Client trust accounting is a major problem among solo practice attorneys. The purpose of this article is to discuss three low-cost¹ computer programs that may assist the solo practitioner or small firm in handling the member's trust account records. It is not intended as a discussion of the State Bar rules on trust accounts.

Every attorney or law firm is required to maintain a client trust account if client funds are accepted for any reason. Rule 4-100 of the Rules of Professional Conduct, and the Board of Governors Standards effective January 1, 1993, require that the attorney maintain records of receipt and disbursement 'from the date of receipt of client funds through the period ending five years from the date of appropriate disbursement of such funds."²

The attorney must account to the client for all funds received and the attorney must promptly pay or deliver to the client any funds, securities, or other properties in the attorney's possession that the client is entitled to receive.

If a trust account balance falls below the amount that is due to the client, this fact alone is sufficient to support a finding of willful misappropriation. In 1993, financial institutions reported a total of 4,330 incidents of trust account overdrafts to the Safe Bar.³ This means that about 3.75 percent of the Bar membership had an overdraft.

Are Computerized Records Sufficient? No!

The State Bar makes it clear that computerized records alone are not sufficient for the attorney's record-keeping requirements and the Rules require that the attorney maintain a monthly hard copy of all records including bank-created records with reconciliations. However, computer generated records are acceptable supplements and will create reports in a coherent manner.

It is the attorney's sole and non-delegable duty to maintain his/her trust account records. The attorney is held responsible for his/her failure to manage his/her trust account even if there is no harm to the client. In re Respondent F. 1992, 2 Cal State Bar Ct Rptr 17. Discipline can be imposed even though the attorney was innocent of wrongdoing, such as if a trusted employee embezzles money from the trust account, without the attorney's knowledge.

The IRS has recently announced that it has commenced audits of attorneys because of a test program that showed that approximately 14.0 percent of the attorneys audited had not filed their income tax returns. The IRS's Market Segment Specialization Program Manual specifically suggests that trust account records and checks be examined and states: "analysis of that account is obviously the first step in the audit process." The Manual also has five pages of federal citations on how the attorney client privilege does not apply to client trust account records and transaction. .

How Do I Comply with These Rules?-

With approximately 85 percent of small firm lawyers now using computers, these records can be generated by a computer.

What the Programs Are Not

None of the tested programs are Windows-compatible, but they do operate as a DOS application within a Windows environment.

None of the programs are network versions, although they can run as single user applications on a network - a program can be accessed from any workstation by one user at a time.

Two of the three programs did not generate a specific personal property log. But the sample log from the State Bar is so rudimentary that the log could be generated by any word processing program.

Trust Acct ! !

Trust Acct ! ! by Lawyers Software of 15233 Ventura Blvd. #1206, Sherman Oaks, CA, (818) 986-2885, (800) 400-2884, is a stand-alone program available for $329. A complete working copy of the program is available as a demo for free which allows the user to work with the program for about 60 days before a software lock shuts it down. To unlock the program, you have to buy it. The demo program has also been approved for 6 hours of self-study MCLE credit by the State Bar.

WHAT IT DOES NOT DO: The program was intentionally designed not to write checks. The program does not generate client contact documents or documents that provide information to the client

FEATURES: The instruction manual is very simple and easy to read. It walks the reader through the program from the initial set-up of a trust account to the printing of transaction journals for both the client trust account and the personal property journal. The manual is 54 pages, of which 35 are devoted to training.

The program is menu-driven. By following the on-screen instructions you can enter transactions and reconcile the account. Trust Acct ! ! allows the user to set up any number of bank accounts. However, by selecting the wrong account, an error in data input could cause the attorney's trust account balance to be incorrect.

Once the individual clients account is set up, the program allows various transactions to be entered except if the transaction will create a negative balance either in a client ledger or in the entire trust account. The program issues a "Special Message" warning that indicates when you are about to create a negative balance. The program also continues to monitor negative balance client accounts by having negative balance accounts blink until the condition is corrected.

The program also creates the Rule 4-100 (b)-required personal property log. The log tracks the State Bar's handbook. The log is very simple, however, it lacks certain information. The program does not generate a property receipt form for the incoming and outgoing property, and does not provide the user with a location of the property. The log prints out an alphabetical list of property by the first letters in the client name column. Thus "Alan James" would come before "Alexander, Smith". The property log assigns a serial number to the property, provides for the date received and the date released, and the name of the recipient.

The heart of the program is the trust accounting for client funds. The program requires that a client account be set up and that a client number be assigned. Many 'transactions are input by client number; therefore if client numbers are totally numeric, reference would have to be made to the client list to ensure that the proper account was being used. If the client's last name is used as a client number, there would be no problem.

The entry of deposits and checks in the client account requires that the client be selected from the client list, and then that a transaction type (deposit, check or miscellaneous) be selected. Simple and straightforward, the only item which was of concern was that the transaction type description is limited to 15 characters. The compliance reports are all for internal use. None of the reports could be sent to the client without a cover letter.

Overall, the program is designed to comply with the California State Bar rules. An attorney or small firm looking for a compliance vehicle may wish to consider this program.

Attorney Trust Account System

Attorney Trust Account System or the ATA System by East Soft, Inc. of 475 Watchung Avenue, Watchung, NJ 07060, (908) 754-7638,1-800 905-SOFT. Cost: $99. A working demo copy of the program is available for $25 and allows up to eight clients to be entered. The cost of the demo is applied to the purchase price of the program.

WHAT THE PROGRAM IS NOT: The program does not have an identified property log in the format required by Rule 4-100(b). It does not have the ability to set up multiple trust accounts within the program although it suggests that a separate directory maybe created for each account.

FEATURES: The instruction manual is the largest and most detailed of the three programs tested, and is designed to walk the novice user through each type of transaction.

By creating a special trust account directory for property, the user could create a property log and property receipt for personal property. This procedure appears to be unwieldy but would comply with the rules, because the deposit slip could be an incoming receipt and the blank check form could be an outgoing receipt.

The program allows the user to change screen colors. This is a nice feature for those tired of the standard white-on-blue screens.

The heart of the program is the transaction entry screen, which requires that the user select from four choices: check, deposit, charge clients, or quit. The screen shows the last client used and the client's account balance after the preceding transaction. Selecting a different client is very easy since the program asks you to select either by name or "code" (client number). The program also refuses to allow the user to enter a check that will cause the client's balance to become a negative number, an excellent safety feature.

Check printing is easy and the program allows the user to adjust to a variety of checks and check printers including laser printers. Check numbers can be suppressed in printing. This allows for the use of MICR-encoded checks required by the Federal Reserve System.

The printed reports are simple straightforward. The user should have very little trouble tracking the client's balance, and/or the transactions that lead to that balance.

Overall, the ATA System by Easy Soft, is a nice, modest program offering checking printing and trust account reports. It is probably the easiest of the programs to use with the most comprehensive manual.

Fountain Trust v3.1A

Fountain Trust v3.1A by Fountain Software Ltd., P.O. Box 2417, Blaine, WA 98230, (604) 538-4118, is a stand-alone program available for $199. The program is not available as a demo disk. Some of the terms may be strange to attorney because the program was originally written with the Canadian Law Society (the Canadian equivalent to Bar) in mind. The Appendix to the manual' sets forth the Canadian Law Society's rules on Trust Accounting, which are not applicable to the members of California Bar but which do set forth some excellent trust account guidelines.

The overall look of the program is very user friendly, and appears to have been written with both the attorney user and accountant auditor in mind.

WHAT IT DOES NOT DO: The program does not presently create the personal property log in the formal required by Rule 4-100(b). It can provide the attorney documents, however, that do comply use of its "non-pooled trust funds other property" feature. The program does not contact the client but does provide information on its reports that would allow the report to be sent to the client

FEATURES: The instruction manual is simple and easy to read. It takes the reader through a transaction, step by step, with a liberal display of screens.

The program has a simple menu system that allows the user to go directly to the desired task. It also has front end password security. The start-up menu requires the selection of a trust account, assuming that more than one is used. The start up procedure detects improper exits and reindexes the databases automatically.

The client accounts are attached to a specified bank trust account, making it impossible to use the wrong account in disbursing funds, unless you print on the wrong checks. A client account may be closed only if it has a zero balance, another safety feature, and the printout of client accounts allows the user to select between all client accounts, opened and closed, and only open accounts.

Deposits are handled as a batch with the assumption that several checks may be deposited at the same time on the same deposit slip, and provides an audit trail for each deposit. It also asks the user to write the computer-generated deposit transaction number on the deposit slip, which is a good feature.

Trust account checks may be generated by the computer. The input of a check is very simple, and looks like a check in a checkbook. A lengthy description may be put into the computer for each check. There is one issue that may be a problem each check has to be printed as part of the input process.

A unique feature is the "Suspense" menu, which creates a bookkeeping entry for amounts that the client may be responsible for but which cannot be paid yet due to the deposit not having cleared. This is a nice feature since it segregates the attorney's fees from the client balance, and gives a clear picture of fees that will be paid in the near future. This step would comply with the Bar rules on identification of the client and attorney funds in the trust account.

On the whole, Fountain Trust v3.1A is a well though out program that will easily handle the check writing and accounting side of the attorney's client trust accounting obligation.

² The state Bar Board of Governor's Guidelines may be summarized as follows: The attorney shall maintain for the period (5 years):

1. A written ledger for each client including the client's name; date and amount and source of all funds received; the date, amount, payee, and purpose of each disbursement; and the current balance for each client.
2. A written journal for each trust account that sets forth the name of the account; the date, amount, and client affected by each debit and credit; and the current balance of such account.
3. All bank statements and canceled checks for each bank account.
4. Each monthly reconciliation (balancing) of the above.

If the attorney accepts any funds, securities or other personal property on behalf of the client, the attorney must also notify the client of the receipt and maintain a written journal of these transactions.

³As required by Bus. & Prof. Code §6091.1.