Law firms handle sensitive client information and significant amounts of money, which puts them at risk of fraud and financial mismanagement.
According to a 2020 Report by the Association of Certified Fraud Examiners (ACFE), 21% of fraud cases in professional services firms involved financial statement fraud. This highlights the importance of implementing strict internal controls to maintain data integrity within law firms. In this article, we explore some of the best practices to mitigate the risks associated with financial mismanagement.
Internal controls for fraud and prevention
By adhering to the following best practices law firms can protect their financial assets and maintain the trust of their clients.
1. Segregate financial duties
Law firms should ensure that different individuals are responsible for key financial tasks, such as authorizing transactions, recording financial data, and reconciling accounts. Dividing these responsibilities helps to create a system of checks and balances to reduce the risk of unauthorized actions.
2. Perform regular account reconciliations
Regular account reconciliations are important when it comes to detecting discrepancies in your firm’s financial records. Law firms should reconcile bank statements, client trust accounts, and general ledger accounts on a timely basis. This process helps identify any errors, omissions, or suspicious transactions. Once a staffer notices irregularities they can have this escalated to the CPA for prompt investigation and resolution. At Fusion CPA we do monthly reconciliations to ensure the accuracy and safety of your financial records.
3. Implement strong access controls
Maintaining strong password policies and access controls can help to protect sensitive financial and client data. At Fusion, we enforce password complexity requirements and aid our clients in the law firm space to have good housekeeping when it comes to multi-factor authentication. Our CPAs also reinforce the fact that access to financial systems and sensitive information should be limited to only authorized persons to reduce the risk of internal fraud.
4. Perform regular internal audits
Similarly to conducting account reconciliations, your outsourced accounting firm can conduct internal audits to assess the financial controls and processes. This can also be done by internal auditors, who are trained to identify gaps in the system and recommend improvements to ensure regulatory requirements, and maintain financial information.
5. Invest in employee training
Promoting a culture of ethics and integrity within the law firm. Training that focuses on fraud prevention, ethical conduct, and internal control procedures is ample to keep employees informed.
By adhering to these best practices can help your law firm maintain the trust of your clients. Fostering a culture of accountability will help law firms mitigate risks, ensure compliance, and safeguard their reputation in the legal industry.
At Fusion, our CPAs perform monthly recons and pick up on irregularities that may be a cause for concern. We also make use of secure accounting software to ensure the safety of your sensitive financial information. To find out how to safeguard your law firm against fraud, contact our team for advice.
____________________________________________________
This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. Articles are based on current or proposed tax rules at the time they are written, and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.
