Even small mistakes can lead to compliance breaches, regulatory penalties, or worse—loss of trust from clients. Let’s look at some of the most common trust account errors and how to avoid them.
#1. Mixing Trust Funds with Business Funds
This is one of the biggest mistakes solicitors make. Trust money must always be kept separate from business or personal funds.
Even if it’s a temporary transfer, it’s a clear breach of compliance rules. Always ensure client funds go directly into the designated trust account.
#2. Delayed Deposits
Client trust funds should be deposited as soon as possible. Holding onto cheques or cash for too long can create serious compliance issues.
In Victoria, solicitors must deposit trust money by the next business day. If a delay is unavoidable, keep clear records explaining why.
#3. Incorrect or Missing Records
Poor record-keeping is a common issue. Every transaction needs to be documented properly, including:
- Who the money belongs to
- Why the money was received
- Where it was deposited
- Any disbursements made
Missing details can raise red flags during an audit. Keeping well-organised records makes compliance much easier.
#4. Failing to Reconcile the Trust Account
Trust accounts must be reconciled every month. This means checking that bank statements match internal records.
Skipping this step can lead to unnoticed errors or discrepancies. If mistakes are found, they must be corrected immediately.
#5. Withdrawing Money Before It’s Cleared
Trust funds should only be disbursed once they have fully cleared.
If a cheque or bank transfer hasn’t cleared yet, using those funds can create a shortfall in the trust account. Always confirm that funds are available before making a withdrawal.
#6. Using Trust Money for the Wrong Purpose
Trust money can only be used for the purpose it was received.
For example, if a client pays a deposit for a property purchase, those funds cannot be used to pay legal fees—unless the client provides clear written authorisation.
Misusing funds, even accidentally, can result in serious penalties.
#7. Failing to Submit the Annual Trust Account Audit
Solicitors in Victoria must complete a trust account audit each year. The deadline for submission to the Victorian Legal Services Board + Commissioner (VLSB+C) is 31 May.
Missing this deadline can lead to fines and other consequences. If you need help with the process, consider working with an expert auditor for a solicitors trust account to ensure everything is done correctly.
#8. Lack of Staff Training
Many trust account mistakes happen because staff aren’t properly trained. If employees handle trust funds, they must understand all compliance requirements.
Regular training helps prevent errors and ensures everyone follows the correct procedures.
#9. Poor Communication with Clients
Trust accounts aren’t just about numbers—they’re about clients’ money. Failing to provide clear updates or explanations can create confusion and disputes.
Always communicate clearly with clients about trust transactions. If fees are deducted, provide detailed invoices. Transparency builds trust.
Final Thoughts
Managing a solicitor’s trust account isn’t complicated when the right procedures are followed.
By avoiding these common mistakes, Melbourne solicitors can stay compliant and ensure their clients’ funds are always handled correctly. If you need assistance, working with a professional auditor can help prevent issues before they arise.