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Accounting & Timekeeping in Law Firms

published February 11, 2013

By CEO and Founder - BCG Attorney Search left
Published By
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Accounting and the allied process of timekeeping are among the primary tools of management in law firms. As such, they have a place in all private practice situations, and also in the legal organizations of government and business corporations. These accounting functions should:
Accounting & Timekeeping in Law Firms
  1. Control the flow of cash
  2. Provide cash information for each type of service performed;
  3. Furnish information on which to base tax returns;
  4. Ensure that clients are properly charged and that they pay their bills;
  5. Measure performance against adopted standards or budgets;
  6. Provide information for overhead control; and
  7. in private firms the accounting functions may also provide information on which certain aspects of compensation are based, on which retainers are negotiated, and important decisions made.

This article focuses on the special accounting problems and peculiar needs of the legal profession.

The Mechanics of Timekeeping

Professional and staff time is the basic commodity of the law office. Those firms which have learned to manage the use of time carefully, and hence to use their people effectively, achieve both better client service and higher economic rewards. In order to manage time, activities must be recorded systematically. There is no substitute for time keeping.

The yield of time records may be useful in billing for some types of legal services and not for others, but time records have additional uses:
  1. Time records enable supervising lawyers to review the work of younger attorneys, in both private practice and salaried environments.
  2. Only time record information can ultimately provide an administrative measure as to the profitability of any one type of case, of one department, or a lawyer-employee.
  3. Circulated summaries of time records may provide a stimulus to all of a firm's lawyers to work harder and to maintain good records.

Because of its importance, the timekeeping system should be centrally developed and administered. Each firm must set its own standards for what is to be recorded and in what manner.

There are three basic, non-mechanical ways in which to record time, with variations on each. These are diary systems, slip systems and paste-up systems.

Diary Systems

Diary systems are typified by Col well (Champaign, Illinois 61820) and Lawyers Day (Day-Timers Inc., Allentown, Pa.). The system is basically a daily calendar divided into fractions of the day. Time is recorded by bracketing the interval spent for a certain matter and noting the name of the file. The lawyer must make the initial entry as he performs the work. A clerk copies the information to a Time Ledger sheet, either by hand or by typewriter.

The calendar-diary system has the advantage of outlining the entire day. Having an outline of a day in front of some lawyers increases their ability to record more of the time spent on client matters. The manual posting, however, takes a great deal of clerical effort and is subject to the possibility of error in transposition of figures or posting. However, if this kind of system provides a lawyer with a method through which he can record an additional number of billable hours, the disadvantages may be more than outweighed by the added gain.

Slip Systems

The time slip system, with or without a carbon second sheet, is another popular, commercially available method for time recording. All of the slip systems operate in much the same pattern. One slip is completed for each time entry. When a group of slips are completed, they are separated and filed in client or case order. The slips are separated and placed in a small envelope, one for each client or matter.

In the most sophisticated type of slip time recording system, time slips are shingled on a pegboard allowing the top line only (date, lawyer, client, matter, and time required) to reproduce on the carbon. Thirty time slips can be accommodated on one page. This slip is the size of a data processing card. Much filing hardware of this size is available.

All of the slip methods eliminate the need for copying with its concomitant errors. The collating process consists of a simple sorting and filing of slips. There are some control problems associated with the use of slips, since they may easily be lost or misfiled. Care must be taken to guard against these possibilities.

The backup sheet provides a ready source for checking on the total client work and non-chargeable hours recorded by each attorney. Problems arising as a result of failure to keep good time records can be quickly discovered from a summary based on second sheets.

Posting in a Slip System

Users of slip systems should consider posting summaries of recorded time to a ledger. This procedure guards against slips which may be lost in the billing process, and provides a rapid overview of accumulated time on each matter and for each client. With this form, time is posted monthly for each lawyer, and is extended by standard hourly rates by the bookkeeping department or timekeeping secretary. Time Ledgers are also needed for diary and sheet systems.

The use of a Time and Billing Ledger allows a firm to catch accumulating time for any matter before it becomes excessive, and provides one central source document for control of billed and unbilled time. Since the detail necessary for billing appears only on the slips themselves, attorneys generally need them for billing purposes.

Paste-Up Systems

The paste-up system with a second sheet is the third type of manual time recording method. Figure 9-8 illustrates a popular type of paste-up system, which utilizes self-adhering strips. The input device consists of two forms which are held by a clipboard on the lawyer's desk. The top sheet of the two-part form is perforated between writing spaces. The second copy is a solid sheet providing a record of daily activities. After the strips are completed they are removed, separated, and pasted on the appropriate client ledger. One client ledger is generally maintained for each matter being handled by the law office. Where billing is not dependent on time, there may sometimes be ledgers created for entire fields of law, e.g., contingent litigation, real estate, or probate, to provide information on time and actual fees collected in these areas of law.

The paste-up time system eliminates possible errors in improper posting, since incorrect postings are easily seen, and furnishes a chronological list of each lawyer's daily use of time through the backup second sheet copy.

Help for the Lawyer in Recording Services

The slip and paste-up time forms have printed aids which simplify the time recording process. For example, the Time-Saving form contains check-off blocks for many customary actions taken for clients. The Sans-Copy and Rosemont Forms systems contain codes, such as "C" for Conference and "R" for Research, which can become an integral part of a lawyer's timekeeping habit. The use of checked items and codes can reduce the seconds consumed in writing time entries.

The lawyer's secretary and the person who places and receives his telephone calls can also assist. A list of people with whom conferences were held, to whom calls were made, from whom they were received, and addresses or senders of letters, given to the lawyer at the end of each day, can result in a substantial increase in the hours recorded. With an increase of one hour a day, at $50 per hour, a $11,000-increase in billable hours can be realized in a year.

The Value of Timekeeping

Most attorneys associate time records only with billing on an hourly basis. However, one of the most important functions of timekeeping has very little to do with the actual preparation of clients' charges.

There are consistent survey data from many states showing that those lawyers who keep time records consistently net average incomes equal to the average gross of those who do not. There is no magic in these results. They are simply the evidence of the administrative habits of those who realize the importance of knowing what they have been doing.

The lawyer who specializes in personal injury, probate or real estate work, and who is asked to keep time records may respond with, "I don't bill on a time basis, so why should I keep records?" There are two ways in which the writing of time records will be helpful in this type of practice. First, it will point up poor work habits and ways in which delegation can be utilized. In addition, it will provide information on how much various types of cases, within a specialty, produce for each hour worked. This latter information can be extremely useful.

In the billing process, time records are the means of reminding an attorney exactly what he did on a client's behalf. Without a written record, it is impossible to remember the work done with any degree of accuracy. The lawyer who thinks he can remember every letter, phone call, pleading or conference in a case is fooling only himself.

The authors once conducted an experiment with an inveterate timekeeping attorney. We asked him to pick several files which had recently been completed, to go through them, and to arrive at his best estimate of the time required. In each case, his estimate was off from 50 percent too low to 40 percent too high. Had he billed his clients on the basis of estimated time, rather than actual time, he would have undercharged some and overcharged others, unfairly to himself or unfairly to the client. His overall fees would have been lower.

The often-heard remark, "I haven't got time to keep time records," can be refuted in many firms by the hours required to compile bills and decide on fees in the absence of time record information. Some years ago, the authors persuaded a Mid-Western law firm of 25 lawyers to install a timekeeping paste-up system and to try sending a photocopy of the time ledger with a one line bill to the client for "services." The firm was billing most of its clients on an hourly basis. Before the system was adopted, as much as an hour's time was spent in reconstructing the steps taken in a matter and determining the wording of bills and the fee amount. This process was so horrendous that only about half of the bills were being mailed on a regular basis. Today, with a clerk drafting the bills using hourly rates and the time summaries, the attorney time required to review the draft bill is only a few minutes. Average gross billings per lawyer have increased substantially, and the billings are an accurate representation of time spent.

In addition to the foregoing arguments on the value of timekeeping, the trend today appears to be away from percentage charges in estates or real estate work and to limitations on contingent fees, in favor of billings based on time charges.

Time Based Management Reports

In a firm of more than two or three lawyers, there is much information concerning the overall pattern of growth or direction the firm is taking which can be obtained from a time system

Firm Administration Review: A law firm of five departments, probate, business, litigation, real estate, and oil and gas, kept time records for several years. Each attorney's records were totaled and posted under his name. Besides time spent in the areas of law were posted to a "departmental" account. A review of comparative data from these records over a three-year period revealed that the oil and gas department was encountering an increasing amount of litigation, and that one litigation department lawyer in particular was being called upon to handle much of this work. He was also spending much of his time trying to carry his regular business and personal injury litigation load. The records showed that he was over-worked and his recent health problems corroborated this. The executive committee determined that this trial lawyer could be used more profitably if his work load were restricted to oil and gas cases, that there would be enough to keep him busy in this area in the coming year, and that he should be working more closely with the oil and gas department on a daily basis.

Without an administrative analysis and the records to base it on, this situation might not have been corrected, to the detriment of the oil and gas clients, the lawyer's health, and possibly the firm's reputation.

In another firm, analysis of time and billing postings of the records of a real estate department staffed by three lawyers seemed to indicate that, although the billings of the department had not changed during the year, the production records of two lawyers had gone up appreciably while those of the other member of the department had gone down. The managing partner set out to discover the reason. When confronted with the data, the two lawyers admitted that their colleague of many years had been coming in late, taking long lunches and leaving early. Hoping he would get over this by himself, they had not mentioned anything to the managing partner or the other lawyers.

The managing partner commenced to remedy the situation. Fortunately, because of this management analysis, the situation was caught early and corrected.

Another review of time reports from a summary pointed up the fact that one partner had been devoting over half his time to non-billable activities. Further investigation showed that the partner had agreed to lead a local fund drive and that not only his time but also half of his secretary's time was being devoted to this purpose.

The firm was one with the interest of the community at heart, but it was clear that this activity was going to decrease the gross billing to the firm. The consensus at the partnership meeting the next day was that the partner would continue with civic work that year, but that in the future, any non-billable outside activity which would cost more than a few hours of time would require advance partnership approval. A valuable firm policy was developed from a time record analysis.

Case Control and Billing Review

Any system which uses a time ledger can provide another, very important control. A clerk's periodic review of ledgers can yield a report listing each matter on which no recent time has been entered.

There are, in every law firm, some matters which are awaiting a reaction from the other party. Sometimes, if the other party ceases to be interested, the matter may be forgotten. There also may be cases assigned to junior lawyers which are neglected for other reasons.

A report listing those matters on which there has been no activity during the most recent 60-day or 90-day period will bring such potential problems to light.

Another review of management significance which can be achieved by a review of time ledgers consists of a listing of all files on which a certain dollar balance exists. A firm may, for example, request a list of all files on which $1,000 in unbilled time remains outstanding. This list may be used as a management review to determine the feasibility of interim billings or the likelihood of the client's ability to meet the final fee when the case is completed.

The Responsibility of Management

The management of a firm must exercise even more diligence over a system than it does over personnel. The system itself will not voice its complaints or point up areas for attention. Management must use its abilities for administration to require the preparation of valuable data and it must analyze the data thus prepared. Just as the driver of an automobile must be alert to unusual noises in his car's engine and must take action, when he hears them, to avoid major repairs; so management, the "driver" of a law firm, must keep eyes and ears open to unusual changes in time and billing reporting, and act before major "repairs" are required.

Time Reporting in Corporate Legal Departments and Government

The maintenance of lawyer time records is still somewhat unusual in corporate legal and government legal departments, but there are several areas in which time records can be very useful.

First, they provide the same kind of analysis of work habits as they do in a private law firm.

Second, they can be viewed by the general counsel or department chief as a means of keeping current on the work of a
group of attorneys without the necessity of an additional weekly or monthly summary by the working lawyers.

Such records are also summaries of the ways in which legal work is being handled. To an experienced counsel, they may very well suggest improved methods for coping with legal matters.

A third derivative benefit, especially in the corporate area, is the usefulness of time records in the budget-setting process and in allocating legal costs to operating components.

The legal departments of several large corporations analyze the services they perform for other corporate departments, determining the value of the lawyer time devoted to each and compiling the budget based on either the value of legal services to each department served or overall value to the corporation. In some corporations, the departments served are actually assessed for legal services. There is a question as to whether this type of assessment may have the effect of curtailing the willingness of other departments to take advantage of preventive legal advice when needed, but so far this tendency has not been apparent. All department heads have been advised as to the value of proper legal advice and encouraged to secure it when necessary. Their budgets are not appreciably affected by the change to time-related assessments, and the legal department is able to operate on a businesslike basis.

Standard Time Units

There is no one unit to use in recording time. Firms use hours, quarter hours, tenths of hours and minutes in successful systems. The problem in choosing the medium for input arises when different lawyers within the same firm use different units for their time. It is very difficult to add a quarter hour to .2 hours, and to 20 minutes. Conversion to a common denominator is required.

The important thing for any law firm to remember is to make a determination of the kind of time unit they will use and to require each lawyer to use it.

There is, however, considerable advantage to using decimal time entries, .1 equaling 6 minutes-.5, thirty minutes-.75, three-quarters of an hour, etc., since decimal time can be easily added on an adding machine.

Many firms use certain "standard" length entries for telephone calls and routine letters, such as 12 or 15 minutes. Others argue that most telephone conversations require less time, and prefer a smaller fraction of an hour, such as one-tenth (6 minutes). Each lawyer must ultimately use his own judgment in entering time for each service.

The authors are often asked just how accurate time records need to be. There is no one answer to this, since much depends on the individual lawyer and each firm.

Any reasonably (i.e. 80 percent) accurate time record is better than no time record. Every higher degree of accuracy increases the usefulness of the information. There are a few lawyers who use stop watches or timing devices to clock their work, but most lawyers would rebel against this. An important personal rule for a timekeeper to follow is that he or she should account for all of the time worked each day before going home. It is impossible to remember the details of the day twenty-four hours later especially when the telephone is ringing. Therefore, both that time which can be charged to clients and personal or administrative time should be recorded as work is performed. At day's end, the figures should be totaled to insure that they approximate the number of hours spent at work.

Basic Records of Account

Most law offices in the United States operate on cash, double entry bookkeeping system. A cash system is one in which only money actually received or actually expended is taken into account for tax purposes. Canadian law firms operate on a modified accrual basis. In such a system, accounts payable and accounts receivable are treated for tax purposes as though paid and disbursed.

The fact that a firm operates on a cash system does not mean that payable invoices or accounts receivable should be ignored by management. Double entry accounting requires that every financial transaction or event have an equal two-fold effect on the equation Assets = Liabilities + Capital, i.e., that every financial transaction or event be recorded so that an equality between debits and credits is maintained.

Small law offices sometimes use a single entry cash system, in other words, a simple check book. At least annually, the information must be taken from this source and various items entered in different income and expense categories for tax purposes. Some lawyers still mix office checking accounts with household accounts. Depending on the spouse, that system may be dangerous. It is never businesslike to pay office bills with a personal check; furthermore, this complicates preparation of tax returns.

Bank Accounts

Most law firms must maintain at least two different bank accounts and two complete sets of books. The major set is for the funds used for firm operating expenses and for deposit of earned fees. The second often called a trust account, attorney account, escrow account, client account, or special account, is a depository for money which does not belong to the firm. In addition, some firms operate a separate payroll account for control purposes or convenience. Firms involved in estates or trusts may also maintain checking and accounting records for these entities.

Each set of books requires a journal for receipts and one for disbursements. (In some systems, these journals may be combined on one sheet of paper.) In addition to journals, monthly totals or individual entries must also be posted to specific ledger accounts.


Ledger accounts are opened for each client or billable matter so that expenses or fees received on one matter are posted in one location. Ledgers are also required for each office expense category, such as Stationery & Supply, Telephone & Telegraph, Travel and Entertainment, etc., and for each employee and partner. The latter will show salaries or drawings withholdings, capital contributions, etc. Some office expenses which are paid infrequently, such as rent, do not necessitate an individual ledger card, but may simply occupy space in a general ledger sheet of all infrequent items. A client ledger may be a simple one on a columnar card in situations where more sophistication is not desirable. Some firms maintain separate client ledgers for costs advanced for clients by the firm and for client (trust) funds being held for the client. Using two ledgers may lead to the use of the firm's money rather than the client's deposit for case costs. It also increases the amount of searching time required in the bookkeeping function. A combined ledger sheet therefore is recommended.

Chart of Accounts

A listing of the various categories of income and expenses is termed "chart of accounts." Their primary purpose is to provide meaningful management information. Secondarily the chart of accounts provides a breakdown of expenses for the filing of tax returns.

Many firms use more categories in their charts of account than are meaningful. Any type of expense which costs less than one percent of the firm's gross receipts should be combined with a related item under a generic heading.

The simplest general breakdown of outgoing revenue for a law office would be:
  1. Disbursements for clients,
  2. Non-lawyer employment costs,
  3. Lawyer employment costs,
  4. Occupancy,
  5. Communications,
  6. Promotion, education, and associations,
  7. Taxes,
  8. Library,
  9. Office operations.

Many smaller law firms can make do entirely with such columns spread across its disbursements ledger. The nine categories contain all of the more specific types of expenses which can be separated out as a firm becomes larger and more complex.

The Economics Section of the American Bar Association has prepared a recommended chart of accounts for law firms.

[a]-Income from Legal Fees. It is important that the sources of income be shown separately once the firm has any volume of legal business. Only in this way can decisions to eliminate certain time-consuming, but unproductive, work be made. It is also important that a lawyer not "fool" himself by including income from such items as interest, teaching, etc., in his firm income. These latter items should always be shown separately. Note that repaid disbursements made for clients are not shown as income. They should be considered as reimbursements of loans made to clients, rather than as income from the practice.

[b]-Compensation of Shareholders and Partners. This section of the ledger should include all payments made to shareholders and partners or in their behalf to governmental units, insurers, and pension funds.

[c]-Compensation of Associate Lawyers. These ledger items include similar entries to those for partners and shareholders, but only those which are made for or on behalf of employed lawyers.

[d]-Compensation of Paralegals, Law Clerks, Staff and Other Employees.
These sections complete the employment cost picture with all payments to or on behalf of other employees.

[e]-Occupancy. This category of expense may include a number of subsidiary items of occupancy cost, such as rent, parking, depreciation of leasehold improvements, utilities, janitorial and maintenance services, depreciation of fixtures, insurance on premises and contents, etc.

[f]-Office Equipment. The expense of office equipment is of growing concern in law firms and careful cost figures should be maintained. The ledger categories under "office equipment" include most of the major items of office equipment expense. Depreciation of owned equipment, lease costs, maintenance and repair charges are all included. Telephones and other communications equipment are listed in another category. Charges for use of this equipment may be debited to the account.

[g]-Office Furniture and Fittings. Just as it is important to track the cost of office equipment, it is equally important to track the cost of furnishing the offices. Without proper consolidation of these items a firm may find that it has bought a chair here and a desk there without knowing the total cost of providing furniture.

[h]-Office Operations. This is a big catch-all category which may eat up fifteen to eighteen percent of a firm's gross receipts. Firms of any size should refine these costs into a number of divisions, only some of which can be suggested in the chart of accounts.

[i]-Professional Expenses. These are the items which are expended for travel, C.L.E. courses and bar association expenses. Once again, it is important to consolidate these expenses in order to control the total amount expended.

[j]-Client Development and Marketing Expenses. As marketing becomes part of daily routine, it is important to know what the firm is spending, overall, on its client development efforts. This category attempts to consolidate the costs of entertainment of prospective clients, brochure publication, firm seminars, directors listings, public relations and the like.

[k]-Auto Expense. Because of changes in the tax laws, fewer firms are offering automobiles as a perk of employment. However, there are still some owned or leased automobiles, and their costs should be consolidated and controlled.

[1]-Insurance. This miscellaneous insurance category was once not a very large item. However, with the rapid increase in malpractice insurance premiums the dollars shown in this ledger category will be rather important.

[m]-Communications. This category encompasses all of the equipment and costs necessary to maintain good communications with clients and others. Note that the amount of cost recaptured through billings to clients should be indicated to offset the gross cost figure.

[n]-Reference Materials and Services. Certain books with a brief life span, such as loose-leaf services, may be expensed in the year purchased. Other library books, such as case books, should be depreciated over their useful life or three to five years. This category also contains cost information for computerized research with a corresponding set-off item for the costs billed through to clients and reimbursed by them.

[o]-Taxes. This category of expense includes taxes paid by the firm (not its individual members) which are not directly related to one of the other categories. For example, a gross receipts tax would be included in this category. Real estate tax on an owned building or under a net-net lease should be shown under occupancy costs.

[p]-Client Disbursements Written Off. For tax purposes, disbursements for clients, such as filing fees, court reporter costs, photocopies and long distance telephone calls should be treated as "loans" to clients. They should show on the balance sheet as assets, not on the firm's books as expenses (nor as income when reimbursed). This means that care must be taken in billing to show the expenses as separate items from the fee. This ledger category is to be used only for bad debts which may be taken as a tax deduction when costs are not repaid after collection efforts are made.

The amount of outstanding client-related disbursements is an important item which should have the constant attention of the firm's management. Costs advanced to clients should not be permitted to accumulate any more than is absolutely necessary, since they are, in effect, interest-free loans. Lawyers should not put themselves into the position of financing their client's legal matters, neither ethically nor as a practical business matter.

The monthly financial report should clearly show the total amount of outstanding costs advanced, and this amount should balance against the total of the individual client ledgers for costs advanced.

[4]-The Monthly Financial Report

The sum of entries for each heading in the chart of accounts should be posted each month, or more often, to a ledger account for that item. In many firms, the ledger accounts may appear as spread columns which are part of the disbursements journal. (Of course, individual client ledger accounts are also required in any system.) Firms with a long chart of accounts will post from their chronological journal into a ledger book (or general ledger) which contains space for each one of the accounting categories. A monthly financial statement should summarize the firm's receipts and expenses, plus additional information. This report, showing the total financial transactions in each category during the past month, the accumulated figures for the year, and the same information for the year before, is the single most important financial management report in any law firm. It will expose any significant variation in income or expenditures. In other words, if there is a departure from the month before or the year before in an item of receipts or expense, it will be apparent in this report. Further investigation should then provide information as to why the variation occurred, so that corrective action may be taken.

The three-lawyer firm of Alpha & Beta shows a normal growth pattern in its Monthly Financial Report for March. Total fees have increased nicely over the same quarter in the prior year, with normal fluctuations in the various fee categories.

Repaid client costs are lower than a year earlier, despite higher receipts. Unless the partners already know why, the report indicates the need for an investigation. Costs advanced for clients are up. (Perhaps the new bookkeeper is not following the office manual about billing and posting client disbursements!)

Non-lawyer employment costs show general inflationary trends. Lawyer employment costs reflect the impact of having promoted the firm's associate attorney to partnership at the beginning of the year. The higher drawings reflect the increase in the number of partners, offset by the reduction in lawyer employment costs.

The firm's efforts to charge a higher part of the telephone bill to cases is beginning to show results. Telephone expense for the quarter is substantially less than for the like period a year earlier. The introduction of rented power typewriters shows clearly under office operations.

Unbilled time value has increased more than $10,000 since the prior year, indicating that the firm is operating profitably, when this information is put alongside higher cash receipts. Had this figure been substantially less than the amount the year earlier, it would have indicated that higher receipts were merely a more rapid collection process, not an indication of a better year.

[5]-Aging Report

Aging Reports should be put together monthly so that management will know what receipts to anticipate, and also where collection efforts are required. The information may be pulled together from client ledgers if billings are entered on them. In some firms, the information is contained only in the control copy of the bill, which is held in an accounts receivable file until payment is received.

Bookkeeping Systems

There are basically two alternative types of systems available for keeping the accounting records of law offices: (1) handwritten systems (including those using an ordinary typewriter), and (2) electronic data processing methods.
The handwritten systems, in turn, divide into a few classes.

[1]-Traditional System: For want of a better name, we'll call the hand-entered, long-paged journals in their heavy binders the traditional system. The supplies are available in any stationery store, and consist of ruled columns on both sides of the paper. Commonly, these systems also use ledgers in a size of 8V2 X 11 inches, bound on the short side.

These systems may suffice in very small law firms, particularly in their early stages, where stringent economy of supply is in order. But they are very expensive, in terms of personnel, in offices with any amount of volume.

[2]-Voucher Check Systems: When a check is typed in multiple copies, the copies can serve the functions otherwise performed by journals and ledgers. This is the voucher check system. The ribbon copy is, of course, the check. Carbon number one is bound into a "journal," and carbon number two is filed by category of expense or client, performing the function of a ledger.

The system avoids the errors of transcription, but is subject to the possibility of loss and misfiling in the ledger accounts. Errors are difficult to trace, and misfiles are hard to spot. Still, this type of system may be useful in small firms with limited manpower.

[3]-Peg-Board Systems: For most law firms, from busy sole practitioners to those large enough to need the help of a computer or bookkeeping machine, pegboard accounting systems are the most efficient answer to bookkeeping. These systems use principles of carbonization to layer the check, ledger and journal into a "sandwich". One writing can then perform all posting simultaneously. In the process of recording receipts, the client's ledger and the receipts journal are similarly aligned, so that a single posting enters both.

There are a number of standard pegboard systems on the market. The name derives from the pegged boards which hold the various parts of the paper "sandwich" in place. Special adaptations of these systems can easily be made for the needs of specialized practitioners, such as collection attorneys. Payroll systems of this type are also common.

The advantages of the peg-board systems are several:
  1. There is a substantial time saving, because the repeated copying of information is eliminated. Bookkeepers may become forty to fifty percent more productive with these systems.
  2. Transposition of numbers is eliminated. If the original entry is in error, all entries will be in error the same way, but there can be no copying errors, since there is no copying.
  3. There is no lag until posting is caught up. Bookkeeping is always complete, and monthly reports can be made available in a day, even in a busy firm.
  4. The systems provide a safeguard to insure that all reimbursable expenses are posted to client ledgers, and visual identification on the client ledgers can prevent the charging of wrongly posted items.
  5. Compared to machine systems, the pegboard method is very inexpensive.

Some law firms have been reluctant to adopt these systems because the lawyers want typed checks. Adaptations to a pegboard can be made in which the checks are typed. This, however, reduces the efficiency of the system. We have never thought less of a check because of the way it was prepared, as long as it was honored by the bank.

Among the firms which market these systems nationally are Shaw-Walker Systems, Muskegon, Michigan; Reynolds & Reynolds, Celina, Ohio; Safeguard Systems, Lansdale, Pennsylvania.

[4]-Common Pitfalls in Bookkeeping: A number of errors in the way bookkeeping is practiced in law offices have been repeatedly observed by the authors over the years. We hope that their enumeration here will help the reader to avoid these costly mistakes in later years.

[a]-Office Theft. Even after 20 years on the same job, some employees (and even some partners) will steal. Since many law offices do not have their books audited, many are defrauded and never know it. There are several safeguards against theft. Obtain a fidelity bond on the bookkeeper and on every person with signature authority, including partners. Engage an auditor. Never give a bookkeeper check signing authority. He or she will be able to steal easily, and hide the fact. Never allow the bookkeeper to open the mail. Instead, have the person who opens the mail prepare a list of all checks received, independently of the bookkeeper. Use a duplicate receipts book for all cash taken in, and have cash accepted by a person other than the bookkeeper.

[b]-Letting Lawyers Handle Receipts. Many lawyers are noted for the amount of paper they keep about their offices. To add checks to the clutter is almost certain to cause some of them to be misplaced.

Some lawyers will receive payments, and then just drop the check on the bookkeeper's desk without the letter which identifies its purpose. This wastes everybody's time and may result in posting to the wrong account. The preferred way is to have checks removed before mail is distributed to lawyers. Lawyers should, of course, be advised when their bills have been paid. This can be accomplished informally with a note on the envelope in which the check arrived or on the accompanying letter.

When checks are received for which no bill is outstanding, the lawyer must, of course, determine the reason for the payment and must direct how the check is to be deposited.

[c]-Too Many Bookkeepers. Right or wrong: "Everybody knows that a case disbursement may be needed at any moment; therefore, a check book must be kept in the general office where it can be available to every lawyer's secretary." Wrong, of course. The result of this type of thinking is inaccurate books, and often a bit of theft.

Actually, there is no reason why disbursements cannot be anticipated by a day, or at least, by a few hours. A law office cannot have control over its funds, nor have orderly records, unless a single individual can be held responsible.

[d]-Draws at Will. When any partner can walk into the bookkeeping office at any time and obtain a drawing, or when any associate or employee may obtain an advance against salary on request, a substantial part of the bookkeeper's time and energy will be channeled into these activities. Each such event causes quite a few records to be entered. Also, of course, overdraws will occur, which will cause other problems for firm management.

Related to this problem is the travel-advance syndrome. In some firms, lawyers are permitted to obtain advances against travel, and then obtain further advances for the next trip, and again for the next, without having accounted for the funds drawn at the beginning. This careless system invariably results in bookkeepers with ulcers and client accounts billed before expenses have been posted.

[e]-Billing without Bookkeeping. It should be an absolute rule in every law office that bills will be mailed to clients only by the bookkeeper. Such a policy will enable this key employee to make certain that all disbursements have been considered, and also will enable the bookkeeping function to control receipts.

It is not our intent to imply that the bookkeeper should type the bills. Cover letters may accompany bills sent to the bookkeeping section.

Alternative Summary

Harrison is the founder of BCG Attorney Search and several companies in the legal employment space that collectively gets thousands of attorneys jobs each year. Harrison’s writings about attorney careers and placement attract millions of reads each year. Harrison is widely considered the most successful recruiter in the United States and personally places multiple attorneys most weeks. His articles on legal search and placement are read by attorneys, law students and others millions of times per year.

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About LawCrossing

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published February 11, 2013

By CEO and Founder - BCG Attorney Search left
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