Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. At a recent managing partner forum several of the attendees at the seminar discussed recent experiences with embezzlement by employees. What can we do to protect our firms?
A. During the past 25 years that I have been working with law firms I have been amazed at the number of embezzlements caused by unscrupulous attorneys, bookkeepers, office managers and other staff members. And yes – even partners. One out of five law firms in my client sample has actually lost funds due to some form of embezzlement and caught the offenders. While some of the firms have prosecuted and taken other actions against the offenders the process was very painful, time consuming, and typically the funds are never recovered in entirety. Of course, this is if you catch the offenders.
Many small firms’ internal control procedures are so lax that funds could be lost through embezzlement and the firm would not even know it.
Only through effective internal accounting and financial controls can law firms protect their offices from theft. The goal is not to catch offenders – but to have a system in place that discourages and prevents the theft from occurring in the first place.
The process involves implementing internal accounting and financial controls. In essence – segregation of duties. Here is an overview of such a system:
Internal Control is the plan of organization and all of the coordinate methods and measures adopted within a business organization to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.
The four basic elements considered essential in a satisfactory system of internal control are:
1. A plan of organization that provides appropriate segregation of functional responsibility and duties.
2. A system of authorization and record procedures adequate to provide reasonable accounting control over assets, liabilities, revenues, and expenses.
3. Sound practices to be followed in performance of duties and functions of each of the organizational areas.
4. A degree of quality of personnel (competency) commensurate with responsibilities.
SUGGESTIONS:
RECEIPTS
1. Have someone other than the bookkeeper open the mail. (i.e. receptionist)
2. Have the person who opens the mail prepare a list of all checks/cash received in duplicate.
3. Have person responsible for mail route one copy of the check/cash list to the office manager or managing partner and the other copy along with checks/cash to person responsible for making the bank deposit.
4. Assign someone responsibility for preparing the deposit and taking it to the bank. This person should verify the check/cash list against checks and cash, prepare deposit slip and make the bank deposit.
5. Upon return from the bank the deposit clerk should provide the bookkeeper with the deposit slip, receipt from the bank, and the check/cash list.
6. Bookkeeper enters the deposit into the computer system.
7. Office manager runs and mails monthly statements - not invoice fee bills - to clients.
DISBURSEMENTS
1. Don't give bookkeeper check signing authority.
Practice News
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June 1, 2011 |
Practice News
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June 1, 2011 |
ISBA News | Practice News
Pre-Divorce Planning Alternative to Court
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May 31, 2011 |
Practice News
In another bow to the digital age, those bulky law books containing officially reported Illinois court opinions soon will be going the way of 8-track tapes and boom boxes. The Illinois Supreme Court announced Tuesday a new way of officially citing its cases and those of the Illinois Appellate Court. This new method will eliminate the need to contractually publish and purchase the official opinions in bound volumes. It will save Illinois taxpayers hundreds of thousands of dollars a year. Illinois will join about a dozen other states who already use the new method of case citation. The Supreme Court promulgated the changes in amendments filed Tuesday to Supreme Court Rule 6 and Rule 23. “The changes are reflective of the way we all live and the way the practice of law is changing,” said Chief Justice Thomas L. Kilbride. “So much legal research is now done online through references and sources available on the Internet and even on smartphones that it makes the publication and purchase of official printed volumes unnecessary and a waste of money and resources. “The official body of Illinois court opinions will now reside on the website of the Illinois Supreme Court, readily available to lawyers, judges and law clerks for official citation and to any member of the public who wishes to read them.” The changes are part of a movement by the Supreme Court under the tenure of Chief Justice Kilbride and his predecessors to integrate electronic technology with a goal of achieving greater court transparency and efficiency. The Illinois Supreme Court was one of the first to incorporate Twitter in publicizing announcements and was also among the early few to make available video and audio recordings of its oral arguments the same day they occur before the Court. The audio of all Appellate Court arguments is also available on the Court’s website at www.state.il.us/court.
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May 26, 2011 |
Practice News
By Peter LaSorsa The government comes under fire often for being slow, over bloated and the enemy of small businesses. Well here is good news for small business owners, which would include many solo practitioners and small firms. Now business owners may receive updates, tips and other ideas about starting their company or just improving it thanks to a new smart phone app. The Small Business Administration (“SBA”) along with Palo Alto Software created this special free app called SBA mobile and it is available at: www.sba.gov/content/sba-mobile-app The app provides owners with business news, and features tailored for small businesses and are designed to help increase business. App users will also have access to SBA video content, social media alerts and live updates from Twitter and YouTube. The app has a built-in startup cost calculator—custom designed to help estimate the expenses needed to start a business (useful for yourself and clients who may hire you as part of their desire to start a business). The app also has a feature that allows you to find any SBA office nationwide and allows direct access to SBA district office staff for easier assistance. The final feature of the app is access to the Small Business Development Centers, Women’s Business Centers and SCORE. The SCORE Association “Counselors to America’s Small Business” is a nonprofit association comprised of 11,500 volunteer business counselors throughout the U.S.
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May 25, 2011 |
Practice News
In baseball and residential real estate practice, it often comes down to the last inning when a lights-out closer can make the difference. Check out the June Illinois Bar Journal for tips from veteran lawyers about what you might encounter at a real estate closing and how to handle it.
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May 25, 2011 |
Practice News
Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. As the managing partner of a 12 attorney firm, I have been asked to see what the firm can do to improve profitability by reducing costs. Do you have ideas or recommendations in this area? A. In most law firms the real problem is insufficient gross income and lack of sufficient investment (spending and time) on marketing and initiatives designed to stimulate client and revenue growth. For most firms increasing revenues is the most effective way of impacting the bottom line. However, we do find that there is waste and unnecessary overhead that eats away at profits and a cost control program is also recommended and implemented. During recessionary times such as we are currently facing – drastic cost control are often the only option. Reducing overhead can immediately and effectively improve a firm’s bottom line. The first step in an expense control program is to identify those areas where potential savings exist. Review your profit and loss statement. Resist the temptation to arbitrarily cutting costs which could cut the muscle with the fat and result in revenue loss as well. You have to spend money to make money – so if cost cutting is the appropriate strategy – cut the right costs. Think strategically about cost reduction. After you have identified areas where savings can be made prioritize and develop specific strategies and implement action plans to achieve the savings. Here are a few ideas: STRATEGY #1: Reduce Headcount This is the largest area for potential savings. Downsizing is a strategy that has been used by many firms this past year. However, it can have long term negative consequences for revenue and talent management. Consider all levels – non-productive partners, associates, paralegals, and staff. Be prudent and sensitive in implementation. STRATEGY #2: Reduce Compensation Obviously one way is to cut salaries – a strategy to be used as a last resort. A better approach is to reduce fixed salary (paying people for showing up) and add a variable pay component which will allow employees to earn additional compensation in the form of bonus for results achieved. Another approach is to freeze salary increases. STRATEGY #3: Benefits A major area for cost savings – especially health insurance. Determine which programs are most important to employees. Do your best to protect those and reduce or eliminate programs that are less important. Consider offering more than one health insurance plan. Pay the premium for the lowest cost plan and provide options for employees to “opt up” to the better plans by paying the additional premiums. Consider increasing deductibles and requiring employees to pay a portion of the base premiums. STRATEGY #4: Outsource Examine potential for outsourcing – from copy services – IT management – to your legal team.
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May 21, 2011 |
Practice News
It's the one thing all of the Supreme Court justices agree on -- briefs are too long. Bryan A. Garner has published the transcripts of his interviews with eight of the nine justices (Justice Souter did not participate). Garner has put the videos of the interviews on his website for several years as a public service. This New York Times article by Adam Liptak is a nice summary of some the justices' thoughts on legal writing.
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May 20, 2011 |
Practice News
All associate judges in Illinois are subject to re-appointment in June 2011. The associate judges are elected by the full circuit judges in each circuit. The Illinois State Bar Association has conducted a poll among its members on associate judges outside of Cook County. Click here to view the results.
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May 20, 2011 |
ISBA News | Practice News
There's no better way to stand out from the crowd and establish yourself as an authority than to write for a peer-reviewed publication like the Illinois Bar Journal. (And IBJ authors can earn MCLE credit to boot.) We're not a law review, so you needn't -- shouldn't -- take a highly formal approach. We're looking for how-to articles that give practical advice to our members, written in a clear, easy-to-digest, conversational style. Interested? Read the IBJ manuscript guidesheet and find out more.
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May 19, 2011 |
Practice News
Our panel of leading appellate attorneys review Thursday’s Supreme Court opinions from Civil cases General Motors v. Pappas, Auburn v. IDOR and Bell v. Hutsell and Criminal cases People v. Absher and People v. Marshall.
CIVIL
General Motors v. Pappas