catching mistakes now prevents bigger problems later. Backup all records – Store digital and physical copies in a secure location.Worried About an Audit? Prestige Accounting & Consulting Can Help
Trust account audits can be stressful, but they don’t have to be.
At Prestige Accounting & Consulting, we:
Handle trust account reconciliations for law firms (accurately & efficiently) Ensure full compliance with Tennessee & South Carolina bar rules Help you avoid trust account violations that could cost you big time If your trust account records aren’t where they should be, let’s fix it NOW. Book a consultation with Prestige Accounting & Consulting and take the stress out of trust account management!
