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The Critical Challenges of Using QuickBooks Online for Law Firms

EIGHT TRUST ACCOUNTING CHALLENGES FOR CANADIAN LAWYERS USING QUICKBOOKSTM ONLINE

In any industry proper bookkeeping is essential, but accounting for Canadian lawyers goes beyond best practices – it’s necessary to ensure compliance. Lawyers can run into challenges when using accounting solutions like QuickBooksTM Online, but there is a solution to ensure all requirements, rules, and regulations are being met.

Law Societies oversee the more than 100,000 lawyers in Canada and have set forth regulations for law firms designed to protect the public with a strong focus on trust account records. Each province or territory’s Law Society has their own set of Trust Compliance requirements, which makes it essential to check with your governing Law Society to make sure you’re following all locally mandated best practices.

These compliance requirements are extensive, as shown by the Law Society of Ontario’s publication of By-Law 9 – Financial Transactions and Records and The Bookkeeping Guide for Lawyers. The basic principles of trust accounting in Ontario are similar to other provinces and their respective regulations, making the guide a good starting point to view the general trust accounting compliance requirements of Law Societies. The Trust Accounting Handbook produced by the Law Society British Columbia shows similar lengthy regulations along with sample trust accounting checklists and required internal controls developed by Law Societies.

The strict requirements surrounding trust accounts can be time-consuming and prone to human error when handled manually, so for years, most law firms relied on desktop programs designed specifically for the legal industry such as PCLaw® or ESILaw®. With the introduction of cloud computing and countless added benefits like mobility, reduced IT costs, business continuity, and automatic updates, law firms have been transitioning to more modern practice management programs in recent years.

Modern practice management programs provide a wealth of benefits for law firms, offering a way for lawyers to be more efficient and organized. Pulling many practice-related tasks into one system, it becomes easier to track case matters, provide updates to clients, and is instrumental in making sure no part of the case falls through the cracks. A quality program helps firms become more productive in areas such as:

  • Conflict checking
  • Case management
  • Time & billing
  • Calendaring and docketing management
  • Tracking documents, notes, and tasks
  • 24/7 anytime, anywhere access

Early cloud practice management systems like Clio®, however, have one missing piece: the lack of a built-in accounting program designed for law firms. Instead, law firms become dependant on separate general business accounting programs like QuickBooksTM, QuickBooksTM Online or XeroTM. These business accounting programs are robust, stable products known for their vast support network of bookkeepers and accountants. They are also attractive to many businesses because they are compatible with nearly every market at a reasonable price point and scale easily.

However, meeting the specific needs of law firms can present a challenge when using programs like QuickBooks Online. Because such accounting programs are created for general purposes, law firms can run into difficulties when trying to meet trust accounting compliance requirements, handling legal-specific accounting, and integrating with separate practice management systems. As an example, trust accounting tends to be one of the harder areas to manage in QuickBooks Online; often organized by developing workarounds in the system to meet compliance requirements, which can present a problem when it comes to reporting given the ramifications of improper bookkeeping of trust accounts as governed by law societies.

Trust Accounting Basics

Trust accounts serve as a way to protect clients’ money while ensuring the funds are kept separate from any other account of the law firm. Keeping the amounts separate helps eliminates any appearance of impropriety, reduces the risk of embezzlement or theft and makes it easier to track the exact amount in each client account. The funds in these accounts remain the clients’ and are never considered as truly belonging to the lawyer or law firm.

The following are the types of funds to be included in trust accounts:

  • Settlement/judgment funds
  • Unearned income (such as cost advances and retainers)
  • Third-party funds (such as probate matters)

Money that should never go into a trust account includes:

  • Reimbursement for expenses made on a client’s behalf
  • Payment for legal services after a bill is sent to a client
  • Law firm or lawyer funds

In addition to making sure there is no commingling of the law firm or lawyer’s funds with the client funds, accurate record keeping is also mandatory. Within trust accounting, the math required to maintain clean books is no more complicated than simply adding and subtracting. The problems arise in leaving a clear audit trail, such as remembering to log each transaction in the correct matter location with proper documentation like a deposit slip or copy.

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