The Critical Role of the Legal Audit Team

Objective Checks & Balances for Legal Services

(This article was contributed by Domenick C. DiCicco Jr., JD, MBA, head of legal strategy at AIG.)

The legal audit team (LAT) is critical to the competence of any litigation management and corporate legal function. The LAT function breathes meaning into litigation management guidelines (LMG), service level agreements (SLAs), and best practices (BPs). Too many litigation management programs amount to nothing more than the creation of LM guidelines, SLA, or best practices that have little or no meaning in practice. The LAT serves to make sure the company’s litigation management program has real world impact.

A quality LAT also serves as a quality assurance check against the company’s legal management policies and can serve to identify new areas of opportunities in the efficient delivery of legal services. The LAT’s charge should be a review of compliance against the company’s best practices and a value audit—that is, if the charges and time reasonable and equal to the value of the activity.

Click on "Next" to learn how this vital team will add ongoing value to any organization.

A properly run LAT will pay for itself year-after-year by assuring that:

  • The company’s legal policy is followed.
  • The company’s legal billing guidelines are followed.
  • There is alignment between counsel and the company’s legal goals.
  • The company is paying for legal services equal to the value received.

It is critical to the effectiveness of the LAT and the corresponding LMG, BP, and SLAs that the LAT have good metrics to assess their own performance. Here, the maxim of Ductus Exemple1 is a must in order to give the LAT credibility as well as being good management.

Anatomy of a Team The LAT team must have two traits to be both credible and successful: 1) the team must be staffed by attorneys who have practiced for at least five years and 2) the team must be independent of the department whose portfolio is being audited.

To further elaborate on point one, neither the law firms nor the units who retained the law firms being audited will believe the process is credible if the audit is done by either non-attorneys or someone with a law degree who never practiced. This is a fair point and one common in other professions. You would not have a doctor peer review the work of another doctor if the peer review doctor had a medical degree but never practiced. Your audit team should begin its contribution to the organization with credibility.

A Systematic Audit Process Is An Effective One Many organizations conduct legal audits of their firms very infrequently. They then express astonishment that their firms are not showing any improvement in the audit process. In order to achieve the ultimate goals of the audit process, that is to change behavior so it is aligned with your organization’s general, legal, and efficiency goals, firms must be audited in a consistent and systemic manner.

Measuring the Team’s Effectiveness Initially, a good LAT and accompanying process will yield findings heavy on non-compliance and of questionable value of the files it audits. “It’s not enough to do your best; you must know what to do, then do your best.”2 Stated another way, “Management by objectives works if you know the objectives.”3 Once you figured out the correct objectives, (i.e. you know what to do), you must then create the appropriate metrics. As the oft stated truism provides, “What get’s measured, gets done.”4 This is to be expected as it is human nature to conduct their business in a manner consistent with what is being measured. However, assuming a homogeneous portfolio of legal cases, the scores should level off after the third year.

When this happens, do not make the mistake of thinking the LAT has stopped providing value. Quite to the contrary, this is a clear sign that the team is adding the exact value it was designed to add. Many LATs make the mistaken belief that they need to demonstrate value via a constant finding of non-compliance or non-value. However, if the LAT is accomplishing its goals of policy enforcement, education, monitor, revision, then it is expected to see the drop-off in the third or fourth year of the audit process.

The effectiveness of the LAT should be measured on the following:

  • Level of compliance with company’s best practices, litigation management guidelines and service level agreements. After three or four years, compliance should be high, say between 85 and 95 percent.
  • Validation that the BPs, LMGs, and SLAs are serving as a tool to execute the company’s Legal Management Strategy.
  • Alignment between counsel and the company’s legal goals.
  • The company is paying for legal service equal to the value received.

The Legal Audit Team is a critical component of any company’s legal strategy. It inserts an objective measure of the company’s legal management goals while offering a vital feedback loop to management. The investment in a Legal Audit Team is money well spent, and it will provide a solid return on investment and a real-time check on the effectiveness of the organization’s legal strategy.

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