This post by Jim Rhyner, worldwide lawyers professional liability insurance product manager, Chubb Group of Insurance Companies, is one of a series of guest posts on CounseltoCounsel. Special thanks to Jim for his contributions.
In my last Counsel to Counsel post, I talked about recent financial scandals in the legal profession. In both cases, a senior partner’s deception slipped through the cracks after a period of rapid profit growth. These incidents underscore the value of an effective system of checks and balances which can help ensure that no one person has total control over the inflow and outflow of the law firm’s cash.
In some law firms, financial responsibilities are limited to a small group or an individual, allowing the rest of the firm’s attorneys to focus on the practice of law rather than running the business. This format may work in some contexts, but it is not without risk. If only one person is responsible for keeping the firm’s books and signing the checks, the opportunity for that individual to commit theft or fraud is heightened â€“ and it reduces the likelihood that others in the firm will discover such behavior. Spreading financial responsibilities (such as billing, payroll, and reconciling the firm’s expense account reporting) among several people makes it difficult for one greedy employee to cause trouble for the whole firm.
Attorneys who aren’t directly charged with managing finances can consider the tips below which may help reduce their firm’s exposure to embezzlement and internal theft:
- Ask questions and speak up â€“ individual attorneys are ultimately responsible for safeguarding their clients’ funds; even if it’s the senior partner who’s guilty of raiding the coffers, you could be held personally responsible, so trust your instincts if you think something is amiss
- Get it in writing â€“ make sure that all of the firm’s transactions/payments are recorded
- Check the checks â€“ two signatures on every check a firm issues to ensures that no one person has total control of the finances.