The Bookkeeping Step Too Many Law Firms Skip (and Why It’s Costing You)

If you manage trust accounts, three-way reconciliations aren’t just a good idea—they’re a requirement.

And yet, in my experience working with law firms, I’ve seen how easily this can be overlooked—and how costly that oversight can be.

What is a 3-Way Reconciliation?

A three-way reconciliation ensures your trust account records are accurate and compliant. It compares:

1. The balance in your trust bank account

2. The total of all individual client trust ledgers

3. The general ledger balance in your accounting system

All three of these numbers need to match. Every single month.

If they don’t, you’re not just out of balance—you may be out of compliance. And that’s something regulators take very seriously.

Why It Gets Missed

There are a few common reasons:

The bookkeeper doesn’t specialize in legal accounting

Reports are generated, but not verified for alignment

Everyone assumes someone else is doing it

It’s easy to trust that because reports exist, everything’s fine. But if you’re not double-checking that the trust account, ledgers, and general ledger agree, you're leaving room for error.

I’ve worked with law firms where trust cleanups went back years. Thousands of dollars needed to be reallocated, client records were incomplete, and partners were scrambling to explain gaps when audits came around.

Not because anyone was doing anything shady. But because no one was watching closely enough.

Here’s What You Should Be Doing

1. Run all three reports monthly

2. Compare and verify that the totals match

3. Investigate any discrepancies immediately

4. Document the reconciliation for your records

If you’re not sure how to do it—or whether it’s being done at all—ask your bookkeeper. It’s okay to double-check. It’s not okay to find out in the middle of an audit.

Final Thoughts

Your firm can’t afford to get this wrong.

Three-way reconciliations are a regulatory requirement. And even if no one’s checked yet, that doesn’t mean they won’t.

Work with someone who knows the rules, not just the software. And don’t assume it’s being done. Ask.

Trust account compliance is one of the areas we specialize in. If you’re not confident about how yours is being managed—or if you’re just not happy with your current setup—reach out. We’re here to help you get it right.