PC Law Accounting

Trust accounting requires strict segregation of client funds from firm operating funds, separate trust bank accounts, individual client ledgers showing every receipt and disbursement, and monthly three-way reconciliation between (a) the trust bank account, (b) the firm's trust ledger total, and (c) the sum of all individual client ledgers. Funds belong to the client at all times. The firm cannot mix, borrow, or use trust money for any non-client purpose, including covering operating shortfalls. Specialized software (PC Law, Clio, CosmoLex, Soluno) handles this; generic bookkeeping tools usually don't. Errors that would be ordinary bookkeeping issues elsewhere become Law Society compliance violations in trust accounting.

LSO trust compliance requires monthly trust reconciliations, maintenance of detailed trust records for at least seven years, adherence to By-Law 9 rules (the "Financial Transactions and Records" by-law), proper handling of mixed trust accounts and pooled trust interest (the IOLTA-equivalent paid to the Law Foundation of Ontario), and submission of an annual Form 9A trust report by March 31 each year. LSO conducts random Spot Audits, typically once every 4-6 years, where examiners review trust records, reconciliations, retainer agreements, and source documents. Repeat compliance issues, complaints, or red flags in the Form 9A can trigger more frequent or in-depth audits. Material non-compliance can lead to Tribunal proceedings.

A mixed trust account holds funds for multiple clients in one pooled bank account. Reconciliation involves three components that must agree exactly each month: the bank statement balance, the firm's general trust ledger control, and the sum of every individual client trust ledger. CDIC insurance covers up to $100,000 per depositor per insured institution. Mixed trust accounts are eligible for "per beneficiary" coverage if the firm files an annual disclosure with the bank identifying the beneficial owners. Without that disclosure, the entire mixed account is insured as a single $100,000 deposit, regardless of how many clients' funds are pooled inside. Best practice for firms with significant trust balances is to file the disclosure annually and diversify across multiple insured institutions when balances exceed limits.