Should the Law Department Be Audited?

Author: Richard Stock - Lexpert (September 2007 at page 141)

Few general counsel would invite an audit of the law department. Status reports on claims and litigation are presented to management and board committees on a regular basis.

But a “comprehensive” audit has an altogether different set of objectives designed to assure management that it is getting value for money from its legal function. Whether conducted as a simulation by the law department as part of an organizational review, by the corporation’s internal audit department, or by an independent third party, there exist standards and a methodology to conduct such a review. Legal leadership should know about both.

Objectives and Scope

An organizational review of the legal function, especially one conducted by parties respecting internal auditing guidelines, is designed to provide a reasonable assurance of the adequacy, effectiveness and efficiency of the management structure, processes and controls of the law department. An audit should examine the extent to which the legal function is meeting the needs of its internal users. It should also comment on the relationship between expertise and efficiency.

The Institute of Internal Auditors ("IIA") produced a Development and Practice Aid in 2002, entitled “Auditing the Legal Process: Improving the Efficiency and Effectiveness of Legal Counsel” as part of its professional practices framework. No doubt internal auditors face all shades of resistance when plying their craft and making developmental recommendations to law departments and to other parts of the company engaged in non-financial endeavors. The IIA produced useful guidance (Practice Advisory 2410-1 January 2001) on how best to manage communications before, during and after an internal audit. General counsel would do well to review these professional practices.

Elements of the Organizational Review / Audit

The review may only be conducted every five years or so, or when the corporation has undergone a significant re-organization and/ or change of corporate priorities. IIA and COSO ERM principles produce audit criteria for seven (7) areas:

1.    Strategic Positioning

• clear statement of purpose and mandate for the legal function

• alignment of legal objectives with corporate objectives

2.    Structure

• documented roles and responsibilities within legal
• appropriate resources to undertake roles
• measures employed efficiently
• legal team maintains skills and training

3.    Management Framework

Planning/Organizing
• plans and budgets consider demand for quality and services needed

• linkage of individual objectives to department objectives