Minimum Operating Standards
Risk Management and Minimum Operating Standards
Introductory note on risk management
While practitioners may appreciate some of the risks in their own areas of responsibility, the practice’s full spectrum of risks is often not appreciated. Practices need to take a holistic approach to managing their risks.
Broader risk management for any practice will incorporate issues like:
- Financial risks
- Practice management risks
- Operational risks
- Strategic risks
- Environmental risks
For any professional services firm, the greatest risk is to its biggest asset – its reputation. Attorneys’ practices are no exception. In this article we focus more narrowly on practice management and particularly this reputational risk.
What follows is a checklist we have developed in response to requests to the Attorneys Insurance Indemnity Fund (AIIF) from several practitioners, to provide them with some guidelines for drafting a Minimum Operating Standards (MOS) document. These guidelines aim to facilitate client retention and assist in avoiding claims by clients, through the provision of an above-average legal professional service. (To a certain extent, they also encompass compliance and money–handling issues.)
Some of the positive spin-offs of the MOS should be:
- improved planning;
- greater certainty and predictability;
- a cohesive and more efficient work structure; and
- the facilitation of performance management.
When drafting your practice’s MOS, it is advisable to refer back to your practice’s mission statement. A legal practice’s mission statement will usually include ideals like enhancing its reputation by providing a professional client service and client satisfaction.
The MOS will focus on the importance of the roles of all employees, both professional and support staff. It should be updated and streamlined on a regular basis as circumstances change.
Once drafted, the MOS should be easily accessible to all staff, who should be trained to apply them. Compliance with the MOS should be regularly monitored and there should be sanctions for non-compliance. In this regard it may be worthwhile to appoint a compliance officer - if your practice is sufficiently large.
What should typically be covered in your MOS?
- General reputation
These rules and standards will relate to the individual employee/principal’s relationships with the regulators, the practice, internal and external colleagues and with the broader public. They should encompass issues like the use of social media, telephone and court etiquette, dress codes, written communications and staff meetings - to name but a few.
- Client engagement management rules and standards
- First consultation: assessment of the client/conflict checks/ FICA rules/ POCA/assessment of the matter/ mutual expectations/ground rules/ checklist/ completion of information sheets/ projected costs and time period/the rule that all issues must be fully documented;
- Engagement/mandate letters: must outline the full contract between the practice and the client – checklist for this should include billing policies/rules of communication/the agreed mandate (there should be a uniform basic document used by the practice, together with a checklist, that can be tailored for particular clients and mandates and which must be updated as circumstances change. It must be signed by both parties.);
- Non-engagement letters: must be given or sent to parties where the mandate is not taken on;
- Communication with client (and other parties): these rules might include frequency, content, style, proof of delivery/receipt, written recordal and confirmation;
- Client confidentiality/ethics/data protection rules;
- Client complaint procedures and dealing with difficult clients /third parties;
- Uniform billing policies; taking of deposits/ billing charges/ frequency/ payment terms/collections;
- Uniform rules on closing the engagement and the file.
- File/case management rules and standards
- The use of checklists for matters (where appropriate) and working plans;
- Delegation rules: what can be delegated/to whom/the duties and responsibilities of the delegator and delegate;
- Rules for the supervision of all colleagues, delegates, junior employees and support staff;
- Settlement of matters;
- Opening files and uniform file order;
- Rules for and value of keeping appropriate file notes;
- Drafting documents, draft identification and maintenance;
- Checks and balances including compulsory file audits/proofreading/checking of incoming and outgoing mail/separation of duties/ centralised diary system;
- Rules for the creation of and effective use of the practice’s diary system and/or Prescription Alert;
- Rules for the creation and effective use of the practice’s filing system;
- Information and document storage;
- Research and knowledge management;
- Rules for instructing counsel and experts;
- Rules for file-handover (from or to another firm or an attorney within the practice);
- Strict rules for payment out, of any money deposited in the trust account;
- Closing and storing files after finalisation.
- Trust account management rules
(Many of these are captured in your Law Society’s rules)
- Strict separation of duties for EFT and cheque payments;
- Levels of authority and checks and balances in place;
- Strict password and pin security in place;
- Controlled access to computers;
- Strict rules and procedures relating to recipients’ bank account details (eg. FICA the recipient) and more importantly any changes to a recipient’s bank account detail ( re- FICA the recipient);
- Extraction and balancing of accounting records at least on a quarterly basis, preferably monthly;
- Extraction of trust creditors listing at least quarterly, preferably monthly;
- No debit balance on each of the trust creditors accounts at any given point;
- No deficits on the aggregate balances at any given point;
- Maintenance of accounting records and their supporting documents, including proof of EFT payments and returned paid cheques from the banks, for a period of at least 5 years following the last entry into the records;
- Strictly defined processes/procedures/checks and balances for payment requisitions and both EFT and cheque payments;
- Strictly defined procedures for journals authorisations and recording thereof;
- Strictly defined procedures for transfer of fees from trust account to business account and maintenance of fee schedules
- Monthly trust bank reconciliations for each of the trust accounts;
- No payments out of suspense account - funds to be first identified and allocated to the correct account before payment is done;
- Funds remaining unidentified or unallocated in suspense for a period of 2 years and more - to be paid over to the AFF;
- Declaration of income received and correct determination and payment to SARS of income tax and VAT;
- Payment of interest (s78(1) and s78(2)(a) accounts to the AFF on a monthly basis. (Beyond 2017, include levy on s78(2A) interest);
- Maintenance of a valid FFC
- Annual audit, with no qualification
- Attorneys statement on trust account.
- Staff professional development rules
- Staff recruitment and training;
- Performance management;
- Continuing professional development.
Legal Risk Manager
(Many thanks to Simthandile Myemane of the Attorneys Fidelity Fund for her contribution to the section on trust account management rules.)