Law firms have financial matters to attend to, just as any company does. The unique nature of their business model leaves several very specific ethical concerns they need to attend to. Here are five ethical issues that the legal department of a law firm need to monitor and develop or obtain solutions for.
Billable Hours and Documentation for Clients
Lawyers will typically bill clients based on the number of hours that they work on each case. Many law firms put a significant amount of pressure on their on-staff lawyers to maintain certain levels of billable hours and may result in over billing clients. Over billing clients is an ethical concern for a law firm’s finance department and several solutions are devised to reduce these risks, most typically through a legal billing software program.
A law firm billing software should contain certain features to reduce the risk that law firms overcharge customers as a result. One of these features of a legal billing software is the inclusion of memos that allow lawyers to document their hours and time as it is incurred and often in ten minute time frames in order to make sure that they are properly charging customers. Another feature in legal billing software may involve overall analytical analysis regarding the inputted time and checks to see over and unbillings by on-staff lawyers. Some law firms have billing software that provides detailed reports accumulating the hours by project that are approved by their managers before submitting bills to customers as a best practice.
Keeping Track of Escrow Accounts and Client Funds
Law firms may receive significant amounts of money that they hold in escrow for other parties. A law firm must be able to segregate and account for these funds separate from the general law firm’s funds under accounting law and for the well being of their clients. Not only are there ethical concerns associated with monitoring and securing escrow funds separate from other general legal funds, there are often legal requirements requiring these funds to be maintained in separate accounts in order to ensure that proper amounts of interest are tracked and paid out appropriately.Keeping track of escrow funds can be challenging, but a differentiated case tracking program that tracks the receipt and payments of these funds can greatly expedite the process and improve overall compliance with the requirements of each case. These case tracking programs can also instill internal controls over the receipt and payment of escrow funds to prevent these funds from being expended improperly. These case tracking programs are sometimes integrated with a law firm billing software.
Financing for Pro Bono Cases and Charity Work
Not all legal work is billed by hour. Some legal cases are pro bono work and so I done for charitable purposes. Law firms often report on this charity work for tax purposes and maintain proper documentation on these jobs is an ethical concern for a law firm. Pro bono work does not have the same tax deductible ethical concerns but can result in the law firm potentially scrimping on its dedication to servicing these clients, particularly if the case does not appear likely to have a positive outcome, thus violating an ethical commitment to these clients. A time or billing tracking system can help to monitor that the law firm is meeting its ethical requirement to these pro bono and charitable cases, even if the potential financial benefits are not present for the law firm.
Privacy Concerns Surrounding Finances
Financial data, particularly information as important as that housed by law firms and legal consultants, have to have proper privacy controls surrounding them in order to protect them from intrusions from third parties who are not authorized to have access to them. Law firms need to ensure that proper privacy controls are set in place to protect this information from third parties. This is particularly important since law firms have a significant amount of confidential information that can be used in a harmful manner against their clients and the law firm itself. Software solutions to scan, protect, and backup financial information is essential in this regard.
Privacy concerns often focus on:
- – protecting client financial information
- – avoiding data intrusions into client records
- – limiting access of sensitive information to those who need access to it
- – shredding and disposing of information properly
- – documenting information effectively to protect client data
Backup of Financial Information
A finance department of a law firm will have to provide a backup and storage solution to protect the financial information that they collect on behalf of clients. A client can potentially lose a significant amount financially or in a personal manner if this financial data is lost, and a law firm is often tasked with securing copies of contracts and agreements, as well as corporate charters and other valuable information. Having solutions in place to secure and store this information is critical for a law firm that is operating on behalf of their clients.