Show Me the Money

Published June 28, 2011

When money disappears…

Businesses have money; law firms are businesses; and businesses sometimes find their money has disappeared. When this happens in a law firm, either there has been an honest mistake, or there has been intentional theft that qualifies as fraud or embezzlement. Both inevitably reflect poor policies and procedures in handling everyday law office funds.

…and fraud is the culprit

When fraud is the culprit, the motivations for funds to go missing can be as varied as the people who take the money. Someone who has real or imagined financial hardship may lose his or her moral compass when money is readily available and not readily monitored. More often the real problem is that the opportunity is there. Lawyers in charge of the firm focus on their practices and rely on a trusted employee who has been with the firm for years and who is given free rein and little scrutiny.

Solution to financial victimization

The solution to being financially victimized is for firm management to insist that cash be handled by multiple people according to ironclad rules. Simply put, the more people who are involved in handling funds and financial records, and the more they are constrained by firm requirements, the less likelihood there is that any one person can cause problems. These should be the essentials of such policies for the firm’s managing partner or chief financial officer:

  • Deposit all client checks immediately and in person at your bank, even if the amount paid does not match what was billed; negotiate or correct the variance later.
  • Don’t allow the person who opens the mail to also create the bank deposits; don’t allow the person who deposits the money to also do the bank reconciliations.
  • Reconcile bank statements immediately upon receipt, at least monthly. This facilitates immediate recognition of irregularities that may be more than just transactional errors.
  • Review all vendor bills, approve them and only then authorize checks for payment.
  • Once bills are approved and checks written, review the now-approved bill concurrently with signing the check to confirm amounts and reason for the purchase.

Create a system of checks and balances

The net effect of this process is to create a system of checks and balances that no one person, or even several persons in collusion, can circumvent. It is another example of how important it is for a law firm to run as a business, with a businesslike approach to its daily operations. Financial trustworthiness is essential for any firm. When it comes to financial integrity, every document, check and ledger entry is important.

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Audience type: Large Law Firms, Small Law Firms