The term legal audit typically refers to a process in which billing practices and policies are analyzed to check for inaccurate, inefficient, or abusive legal billing. For this process, an auditing company usually reviews a law firm's records in order to find issues that may mean the firm is not in compliance with billing standards. In some cases, however, the term legal audit has a different meaning. It is sometimes used to refer to a process by which a company’s risks are identified and analyzed, with the goal of using the information to minimize the company’s risk going forward. This type of legal audit is sometimes described as a company health check.
When an audit company conducts a legal audit, it may work to ensure not only that the fees a firm charges are reasonable and in keeping with standards, but also that the firm has actually done the work for which it has billed its clients. Likewise, an auditing company will usually check for documentation of expenses for which the firm has billed. Most clients trust law firms to be honest about charges and keep mistakes to a minimum. Sometimes, however, legal audits have uncovered glaring errors and systematic over-billing. As such, legal audit companies provide a valuable service.
Typically, an audit of a law firm's billing includes an examination of the firm's legal billing records not only for errors and excessive billing, but also for duplicate billing for the same work. It may also check for non-billable expenses that are charged to clients. Usually, this type of auditing is performed not only to uncover problems, but also to encourage billing policy improvements.
A legal audit of a company that is not a law firm may include an analysis of current operations, strategies, assets, and legal structures. It may also include reviews of documentation procedures as well as employee policies. Often, this type of audit is intended to analyze a company’s legal needs as well as to determine what those needs might be in the future. Likewise, it can be used to evaluate changes in legal requirements and new risks that may stem from changes to policies, objectives, or business structures.
The legal audit process a company undergoes may include on-site meetings and reviews of a range of pertinent documents. Often, this type of legal audit includes written documentation of the results of the audit. It may also include an estimate of the amount the company would likely have to spend to fix the issues identified in the audit.