When is a Good Time to carry out an Internal Procedures Review?

Published On: April 12, 2021

There are three main focuses for a legal accounts department; record keeping, compliance & profitability. Generally, a law firm will only result in profitability if the procedures surrounding record-keeping and compliance are up-to-standard and current, making the most of new technologies and innovations.

Determining when to do internal reviews is always a tricky question, however if the review is incorporated into the procedure itself, it does not have to be.

Ensure that every month the accounts department produces a suite of accounts reports for the partnership/directorship of the firm.

The reports should be read, understood, and discussed by management each month preferably with the accounts department being included in the conversation to provide context. Quite often at this stage it should be clear whether the firm is on-track with its projections or whether something has slipped. During the discussion about the reports, management can determine whether improvements should be made to the practice’s internal procedures.

Use the management accounts, work in progress (WIP) and billing reports to see how certain departments are performing.

Look at some basic profitability markers, such as turnover vs number of staff & staff cost and see from a very elementary level whether the staff volume (including support staff) is producing the turnover required by the firm. At this stage it should be clear whether improvements could/should be made. The changes should start with a review of procedures and processes, rather than a review of staff numbers. You should discuss their working practices with the staff.

Consider this selection of basic things that could be looked-into:

  • Is the firm still using paper files, where digital ones would be more efficient?
  • Is the accounts department still working from a paper-based system, handling things manually where an automated digital system would be faster?
  • How old is the case management system and could it be upgraded to one which is more efficient to use and easier to access?
  • Is there a lot of duplication when it comes to standard letter writing and document drafting?
  • Could standard document templates be utilised?
  • Would it be more efficient to outsource?
  • Is there technology that can help with dictation?
  • Is the firm maximising the technology that its bank provides?
  • Is the firm still relying on cheque and cash receipts where electronic transfers would be faster?

Review SRA Accounts Rules compliance.

Every month, the accounts department should be producing COFA reports, and these should comprise of (at least) the following:

  • Bank statements, bank reconciliation, list of adjustments (additions/suspense items).
  • Register of accounts rules breaches for the month.
  • Client matter balance listing including details of client debit balances and office credit balances.
  • Trial balance showing the cashbook figure of the client banks.
  • Client reconciliation cover sheet which combines the three-point check of the bank statement to the cashbook figure on the trial balance to the combined total of the matter balance listing. This ensures that nothing is missing from the client funds and that all transactions have been accounted for.

It should be clear from the COFA reports whether there are any issues or improvements can be made. The SRA are looking for breaches that happen regularly and are deemed “systemic” where there is a breakdown in a process. They are looking for the process to be altered to ensure that further breaches are not forthcoming. The key is not looking at the fact that a breach occurred, more questioning why it occurred. It is at this stage that the processes surrounding the accounts department should be reviewed.

Some examples of what to look out for:

  • Client debit balances: Is money regularly being moved out of client account before funds are available?
  • Office credit balances: Is the firm receiving money into office account before bills are entered on the system? Are disbursements not being paid out promptly after receiving monies?
  • Last movement dates: Are there balances in client account that have not moved for a long time? Are there transfers that should have been done to office account for costs that were missed?
  • Unreconciled items: Are there mis-postings on the bank reconciliations, or are there old cheques that have not been cashed?

A review into accounts department procedure should take place if the above occurs as the firm needs to be pro-active in prevention of breaches.

Internal procedure reviews give confidence that everything is running efficiently and compliantly on an ongoing basis.

Alex Simons – New Business Manager
The Law Factory LLP