Audits add value

File audits are an effective way of checking your firm’s susceptibility to claims as well as being good file management practice. No matter the size of the practice, monitoring files for compliance with the firm’s standards and to identify potential risk areas that need attention is a sound claims prevention strategy. File audits can also reveal specific problems on a particular matter that can be resolved before a claim arises.

Apart from risk assessment, audits can add value to a firm in other ways such as helping to identify weakness and inefficiencies affecting client service, financial performance and employee engagement.

Firms that do regular file audits say that they are well worth the time and effort as they have picked up issues that they would otherwise not have known about.

Regular face-to-face meetings with even highly experienced employees are critical for supervising staff and monitoring the progress of matters. The meetings however don’t always give the full picture of what is happening on a file.

LPLC’s experience shows capable, experienced, hardworking people can fall into, often subconscious, bad habits especially when they are busy, under tight time pressures or dealing with personal issues. Keeping an eye on the file management habits of your staff with regular file audits is a good safety net to help identify when things are going astray before problems emerge.

Claims examples

In an extreme example a principal conducted a file review and discovered that an experienced practitioner he had worked closely with for many years was falsifying time records, not actioning matters and misleading clients about what was being done. The practitioner was having personal difficulties and not coping with the work but was scared about losing their job. It was only the file audit that alerted the principal to the problems.

In other firms where file audits have been done, they have revealed a consistent lack of file notes or standard letters and the firms were able to discuss the barriers to creating these documents and develop new streamlined systems for them.

If you don’t know about the issue you can’t help fix the problem!

How firms approach the audits in terms of frequency, number of files and who conducts the audited varies from firm to firm.

Frequency varies from once a year to once a quarter. Some will randomly audit a range of files or specifically audit particular types of files. The number of files will vary depending on the size of the firm and practice area.

Some firms appoint one person to conduct random file reviews while others use file-auditing as a training and team building opportunity where colleagues review each other’s files. Some large firms have senior associates in other offices do the audits. Some practices find it more practical to engage a consultant or someone familiar with the practice such as a retired partner.

File management

File audits should cover retainer and matter, and supervision of the file.

Areas of focus will typically include:

• complying with client selection policy

• conflict checking

• sending engagement letters scoping the work and cost disclosure

• following up and receiving signed cost agreements

• diarising important dates

• keeping adequate file notes

• complying with file closing procedures.

Legal work

Some firms audit files on the substance or quality of legal work as well as compliance with policies and procedures. These usually take longer and are often performed as a peer review as they require a person who has expertise in the relevant area of law.

Whichever approach is adopted, it is important the person undertaking the task can make objective assessments and report candidly.

LPLC’s risk management audit checklist, available on its website, addresses retainer and file management issues that are the biggest contributors to negligence claims. It is a good place for firms to start when they begin file audits.

The checklist is not intended to be used to examine the technical quality of the legal work undertaken. Questions on retainer management deal with issues such as retainer set-up and variations, cost disclosure, billing, appropriate delegation and supervision as well as termination of the retainer. The section on matter management includes questions on file organisation, file notes and client communication.

Once completed, one copy of the checklist could be placed on the file for the next review and another copy in a separate folder with other completed audit checklists. Any deficiencies found should be addressed with the file operator and where necessary, file management policies improved.