Posted by Elaine Pasini, head of communications at the Legal Futures Associate, the Institute of Legal Finance & Management
Drop a frog into a pot of boiling water and it will jump out. Drop a frog in warm water and slowly bring it to a boil, the frog will not sense the danger until it is too late. It will boil alive.
The point of this blog? Don’t let your law firm be that boiling frog and get hit by the Solicitors Regulation Authority (SRA) or a massive increase in your professional indemnity insurance (PII) premium at renewal time.
Saving the frog
The Institute of Legal Finance and Management (ILFM) is passionate about mitigating risk when it comes to client money, whether that’s helping with SRA accounts rules training or advising on wellness strategies to complement a law firm’s existing culture to look after their staff.
Technical legal accounting qualifications along with continued training and development is our backbone, yet there is so much more we can all be doing to protect ourselves and our colleagues to ultimately protect our client’s money.
Time and time again, we read the latest story in Legal Futures about a solicitors who’s been struck off, suspended or fined.
- A solicitor who failed to pass on to a client the £132,000 due to her from her divorce settlement – money the profession has now had to stump up – has been struck off.
- A veteran solicitor who signed but then kept 743 cheques worth £233,000 in a filing cabinet in his office, rather than using them to pay disbursements and other liabilities, has been struck off.
- A solicitor whose misconduct included using client money to help his firm with cash flow difficulties has been struck off, while two solicitors he hoodwinked have also been sanctioned.
- A fee-earner who misappropriated at least £338,000 from her firm by making fraudulent land tax claims has been banned from the profession.
The bottom line seems to be opportunity, greed, desperation or naivety.
Helping mitigate risk within your law firm
The cost of living is affecting each and every one of us. Do you know who in your firm is under pressure at home? Do you know those in your firm who are struggling with finances?
Due diligence with staff has to be a factor when it comes to mitigating risk in your practice. If you are the finance director, are you looking out for your legal cashiers? They are, after all, the engine that needs servicing to continue to transact, balance and protect those accounts.
Who has access to client account monies? Who looks after onboarding and due diligence for new clients or new matters?
When it comes to fraud there are three elements to look out for: opportunity, incentive and rationalisation. Understanding these three factors can help law firms fight the possibility of fraud. We are all human. What happens when it comes to mitigating cyber-crime risk though?
Strategic and measured plans must be implemented, not as a tick-box exercise, but as a real-time way of approaching a business.
Law firm wellness to mitigate risk
It seems so obvious that risk of insurance claims stemming from staff stress is high.
Mental health and wellbeing of fee-earners and support staff in general is top of insurers’ key issues arising for renewals this year. Thereafter, conveyancing, financial health, cyber security and risk management.
Joel Harding, associate director of Howden Insurance Brokers, outlines the correlation between staff wellness and PII renewal: “A key focus for PII underwriters is staff mental health and general wellbeing. This is because they are keen to understand what firms are doing to actively support their staff in this area.
“Issues such as fee-earners and legal cashiers working remotely, dealing with heavy volumes of high-risk work, increased pressures from clients, together with their own personal circumstances in the current economic climate, are all factors in claims activity.
“Claims do not generally arise from a solicitor’s lack of legal knowledge; the losses usually stem from staff who are overworked and under pressure. Either they have missed something due to time pressures or they feel uncomfortable asking for help.
“Staff wellbeing shouldn’t just be a topic of discussion on the agenda at partner meetings – it should be a culture embedded within the law firm.”
How law firms can mitigate the risk of cyber-attacks
Cyber-crime targeting lawyers and law firm support staff is becoming increasingly sophisticated, with months (sometimes years) going into its preparation.
High-risk law firms hold substantial funds that are transferred regularly. This is the perfect time for criminals to intercept. Our industry holds sensitive information too.
Do you have practical steps in place to manage cyber-risk? A bit like the monthly fire alarm check, do you have your cyber-attack ‘what if’ in place too? This should include payment and instructions verification processes, together with staff awareness training.
Don’t just have your cyber-insurance in place – speak to your insurers about how you can help yourselves. Make sure your compliance officers are secure in their roles. Prompt the COFA to attend ILFM COFA masterclasses.
If your IT systems are outsourced, check their policies on security and threats of cyber-attacks – don’t just assume they have everything in place. Ultimately, it’s in your clients’ best interests to communicate effectively on integration updates.
Don’t wait until it’s too late
The ILFM is running a series of events alongside training, as well as adding resources continually throughout the year, that can help towards mitigating risk.
The point we are making is not to let things slip until it’s too late. SRA fines, PII renewals, employee sick leave – looking after employees and colleagues is paramount to ensure that human stresses and personal strains don’t negatively impact the law firm business and that of your clients’ money.