Honest dealings

It is an unpalatable truth, but not everyone in the legal profession is completely honest. We all read tabloid stories about a solicitor or paralegal who has misappropriated clients' funds and many frauds occur that never reach the national consciousness. Fortunately, cases of dishonesty only affect a tiny proportion of the profession, but the impact on the law firms involved can be devastating.


Good risk management procedures not only enable a firm to be more efficient and productive, but can also reduce the temptation and opportunity for deception.


Dishonesty can take many forms, from the minor pilfering of office supplies, to theft of client monies or deliberate money laundering.


It can be perpetrated by people at all levels of the firm, from a junior receptionist disgruntled at their level of pay, to a senior partner whose finances have been devastated by an expensive divorce.


Risk management to reduce the opportunity for fraud need not be heavy handed; nor should it imply that a firm does not trust its staff, which in itself could sow seeds of dissent. Instead, the procedures should be designed to increase efficiency, enhance supervision, and support good management practice. Honest employees who are dealing with clients' assets are also far more comfortable if procedures are comprehensively drafted so there can be no suspicion of improper behaviour.


The exact procedures for each firm will differ depending on the firm's size, practice area and culture. However, at their core they will ensure that staff are well supervised, client files regularly reviewed, and financial management subject to two-person review.


Supervision of staff at all levels is essential and includes procedures for letters of appointment, opening files, recording client requirements, and double-checking documentation. A system for double-checking documents, for example, will save the practice time and money by identifying minor errors in addition to reducing the opportunity for dishonesty.


Peer-to-peer file reviews and effective file closure procedures will remove temptation by ensuring that all legal and financial matters have been properly and effectively finalised.


Lax financial management can put temptation in the way of honest employees. Systems should be introduced to ensure that there are at least two pairs of eyes on all financial transactions, that all cheques are countersigned, and that procedures for dealing with clients' funds are clearly defined.


The incidence of fraud in legal practices is very small. However, its impact when detected can be devastating. Effective risk management procedures will have the double benefit of improving practice management as well as making it far harder for any dishonesty to occur.


This column was prepared by AFP Consulting, a division of Alexander Forbes Risk Services UK