How risky are your client files?
All client files carry risks, but do you know which ones could create major problems for you?
Our recent webinar on risk-based file audits looked at many of the challenges faced by law firms when supervising client matters, defined risk-based file audits for your firm, and suggested steps for effective risk-based file audits.
There are many challenges faced by law firms when supervising client matters and risk-based file audits, for example:
- A lack of time to set up an effective file audit programme
- Trying to work out how many files should be reviewed for each case handler
- A lack of interest from staff in the file audit process
- Case handlers failing to take remedial action
- Compliance officers not appreciating what they can learn from audits
- Audit process loses momentum
- Firms with accreditations having to play ‘catch-up’ prior to assessments.
The SRA Standards & Regulations quite rightly place enormous focus on client care, competency and supervision and all these areas, and more, need to be covered in any file audit programme. Although they make no mention of file audits it is quite clear that these are necessary in order to meet the specific requirements relating to these areas.
Firms that hold accreditations (CQS, Lexcel, etc.) have specific obligations to meet in relation to file audits, but some firms allow standards to drop after an assessment and only raise them again when another assessment is due!
What is a risk-based file audit?
A risk-based file audit is based on the risks that are apparent in a number of areas, for example:
- Experience and qualification of file handlers
- Length of service the file handler has with the firm
- Area(s) of work undertaken
- Risks relating to issues like money laundering, conflicts, complaints, etc.
One of the requirements of the SRA Standards & Regulations is that you identify, monitor and manage all material risks, but how can you do this if you don’t have an effective risk-based file audit programme in place?
Some firms take a “tick-box” approach to file audits and work on the basis that as long as they do “three files per fee earner per quarter” they will have complied, but that is not the case. There is no point in spending time reviewing files that are regarded as low risk when you could be focusing your efforts on files that pose higher risks!
Employing an appropriate set of file audit question sets is essential and these should be based on risk and what intelligence you are looking to get from them. Ticking a box to say a client letter has been sent does not mean it is the current version or contains the appropriate wording.
Recording audit findings and ensuring remedial action, where necessary, is carried out in the required timeframes is key, otherwise, how can you evidence what you have found/done!
When we review files, we find all sorts of issues, even on files where we are only sense-checking files that have already been audited by firms themselves; these issues include:
- File opening risk assessments not carried or are incomplete
- Lack of AML checks
- Lack of file notes
- Current status not noted
- No evidence that client care information has been sent
- Self-interest conflict checks not undertaken
- Wastepaper from other client files showing client details used to separate documents on other client files.
Poor file management could lead to complaints, negligence claims, fees being written-off, regulatory action, etc., so it is key that you focus on ensuring files are managed properly at all times.
There are some key things to remember:
- A fee is not earned until the file has been closed in line with the firm’s file closing procedure!
- If a residual balance remains on a file after say a week from the date the matter is completed, someone has not done their job properly!
- Are fee earners keeping files open to make it look as if they are busier than they really are?
Five steps for good risk-based file audits
- Risk assess each file handler
- Audit files dependant of the risks posed
- Record audit findings
- Ensure remedial action is taken as appropriate
- Use your findings to address areas of concern.
Risk-Based File Audits were discussed in our recent four-part webinar series ‘Working with the SRA’s Standards & Regulations (STaRs)’ which ran throughout February, hosted by Brian Rogers, Regulatory Director for Digital Learning and Compliance,
You can still watch the webinars on demand.
Alternatively, you can request a free demo of our Risk and Compliance software here.
