Google “law firm embezzlement” or a similar term and plenty of recent cases pop up…
- $961,000 taken by a bookkeeper who had access to the firm’s accounts and the absolute trust of the partners. In this case, the bookkeeper’s personal credit cards were paid by disbursements from the law firm’s accounts from 2010 to 2014.
- $300,000 over by a 41-year employee who wrote checks to herself and other people unrelated to the law firm and forged endorsements from 2007 to 2010.
- $567,000 over several years by a bookkeeper who forged checks written to herself and then falsified the accounting records to reflect legitimate payees.
How prevalent is this kind of theft? According to the ABA Journal, it may be more prevalent than the publicized cases because law firms wish to avoid the publicity and embarrassment that a trusted employee has taken money, often over a relatively long period of time.
The reaction of an attorney or firm who has gotten burned or is wary of becoming another victim is natural and understandable: the managing partner or firm owner writes all of the checks. Although this does implement a control over the cash, spending hours each month writing checks really isn’t the best use of time for an attorney who should (and would probably prefer to) be doing billable work.
An effective system of internal controls over funds receipts and disbursements is challenging to implement in a small firm because there may be only one employee available for bookkeeping work. Over the past few years, online systems have been developed that can be implemented to establish good internal controls, for example bill.com. For that reason, bill.com is a good solution for a law firm to get control over disbursements without spending hours of valuable attorney time with an impressive set of checks and balances that mimic those in place for a large corporation. Features include the ability to:
- Designate one or more approvers; bills cannot be paid without the proper approvals in the system
- Require more than one approver for large or sensitive disbursements
- Attach source documentation to the bill. Source documentation is retained in perpetuity and can be reviewed by the approver
- Set up and pay from multiple bank accounts
Bills are entered into the system by clerical staff with the due date. Bill.com automatically routes the bill to the approver(s) according to predefined workflow rules. A dashboard for each user gives a picture of bills in queue and their status. In addition Bill.com synchronizes with popular accounting software to update the firm’s books in real time. Once vendors are set up in the system, the bill payment process is greatly streamlined.
Once properly implemented, online bill payment implements much needed controls over disbursements, saves hours of time each month on bill payment and provides a level of assurance that only properly authorized disbursements are being made to legitimate payees. For more information about online services for your law firm, contact me at 305-699-8323.