File audits - a positive experience

Benefits from file audits

Firstly there are a whole host of internal benefits for your firm. The management group within a firm (any firm, not just lawyers) wants to know:-

• Whether or not they are making a profit;
• Whether their people are delivering a high quality product;
• Whether their clients are happy with the level of service (thereby encouraging them to recommend the firm to their contacts);
• Whether there are any issues likely to loom on the horizon so they can prepare in advance;
• What can be done to improve upon any of the above.

Your people will want to know how they are doing; you need to know who your stars are and who are your stragglers?  What are you doing to coach and develop both sets? Are your supervision processes working?

In law firms, file audits have a valuable part to play in ascertaining all of the above as well aiding an understanding of whether internal policies and procedures are being adhered to (or prompt you to review them).

The fact of having a formal process in place helps to demonstrate that your firm regards risk and compliance as important; it may show you handle potential risks very well or it may identify potential areas of weakness so you can address them.

Secondly, the requirements of various external bodies can be contributed to by auditing.

The SRA Code of Conduct requires that firms must:

• have appropriate systems and controls in place to achieve and comply with all principles, rules, outcomes and other requirements of the handbook
• identify, monitor and manage risks to the achievement of all outcomes, rules, principles and other requirement of the handbook and take steps to address issues identified
• ensure compliance with all reporting and notification requirements

 File auditing assists in demonstrating these outcomes.

Audit results can form part of the COLP’s annual declaration and will give him or her a useful contribution to understanding the firm’s risk profile.

PII insurers love to see audit forming part of your overall risk management strategy.

Lexcel, the Law Society Conveyancing Quality Scheme and the Wills & Inheritance Quality Scheme all include file review requirements.

Large institutional clients often demand that their panel firms have file audit systems in place and will ask for details during the tender process.

Where you work under service level agreements for clients, whether stipulated by them or set out by your firm; audits help to check on delivery against them.

When, what and how to audit

Let’s assume there is no system of file auditing in your firm; where would you start, what should you consider, what are the benefits and is it going to be expensive?  This article cannot cover all possibilities for audit so this as a starter for ten to develop a basic compliance audit that can be carried out by fee-earners or support staff.

• Where audit is not part of your firm’s culture, it is vital that its introduction is accompanied by communication and training, particularly communication. Audit criteria can be very simple if you have documented policies and procedures in place; if you don’t then you may want to formalise some basic ones and train people on them before you start to measure performance against them.
• Consider having the senior fee-earner population audited first so your people see that no-one is above being audited and that there is a culture of openness.
• Consider allowing people to select their files for audit initially to dispel any fears of a witch-hunt and hopefully achieve good results at the outset.
• Ideally you would audit at least quarterly, more often if possible.
• For a basic audit, you could adopt a yes/no scoring system or red/amber/green; with room to add comments on why any negative score was given. 

What to concentrate on?

• Inception and engagement: have AML/ID procedures been complied with? Was a conflict check carried out correctly? Was an initial risk assessment carried out? Was a compliant client care letter sent at the outset? Did it attach terms of business and an estimate of costs?
• Service delivery: this can encompass all manner of things although many of the basics should be common to most firms eg did initial client contact take place within the required timeframe; is there an attendance note or letter confirming initial instructions; were the client’s instructions followed; was the client kept up to date on both progress and as to costs; was the matter progressed without delay; were calls and emails handled promptly; was any SLA complied with? If a mid-term risk assessment was warranted, was it carried out?
• Billing and collection: vital topics for all firms! Has time been recorded at the correct rate?  Has the client been sent an accurate bill that included all regulatory information?  At the right time?  Is there a client balance to deal with? If the bill is overdue for payment, are your credit control procedures being followed?
• Closing and archiving: where a concluded file is reviewed. Is there WIP or are there disbursements to write off after the final bill? Is there any client money to return?  Was a closing risk assessment completed? Should the file have been sent to archive before now? This last item may seem trivial but have you looked at the cost of filing cabinets recently?

Where errors or omissions have been identified, it is important to ensure there is a corrective action mechanism to be followed.

The fee-earner needs to be given their audit results and a task for either taking action or following up with support staff to ensure action has been taken depending on what the topic is.

Recording that the action has been carried out completes the audit.

Maximise the benefit of your audit results by creating reports to identify trends, both good and bad; consider recording any negative trends within your risk register together with the steps being implemented to improve performance.

The items contained within 1-4 above comprise activities that should be part of standard ways of working in your firm already.

If they are then there is nothing anyone should be wary of or reluctant to have audited.

Provided you approach poor results with a collaborative attitude and good results with praise, audits can indeed provide a positive experience within your firm.

Clearly there can be a lot more depth to your audits than the basics we have covered here.

You may want to review the quality of technical performance, or look at proactivity, cost-effectiveness or time-recording in more detail, or adopt more sophisticated scoring and reporting mechanisms; arguably these elements would involve an experienced fee-earner completing the audits.

Hillary Stephenson is a solicitor at Weightmans LLP.