Law Firm Audits: Is Your Firm Due for an Exam?

Most people don’t enjoy going to the doctor for a physical exam. There is all the poking and prodding and the lectures from your doctor about your lifestyle, diet, weight, and exercise. There is the potential that the doctor might find some illness or disease that you were unaware of. And yet most of us choose to undergo this experience periodically because we know that it is important to be proactive about our health. I want to propose that you apply this same logic to the health of your law firm.

It is easy to get comfortable doing things the way you have always done them. You know the saying, “If it ain’t broke, don’t fix it.” But how do you know if it is broken? How do you know whether changes need to be made in your firm if you have not taken an honest look at the firm’s policies, procedures, and practices? A self-audit can uncover issues that may have gone unaddressed for years. For example, maybe you started your firm with malpractice insurance coverage limits of $100,000 because, at that time, you were only handling small court-appointed cases. Today, you are handling more complex litigation matters and have a growing estate planning practice. If you haven’t taken the time to look at the adequacy of your coverage, you could get caught in a situation where you are underinsured. A simple self-audit would reveal this deficiency.

What follows are areas that you might want to include in your firm’s self-audit. For a detailed list of questions and areas to address in a self-audit, you may wish to consult Easy Self-Audits for the Busy Law Office by Nancy Byerly Jones, which is available in Lawyers Mutual’s lending library. 

Areas to Consider: 

1. Regulatory Compliance Review:
   • Assess compliance with relevant legal and regulatory requirements, including State Bar rules, data protection laws, etc.
     1. Example: Corporate Transparency Act filing for firm.
        
        
2. Client Intake and Conflict Checking Procedures:
   • Evaluate procedures for client intake, conflicts of interest identification, and resolution.
   • Verify the effectiveness of conflict checking processes to avoid representing conflicting interests.
   • Does the firm have client intake forms for all relevant practice areas?
     
     
3. Confidentiality and Data Security:
   • Review policies and practices related to client confidentiality and data security.
   • Assess measures in place to safeguard client information, including cybersecurity protocols, virus protection software, password policies, and secure storage practices.
   • Are employees trained to detect, avoid, and report phishing scams and other cyber threats?
   • Is your virus protection software updated?
     
     
4. Financial Management and Controls:
   • Examine financial management practices, including billing, invoicing, and trust accounting.
   • Verify internal controls to prevent fraud, embezzlement, or misappropriation of funds.
   • Are you in compliance with the State Bar trust account rules?
     
     
5. Risk Assessment and Management Procedures:
   • Identify potential risks associated with the firm's practice areas, clients, or geographic locations.
   • Evaluate risk management strategies and mechanisms to mitigate identified risks.
   • Evaluate docket control system.
     
     
6. Professional Liability Insurance Coverage:
   • Review the firm's professional liability insurance coverage to ensure adequacy of limits.
   • Assess any gaps in coverage and evaluate options for enhancing protection.
   • Verify that all employees and staff understand the duty to report potential and actual claims.
     
     
7. Staff Training and Development:
   • Evaluate training programs for attorneys and staff on client relations, risk management, ethics, and compliance.
   • Ensure ongoing professional development to stay abreast of regulatory changes and best practices.
     
     
8. Business Continuity and Disaster Recovery Planning:
   • Assess plans and procedures for business continuity and disaster recovery in case of emergencies or disruptions.
   • Verify the effectiveness of backup systems and contingency measures.
   • In solo practices, identify substitute attorney who will assume responsibility in the event of death or disability.
     
     
9. Document Retention and Records Management:
   • Review policies and procedures for document retention, storage, and destruction.
   • Ensure compliance with State Bar rules.
     
     
10. Complaints Handling and Resolution:
    • Evaluate procedures for handling client complaints and resolving disputes.
    • Ensure transparency, fairness, and timeliness in addressing client concerns.
      
      
11. Client Communication and Engagement:
    • Assess communication protocols with clients, including engagement letters, nonengagement letters, disengagement letters, and updates on case progress.
    • Ensure clarity, transparency, and appropriate documentation in client communications.
      
      
12. Governance and Leadership Oversight:
    • Review the firm's governance structure, leadership roles, and decision-making processes.
    • Ensure accountability and oversight in managing risks and compliance.
      
      
13. Continual Improvement and Monitoring:
    • Establish mechanisms for ongoing monitoring, review, and improvement of risk management practices.
    • Incorporate feedback from audits, inspections, and risk assessments to enhance effectiveness over time.
      
      
14. File and Case Management:
    • Spot check files to insure that files contain all relevant pleadings, discovery, documents, correspondence, engagement agreements, releases, and any other document generated in the client matter.
    • Have all relevant statutes of limitation and other deadlines been calendared for the file?