Ensuring that your firm is compliant with regulatory standards may not be your favorite responsibility as a lawyer, but the importance of strategic compliance planning for law firms cannot be overstated, especially when it comes to avoiding missteps and their consequences. 

For law firms, one of the most important areas to have a compliance plan for is trust accounting. A trust accounting compliance plan anticipates potential compliance risks and implements measures to mitigate them—rather than responding to compliance issues as they arise after the fact.  

In this guide, we’ll explain how to strategically map out your firm’s yearly compliance goals using CosmoLex’s built-in tools. We’ll also detail how this efficient approach to compliance planning aligns law firms with regulatory standards, ensuring that your firm’s year to come is both compliant and successful. 

What is a trust accounting compliance plan? 

A trust accounting compliance plan establishes a collection of procedures and policies for managing risk and adhering to the requirements of industry regulations. These regulations are established by the American Bar Association (ABA), the state bar, and other key legal organizations. 

Your compliance plan should:  

• Designate responsible parties  
• Establish processes for trust accounting activities, such as reconciliation, maintenance, recordkeeping, and audits, and the tools needed to carry out these activities 
• Identify internal controls 
• Determine training needs for staff 
• Develop review processes to ensure ongoing compliance requirements are monitored and documented 

Why is having a compliance plan so important for law firms? 

In one study, 40% of organizations described their existing compliance training programs as “basic” or “reactive” (rather than proactive). In addition, 47% of organizations described “keeping policies current with changing regulations” as their top compliance challenge. 

No law firm wants to be a statistic, at least in this sense. To that end, having an effective compliance plan is essential for several reasons: 

Protect client trust and your reputation 

Maintaining client trust is so important that it can make or break your firm’s success in the long run. If you demonstrate that your firm is consistently meeting its fiduciary responsibility, your clients will trust you more fully. Likewise, avoiding the reputational damage that can come from failing to maintain compliance is crucial to your firm’s success. 

Avoid serious legal and financial consequences 

Compliance failures are punishable with consequences varying in severity from fees and fines to suspensions and even disbarment. 

If your firm does fail to adhere to compliance regulations, having a compliance plan in place can reduce your liability by demonstrating that your firm did its due diligence to attempt to avoid violations. This can also allow your firm to apply for amnesty or reduced sanctions offered through some voluntary disclosure programs. 

Proactive measures are always a good idea 

By incorporating consistent regulatory compliance checks into your firm’s compliance plan, you can keep on top of new laws/regulations, alter your compliance policies and procedures accordingly, and ensure your employees are up to date on compliance training. 

Key elements to include in your trust accounting compliance plan 

Create standards and procedures to prevent and detect misconduct 

Creating standards and procedures to prevent and detect misconduct in a trust accounting compliance plan is essential for staying ahead of compliance requirements. Here are trust accounting processes a law firm should include in their compliance strategy:  

• Designations for who is responsible for trust accounting activities 
• Trust accounting requirements as per applicable jurisdictions 
• Policies for trust account management 
• Processes and timelines for reconciliations and audits 
• Documentation requirements  

Additionally, these standards should articulate consequences for noncompliance.  

Your standards and procedures should also include effective internal reporting mechanisms for compliance. Everyone who works at your firm should have access to at least one mechanism for reporting compliance violations and asking clarifying questions regarding regulations. Employees should also be assured that they will not experience any form of retaliation for their reports.  

How CosmoLex helps 

With built-in trust accounting software and critical safeguards, CosmoLex provides a full scope of tools to aid law firm trust accounting compliance.  

Have processes for review 

Another important element of trust accounting standards is documented review practices. Ongoing assessment of both internal activities and external requirements helps mitigate problems before they escalate. Make sure your compliance strategy includes timelines for: 

• Reviewing trust accounts and transactions  
• Checking applicable regulations to ensure all internal policies are current  
• Evaluating current/past issues and opportunities for process improvement 

How CosmoLex helps 

CosmoLex’s built-in trust accounting tools make running reports on all trust accounting activities straightforward. Review trust listings, trust disbursement journals, client trust ledgers, reconciliation reports, transfers, and more.  

Provide oversight, autonomy, and resources for compliance   

Oversight of trust accounting compliance should be assigned to individuals with a clear understanding of financial regulations, ethical standards, and the specific requirements of legal practice. The following roles are typically involved in overseeing trust accounting compliance: 

• Managing partner or firm administrator  
• Chief financial officer or finance director  
• Legal operations manager  
• Internal audit teams  
• External auditors 
• Ethics committee 

How CosmoLex helps 

Responsibility may vary depending on the size of a law firm, but with CosmoLex you can set up granular permissions to allow the right team members to access the information they need.  

Establish trust accounting training practices 

Establishing training practices is vital for a successful trust accounting compliance plan. This should include initial orientation sessions for new employees to set the tone for the importance of compliance and ethical conduct.  

Role-specific training sessions should be tailored to the responsibilities of different staff members to ensure each employee is trained on the tasks and procedures directly relevant to their role.   

How CosmoLex helps 

CosmoLex offers extensive training options for law firms, from onboarding for new users to ongoing refresher training for longtime CosmoLexers.  

Define KPIs for compliance 

Defining specific metrics for compliance is central to setting your yearly goals in this area, particularly because data collection lets you track trends in your firm’s compliance. Some examples of key performance indicators (KPIs) for compliance goals might include: 

• Mean time to issue discovery. This is the average time it takes for your firm to notice a compliance-related issue.  
• Mean time to issue resolution. This describes how long it takes your firm to address and resolve a compliance problem. 
• Compliance expense per issue. How much does an average compliance issue cost your organization? 
• Number of misconduct reports. How many of these reports do you receive over time? Although a higher number of whistleblowing reports might seem like it points to an increase in issues, it could also indicate that your internal reporting mechanisms have become more effective (see the next section). 

How CosmoLex helps 

Evaluating your trust accounting compliance position is easier with the right data at your fingertips. Set up regular reporting to monitor target KPIs and share them with stakeholders.  

Compliance planning missteps to avoid 

As you create your own trust accounting compliance plan, make sure to avoid these common missteps: 

Falling behind on regulatory standards 

As regulatory rules change, make sure your firm stays up to date on the latest federal and state regulations for trust accounting. Otherwise, a change in the rules might lead your firm to become noncompliant, even if its procedures haven’t changed at all. 

Lack of commitment from upper management 

Depending on the size of your firm, you may not have “senior leadership” per se, but if you do, they must support and adhere to your compliance plan. Watching upper management prioritize compliance and take it seriously encourages all staff to do the same.  

Inadequate compliance training  

Without adequate compliance training for staff, it doesn’t matter how thorough or high-quality your compliance plan is—your firm’s employees won’t be able to execute the plan consistently.  

Hold compliance training on a regular basis (once a year at minimum) to ensure that everyone understands how to remain compliant and emphasize the importance of compliance. 

How CosmoLex tools support ongoing trust accounting compliance    

CosmoLex makes it easy to integrate your compliance plan into your firm’s general practice management workflows. CosmoLex offers trust accounting features like:  

• Built-in trust accounting with safeguards for common trust accounting mistakes  
• Audit-ready reconciliations  
• Comprehensive trust reports 

To get started with CosmoLex, schedule a one-on-one demo or begin your ten-day free trial today.