Common IOLTA Mistakes That Trigger Audits

Most escrow and IOLTA audits aren’t triggered by fraud, they’re triggered by avoidable bookkeeping mistakes.

One of the most common issues is not performing monthly 3-way reconciliations. Auditors immediately question accuracy and oversight when reconciliations are missing.

Negative client trust balances are another major red flag. Even if the escrow account has funds overall, this suggests one client’s money may have been used for another.

Mixing operating and escrow activity, even accidentally, is considered commingling and often triggers audit scrutiny.

Relying on spreadsheets or manual tracking systems outside the accounting software often leads to records that don’t tie to the general ledger.

Old or unresolved client balances raise questions about internal controls and client communication.

Attempting last-minute or retroactive fixes before an audit often creates more problems than it solves.

Most IOLTA issues are preventable with proper setup, consistent bookkeeping, and regular 3-way reconciliations.

If you want to identify risk areas, clean up your trust accounts, or make sure your IOLTA is audit-ready before a notice arrives, email sandra@lazaraccounting.com for guidance.