The Most Common IOLTA Compliance Mistakes (and How to Avoid Them)
If you’re a solo attorney or running a boutique firm, you already know that trust accounting isn’t optional, it’s required. An Interest on Lawyers’ Trust Account (IOLTA) safeguards client funds and ensures your practice stays aligned with strict ethical and legal standards.
But here’s the reality: IOLTA compliance mistakes are common. Even well-meaning attorneys slip up, often because they assume trust accounting works like business banking, or because they delegate it to a general bookkeeper who isn’t familiar with bar rules.
And the consequences? Severe. From state bar sanctions to disciplinary action or even disbarment, mistakes in trust accounting can jeopardize your career and your firm’s reputation.
The Most Common IOLTA Compliance Mistakes
While every state bar sets its own requirements, the same mistakes appear again and again. Here are the ones that put firms at the greatest risk:
Commingling Funds
Mixing client trust funds with firm operating funds.
Even temporarily depositing money in the wrong account counts as commingling.
Not Performing Three-Way Reconciliations
Reconciling only the bank balance against accounting records isn’t enough.
Bar rules require comparing:
Bank statement balance
Client ledger balances
Trust account general ledger balance
Poor Record-Keeping
Missing or incomplete client ledgers.
No clear audit trail for deposits and disbursements.
Failure to retain records for the required period (often 5–7 years).
Client Ledgers Going Negative
Disbursing funds before they’re collected.
Overdrawing from a client’s portion of the account.
Improper Handling of Retainers and Advanced Fees
Recording retainers directly as income instead of holding them in trust until earned.
Using unearned client funds to cover firm expenses.
Delegating Trust Accounting Without Oversight
Relying on a bookkeeper or assistant without reviewing reconciliations yourself.
Attorneys remain responsible, even if someone else manages the books.
How to Avoid These Pitfalls
Avoiding mistakes is less about working harder and more about putting the right systems and safeguards in place:
Separate accounts: Maintain a strict separation between operating accounts and trust accounts.
Perform three-way reconciliations monthly: Don’t rely on the bank statement alone. Use software or an accounting partner who knows legal compliance.
Maintain detailed client ledgers: Record every deposit and withdrawal tied to the specific client matter.
Review transactions personally: Even if staff manage bookkeeping, review reconciliations regularly.
Train your team: Ensure everyone handling funds understands ethical boundaries.
Leverage legal-specific accounting tools: Platforms like Clio or MyCase integrate with trust accounting workflows for built-in safeguards.
By putting these systems in place, you not only stay compliant, you protect client trust and strengthen your reputation.
Stay Ahead of Compliance Risks
Trust accounting errors aren’t just technical slip-ups, they’re risks to your practice, your license, and your clients’ confidence. But with the right systems and the right partner, you can eliminate common mistakes before they happen.
At Jalada, we specialize in IOLTA compliance for solo and small firms, combining expertise, legal-specific workflows, and proactive support to keep you protected.