Legal Audits that Identify Client Needs

Conducting audits, whether simple or complex, can be an important service to clients. Often the audit will identify needs previously unknown to the client. The practice of preventative law is an obligation under Canon 21. By providing this service an attorney can capture and retain the right kind of clients.
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This article discusses
 

• the basics of business legal audits.
• the value of personal legal audits.
• dealing with the general client perception of preventative law.
• how to identify present and future needs of clients efficiently.

A large metropolitan law firm was asked by one of its corporate clients to conduct a legal audit. Corporate general counsel wanted to know in what areas they might be susceptible to litigation and in what areas they were on solid ground. Since the firm had worked with this client for a number of years and valued its relationship, a flat fee to cover time and expenses was negotiated for the service.

The firm principal who was the client's primary contact suggested that the legal audit begin with a survey of the corporation's key managers. The survey was in the form of a questionnaire, containing four general areas: work products, administration and finances, marketing and client services, and general matters. Each area contained subcategories with very specific questions.

The questionnaire was designed to assess exactly how much managers and employees really knew about company policies and procedures, and to deter mine the extent to which that protocol was being followed. Managers were asked to complete the survey forms and return them by a two-week dead line. Emphasis on the importance of the questionnaire came from the corporate CEO, who wholeheartedly endorsed the project. All of the managers complied.

The results pinpointed a number of sensitive areas of which general counsel had previously been unaware. Responses were examined carefully and combined with all other responses to form general issues of concern.

As a result of the legal audit, the law firm was retained by the corporation to beef up legal protection in some areas and to correct problems in others. The decision by the firm to ask only a small fee for the audit paid off, as the corporation spent a great deal more on services resulting from the outcome of the audit.

When to Perform Legal Audits

Legal audits make good sense not only for mega corporations but also for private individuals. In today's litigious society, many entities require legal advice and service but are unaware of their need. Legal audits help those organizations and individuals to demystify their own legal requirements and to seek expertise regarding their disposition. Unfortunately for those organizations and people who have never had any sort of relationship with the legal profession, they may initially be very hesitant to agree on its obvious benefits.

Legal audits are every bit as important as financial audits. In this sense, attorneys play essentially the same roles as accountants in the process. The attorney is an outsider looking in at the process and so is more able to detect objectively where help is needed. This service is a preventative measure which helps to ensure that future legal problems, including litigation, are avoided.

Corporate Legal Audits

According to a managing partner and associate from Gammon & Grange in Washington, D.C., who authored an article regarding the legal audit process for Preventative Law Reporter, corporate legal audits must contain 13 categories:
 

1. General information
2. Governance
3. Organization purposes
4. Business practices
5. Financial information
6. Books and records
7. Property information
8. Employee and labor relations
9. Officers, directors, and management
10. Licenses and other regulatory requirements
11. Tax-exempt status
12. Charitable solicitation activities
13. Antitrust, copyright, and trademark

The corporate legal audit form can be adapted to suit the needs of the corporation and situation. A basic outline which can be followed would include general introduction, introductions for each category (or department) audit, specific questions, and a conclusion.

The general introduction must explain the purpose of the audit and convey potential benefits to the readers. If the audit is receiving the support of high-end management, endorsements can be noted in this section. The respondent must be convinced that his or her answers are integral pieces to the entire puzzle and so must be genuinely insightful.

The introductions to each category audit must explain the purpose of that category's existence. It is important for the attorney drafting such a questionnaire to speak in the vernacular of the reader, not in legalese. The respondent must not only accept the value of each area as a separate entity, he or she must be committed to seeking the truth regarding it, Specific questions are situation specific, meaning they inevitably will be different for each corporation using the legal audit process.

The final, general conclusion should thank the respondent for his or her time and contribution to the legal audit. It should restate the purpose of the project and let respondents know how, when, or even if they will be able to access result.

The Small-Scale Legal Audit

Small-scale legal audits are much simpler than corporate legal audits to draft, conduct, and assess results. Because the number of individuals involved is substantially less (in fact, oftentimes only one person is involved), the small-scale legal audit can be very comprehensive, very explicit, much less expensive to conduct, and conducted with greater frequency.

New businesses find legal audits particularly helpful in ascertaining exactly what their future legal needs might entail. By knowing this at an early stage, they can budget and plan appropriately. A legal audit for a small business might recommend investigation of areas related to public offerings, if such an event is likely. A legal audit conducted for an individual can also help that person to budget and plan for future legal expenses. Such an audit might uncover the need for a new will, which in turn can be provided by the attorney. Other needs might include property holdings, trust accounts, or real estate and other investments.

Convincing the Client of the Value

Very rarely will a client seek out a legal audit. It is up to the attorney to convince the client that such a program is appropriate, cost effective, and an essential part of the planning process. Comparison to the need for financial audits might be helpful, as the value of those is widely known and accepted. The legal audit should be packaged as a preventive measure which can actually prevent or at least mitigate many legal needs before they occur. Although this may decrease the amount of work required by the attorney in the short run, it increases overall attorney efficiency (not to mention client satisfaction) and may allow attorneys more time to seek other new clients.
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