In the second post of our 4 post series on surviving the legal audit minefield we’re going to take a look at the tools your firm needs to survive and even avoid a legal accounting audit of your firm’s financials. In the first post, we focus on the red flags that could unleash an auditor on your firm, now let’s take a look at the tools that can help your firm survive and even avoid a legal accounting audit.
Tools Needed To Survive or Even Avoid A Legal Accounting Audit
Legal Billing System
Legal billing goes far beyond just invoicing a client. Law firms often deal with retainers, multiple client funds or trust accounts, settlements, and matter costs. If all of these elements aren’t accounted for when billing and receiving payment from your clients your firm runs the risk of data infidelity across systems. This could lead to an audit on your firms financials. For this reason it is essential that your firm has a legal billing system in place.
Legal Accounting System
Just like billing, accounting for a law firm is unique to the legal industry. If your firm wants to avoid a legal accounting audit, a law firm accounting system is another must have. Your firm’s general ledger suffers from a lack of legal specific Chart of Accounts. If transactions are not properly entered to these legal accounts and applied to the appropriate trust funds your firm will have data inaccuracies that will lead to compliance issues. Compliance issues then lead to disbarment. A legal accounting system will include:
- Client Trust Funds (Liability)
- Client General Retainer – Trust (Liability)
- Client General Retainer – Operating (Liability)
- Advanced Client Costs (Asset)
- Reimbursed Client Expenses (Direct) (Income)
- Inhouse Reimbursed Expenses (Indirect) (Income)
- Fee Income (Income)
- Discount (Income)
- Reimbursable Client Costs (Expense)
- Non-Reimbursable Client Costs (Expense)
- Unrecovered Client Expenses (Expense)
Law Practice Management System
The key to keeping your law firm on the right side of compliance is keeping data accurate across multiple systems. This means all of your matter costs, client accounts/ trust funds, and invoices must be accurately entered into multiple systems. Any inaccuracies could cause your firm to be audited. This is why a law practice management system that brings all these systems under one umbrella can help your firm avoid a legal accounting audit. Data only has to be entered once reducing probable errors that is inevitable when entering data multiple times.
Now that you know what tools are needed to survive an even avoid a legal accounting audit, check back for our next post on the legal accounting reports that are necessary when facing a legal accounting audit.