File Reviews and Auditing within law firms is a subject that, for many, is uncomfortable as it is a diversion of valuable resources and is time-consuming.
It is not uncommon for the file review process to fall into a ‘tick box’ exercise, with the supervisor going through the motions to hit an auditing number rather than actually spending quality time on the review. While it is understandable, this cannot be acceptable, as a firm that adopts this approach puts itself at risk, not only with the Solicitors Regulation Authority (SRA) but also with its Insurers.
The Regulation and Compliance Office (RACO) works with both law firms and professional indemnity insurers and, as a result, sees, at the front line, how firms engage with the file review process with mixed results.
What is clear is that those firms which have directed file reviews focused on what is important and do not audit to ‘hit numbers’ have a significantly improved risk profile that is actively demonstrable to external influencers.
This article provides firms with an insight into how they can manage or adopt their file review/auditing strategy to effectively direct resources and, importantly, review what is important with a significant diversion of supervisors’ time but also meets the requirements of the regulator and insurers.
Key Stages and Considerations of Effective File Reviews
A structured and effective file review and auditing programme is central to a firm’s approach to risk, compliance and regulation. Below, we cover key considerations of effective file reviews and audits:
- How and When Should Files Be Reviewed?
How should files be reviewed? – A standardised approach to file reviews is always more effective. A generic audit form can be created for many standard areas of law, providing direction and structure. For areas of law that are more bespoke, such as property, a more specific audit form can be generated to direct the auditor on key issues to consider and focus on key supervision touch points. Standardised audit forms provide structure, direction and, importantly, focus, and in our view, are a must.
Determine what the audit is looking for. For example, is it a process and procedure audit or a technical audit? The former will be quicker and more general, whereas the latter will be focused and specific on a technical area and will require an experienced auditor to undertake the review.
How often should files be reviewed? – File reviews should be undertaken at regular intervals, and the size of the firm, the type of work it performs, and the number of fee earners (including their experience) will dictate when and how often file reviews should take place.
In some areas, such as property, a monthly file review is appropriate – and a requirement of the CQS accreditation – but file reviews can be more spread out in other areas and those which are not driven by an accreditation. When RACO is engaged with larger firms, we tend to recommend a quarterly file review process, to ensure there is sufficient time between audits for issues to be addressed and rectified. In our experience, reviews at an increased frequency tend not to be as effective as analysing results, and taking rectifying action is not always practical between audits.
For smaller firms, particularly those with only a handful of fee earners, an annual review or potentially six-monthly is appropriate.
A firm must look at its infrastructure and the work it performs and build a file review process that will work for them, taking into consideration its needs and resources.
Including the expertise of external resources can also ensure that file reviews get completed in line with the overall auditing strategy.
- Determining Which Files Should Be Reviewed
This is an essential part of the file review and auditing process. A random selection of files does not always work. While a random audit means that any files could be pulled, the reviews are often not as random as intended.
It is our view that file reviews should be directed alongside some random selection. An effective file review process should include the following: -
- High risk matters – review and focus on the files that have been identified as high risk in your risk assessments. The firm should have a high risk register identifying cases which have hit this categorisation. These files should be front and centre of the audits. It is not a problem auditing the same file multiple times if this file is high risk.
- Closed Matters – a sample of closed files is always important to confirm that matters have been resolved effectively.
- Random selection – as already highlighted, a random selection of files can assist the audit process, as it means that there is complete impartiality to the file selection, but they must be truly random.
- Targeted matters – review files with potential issues or are at critical stages. For example:
– No time posting for 90 days
– Aged client balances
– Matters set down for trial
– High risk (referred to above)
– Complaints (to follow up to ensure the matter is now on track)
– Complex key or difficult clients
– Trainees and juniors – making sure the less experienced staff are well supervised.
A firm should understand the nature of its work and files and be able to direct audits to important stages and touchpoints to ensure the correct files are being reviewed.
Also, consider how many files should be seen. A department with high volumes, low complexity, or value may have more files looked at as opposed to a high value complex department, which will need to review fewer files as it should follow that fee earners will handle fewer cases and are probably senior in their own right.
- Who Should Conduct the File Review?
Deciding who should undertake a file review is a key part of an effective file review and audit process. It is essential to ensure that the right people look at the issues, which falls within their own experience. For example, a compliance manager can undertake reviews focused on processes and procedures as they cross check policy implementation. However, a technical audit will require the auditor to have good experience in that area of law to ensure they understand the legal advice and case strategy. Appropriately directing the correct resources will ensure the audit process is more successful and effective.
- Make File Reviews Part of The Culture
File reviews should be part of the firm’s culture, and should be understood, expected, and respected.
A fee earner should not be concerned about a file review but welcome input, with file audits being seen as central to the firm’s supervisor strategy, sitting alongside the learning and development programme.
- Identification and Rectification
When a file review has identified action to be undertaken to rectify an issue, ensure it is followed up. You cannot assume that because an audit has picked something up, the fee earner will take action on this. Set a time frame for the actions to be completed and follow up to ensure they have been completed. It may be appropriate to include the file in the following file review or to place the matter under direct supervision. Audits are there to spot and rectify issues, but the job is not complete until rectification has been taken. Ensure that follow-ups and diary control are implemented as part of the strategy.
- Reporting and Analysis
Too often, audit results are not reported on and analysed. Following each audit, an overview and summary must be prepared with an overview of the type of audits, the issues and trends identified, the actions and output, and the expectations of the auditor. File review output should be discussed at a senior level to understand any issues and implement required changes to process or training.
- Independent File Reviews and Audits
The use of external auditors can be of significant support to firms. A key reason to outsource file reviews is that the reviews get done! They are completely impartial and will be reported on independently.
An outsourced file review partner, like the experts at RACO, will ensure the reviews take place, that these are actioned on time, and in accordance with your strategy. Both the Solicitors Regulation Authority (SRA) and professional indemnity insurers recognise that firms who submit themselves to independent reviews are often seen to have a more robust approach to risk management and assessment. This is because they are willing to be challenged and are receiving support to improve and implement robust policies, controls and procedures.
Auditing & File Reviews Services
At the Regulation and Compliance Office, our Auditing and File Reviews service has been designed to provide full and detailed audits covering a range of areas for firms. Our auditors are all experienced solicitors and lawyers who have gained considerable knowledge by working within law firms. They can navigate a multitude of legal matters and are familiar with most case management systems.
We can work with firms to undertake audits and file reviews both onsite (preferred) and offsite via a remote connection.
Audits performed by an Independent Outsource Partner are often considered more effective as they are independent.
We will work to audit forms we have created for different types of matters or audits, or we can work to a form that a firm has created, or that we have created with them.
Each audit will also include a report for the Management of the Firm to highlight areas of compliance or any issues and concerns with solutions.
Contact our File Auditing Team
To ask any questions about the Regulation and Compliance Office and how we can support your Law Firm, please call us on 0203 985 8550, complete the online enquiry form here, or email us info@regulationandcomplianceoffice.co.uk
