The realities of the economic recession related to the legal profession have resulted in what appears to be long term changes to the business model of law firms.
Many law firms are aggressively working to drive down the cost of providing legal services, to right size their leverage model of partners to associates and other professionals, and to reduce overhead costs. Law firm partners are beginning to refocus on strategic plans to drive revenue growth while financial management (from the controller to the executive director) is challenged to support revenue growth initiatives and to curtail expenses to enhance profitability.
In order to support these evolving business challenges, law firm financial managers need to supplement their financial reporting responsibilities with a few additional key areas that require their attention.
Fraud prevention
The 2010 Report to the Nations on Occupational Fraud and Abuse prepared by the Association of Certified Fraud Examiners (ACFE) notes that survey participants estimated that the typical organization loses approximately 5 percent of their annual revenue to fraud.
The report notes that in professional service organizations some of the more prevalent fraud schemes included matters involved with billing (including cash receipts), expense reimbursements, check tampering, payroll and cash on hand. To check the relevance of this broad report to the legal professional all you have to do is search the internet for news of law firm employee fraud. There are numerous cases of trusted office managers, bookkeepers, or lawyers who took advantage of existing opportunities to enrich themselves at the expense of law firms.
Fraud prevention is critically important for law firms to assess, irrespective of the size of your firm. Smaller firms are often more susceptible to simple instances of fraud when partners place too much trust in an office manager who has the ability to write fraudulent checks or transfer funds to personal accounts, and report the payments as an office expense of the firm. Larger firms also face fraud risks as evidenced by reports of attorneys who have billed personal expenses to their law firms and reported extra time for billing to clients, and a law firm employee who sold what was reported as 156 law firm office computers and monitors on eBay.
Another area where fraud has occurred at both large and small firms is with client fund’s held in trust accounts. Often these accounts are overlooked from a control and fraud detection standpoint because the balances do not represent operating funds of the law firm and activity tends to be more limited.