Managing Legal Expenses During Different Stages of Legal Proceedings

Approval and payment of expenses

To ensure the efficient and accurate approval and payment of expenses, adhere to the following procedure upon receiving the monthly payment request reports from the lawyers:

1. Verification of References: Confirm that each type of expenditure is accompanied by the necessary references, as outlined in our work procedures and specified in the engagement agreement.
2. Expense Reconciliation: Perform a thorough reconciliation to ensure alignment between the sum of individual expenses (assessed on a per-case basis) and the cumulative expense total.
3. Rate Comparison: Cross-check the expense amounts against the predefined table of expense rates detailed in the engagement agreement.

After the above tests, the employee in charge will approve the payment requests and forward them to his manager for further approval or to process the payment according to the procedures.

After the payment is made, the references will be recorded in the organization’s accounting. Usually, they are registered as legal expenses in the month of recording or payment. When receiving the expense reimbursement from the debtor, income from the debtor will be recorded. There is an alternative to recording the expense and charging the customer at the same time. This will result in creating an income that will offset the legal expenses and increase the receivables. This option is less common. In any case, the handling of legal expenses and the income related to it needs to be defined in the organization’s accounting policies. The collection manager can propose a policy, but the finance department makes the decision.

The control of legal expenses

The organization’s need to control the legal expenses is crucial as the lawyers are essential mediators between the organization, the authorities, and the suppliers to whom the expenses are paid. In this process, a lack of proper monitoring will cause the organization unnecessary expenses. In addition, there is a potential for unjustified requests for reimbursement of expenses not in accordance with the agreed expense rates tables (for example, the same expense twice and at different rates). These damages can be prevented with appropriate control, while without control, it will be very difficult to locate them later on in the process.

Optimizing Expenditure Rates through Comparative Analysis

To enhance financial efficiency, it’s beneficial to create and maintain a centralized comparison table detailing and comparing the expenses incurred by various lawyers serving the organization. Below is a structured approach for categorizing these expenses, aiming to facilitate a comparative analysis of lawyers’ rates:

1. Uniform Delivery Rates: To achieve cost-effectiveness, require lawyers to collaborate with nationwide delivery agents. This uniformity can reduce overall delivery costs, especially when different rates are charged for regional versus national deliveries.
2. Skip Tracing Services: This category should include expenses related to tracing addresses, bank accounts, overseas stays, details of deceased individuals, relatives, identity verification, inactive companies, company registrations, and vehicles.
3. Debtor Financial Investigations: In instances where lawyers need to conduct financial investigations to assess the economic feasibility of continuing legal proceedings, this category will cover the costs of these investigations, including tracking the debtor’s assets.
4. Statutory Fees: This includes standardized costs such as court fees, enforcement charges, foreclosure processes, and prison orders. While these fees generally don’t vary among lawyers, documenting and making them transparent to all department members is crucial.
5. Foreclosure Removal Costs: Often handled by subcontractors, foreclosure removal expenses can vary significantly. Documenting and comparing these costs for better financial management and decision-making is important.

This structure aims to provide a clear and systematic approach to managing and comparing legal expenses, thereby promoting fiscal responsibility and transparency within the organization.

Additional controls on legal expenses

• Are the expenses justified? For example, checking that no tracking costs are added to an existing address (delivery tracking ratio).
• Are the expenses appropriate? That is, are the correct and appropriate procedures being used? Are the procedures activated according to the stages of progress as determined between the organization and the lawyers?
• Is there an adequacy between the amount of the fund and the expenses invested in the portfolio?
• Is the reporting of the expenses reliable – preventing double demands or demanding expenses that are not related to the case.
• Is the recording of expenses in the lawyer’s management system complete, up-to-date and correct?
• Are the required controls performed on time?
• Is payment made on time to the lawyer (since by law the lawyer is generally prohibited from financing the expenses of his client).

Control reports to examine the required legal expenses

• Expenditures according to the general budget – target versus performance;
• Expenses according to the budget of each law firm separately – target versus performance;
• Expense cycle at a monthly, annual level – target versus performance;
• Errors by law firms – the amount of the allowed expenditure, duplication of expenditure, delay in expenditure in relation to the stages of the activity, settlements’ discounts, fees and more.
• Lack of references provided by the law firm.
• Checking the compatibility between the amount spent on the case and the original debt amount in accordance with the agreed-upon work procedures.
• Charges for expenses that are not in accordance with the stages of the process.
• Late billing of expenses (makes the control more difficult).

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