Architects & Engineers Articles -
You Really Do Need Internal Controls -- Here's Why

Many scoff at the idea that a firm made up of collegial professionals needs internal controls — or any strict, by-the-book policies, for that matter. But a firm is a business, and internal controls ensure the integrity of its financial transactions.

What Are Internal Controls?

Internal controls are the policies and procedures that protect your firm’s assets, create reliable financial reporting, promote compliance with laws and regulations and achieve effective and efficient operations. They include firm procedures for handling the funds you receive and expend in your operating and trust accounts, preparing financial statements for the executive committee and equity partners, evaluating internal operations, and implementing personnel and conflict-of-interest policies.

Segregate For Safety

The receipt of cash and checks by firm personnel calls for segregation of duties. The person who opens the mail should be different from the individual who prepares the listing of checks and cash received, and neither of them should be the one who applies receipts against open accounts receivable. Also, all checks received should be endorsed with a stamp that includes your firm name, financial institution, account number and the words “For Deposit Only.”

Similarly, safeguards should be in place before funds are disbursed from your firm’s operating account or any client trust accounts. All check requests should have an approved signature authorizing the disbursement, and supporting receipts and documentation should be attached. Original invoices should be required and, to prevent resubmission, stamped “paid” once the check is cut. Never process or sign blank checks for anyone, and require two signatures for checks over a specified limit — such as $1,000. In many firms, one signature must be that of the managing partner or a financial-matters designate.

Ensure Trust-worthy Client Accounts

Client trust accounts are a special and valuable practice area for most law firms, and attorneys are placed in a unique position when it comes to managing them. Unfortunately, the top reason for disbarment is the mishandling or misuse of client funds. To protect against fiduciary failures:

• Monthly trust account reconciliations should be prepared and reviewed by a separate staff person,
• Any unusual items should be clearly and adequately explained and documented,
• Any transfer or disbursement of funds should be signed by the responsible attorney and an explanation should be provided,
• The managing partner or a designate should periodically review all trust account reconciliations, and
• Blank checks should be kept secure.

Show Them the Money

Monthly, or at least quarterly, financial statements — including a balance sheet, income statement and summary of cash flows — should be distributed to and reviewed by your executive committee and all equity partners.

Save Your policies; Save Your Firm

All of your internal policies and procedures — including hiring, vacation and sick leave, health insurance and other benefits, performance evaluations, ordinary and overtime compensation, conflict of interest, code of ethics, and review of associates’ legal work — should be in writing and given to all employees upon hiring, with changes communicated on a regular basis. Lack of clear policies in these areas can represent significant risks to any law firm.

Find out how our expertise in accounting for architects and engineers can add value to your business. Email us or call us at 1 (888) 875-9770.

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