Damage limitation

Many practitioners assume that the worst thing that could happen is that they might receive a negligence claim and have to report it to their insurers. For a few firms, however, there is an even harsher twist to this scenario – they may discover that an employee has acted dishonestly. As well as the potential for a claim against the firm (although there may not be any negligence) there is the bitter realisation that a trusted colleague has acted in this way. The wounds to morale, reputation and confidence can take a long time to heal, but there are steps that you can take to try and mitigate any damage, and to reduce the risk of this happening. A recent headline case involved a husband and wife, and included false expenses claims, forged qualifications, and the fact that the firm did not even know that the couple were married.

Sadly, when an employee goes 'bad' it is often someone who has worked at the practice for a long time, and who was in a position of trust. Worse still, it can be someone in a senior role, even a partner. Often these trusted long-standing employees are in the best possible position to circumvent compliance requirements, manipulate the systems or just breach all the rules. What steps can you take to protect the firm?

The first maxim must be 'lead from the top'. Nobody should be allowed to get away with breaches of compliance procedure, no matter how senior they are. A city firm imposed a rule that only partners could sign off certain parts of the 'new client' procedure, and they built this into their computer system so that only the partners had authority. What happened? They discovered that partners were simply allowing their secretaries to use their log-in details to get round the restriction.

The second maxim is 'Three 'R's - Regular Random Reviews'. Whatever your file audit system, you should include some files chosen at random, and do not accept any excuses for the file not being available for review. One firm recently audited some files, and discovered a will on a matrimonial file. It emerged that the fee-earner concerned had been taking instructions for the client's will at the conclusion of every matter. Good business practice, you might think – except that the fee-earner did not have training or experience in this field, she was not using the firm's precedents, and the fees for these wills were being paid directly to her, not into the firm's accounts!

'Encourage open discussion' is the third maxim - in both the examples above, secretarial and support staff knew what was going on, but either felt unable to say anything or were not aware of the seriousness of the breaches of procedure. Loyalty to one's colleagues is commendable, but not if a colleague's actions are putting the firm at risk. All staff should understand the potential for risk, and they should feel able to speak to someone senior in confidence if they are worried about something that is happening within the firm.

Finally, be aware of any unusual signs that might indicate a problem - often, when a matter is reported to insurers, the partners will comment "we thought there was something odd, but we weren't sure what it was". Do you know if one of your staff is suffering from domestic problems or stress? This could be bereavement, illness in the family, problems with children, or divorce. Any of these could also lead to financial problems, which might tempt someone to act dishonestly. Do you sometimes wonder how colleagues can afford exotic holidays or expensive cars, when you are struggling just to pay the bills and get by? There may be a perfectly good explanation, but often it's this sort of thing that can alert you to suspicious activity. Above all, be wary of the 'workaholic' who is in early, stays late, rarely takes holiday and never delegates work.

There has to be an element of trust in all employment, and in a majority of cases this trust will be rewarded. Compliance procedures will protect your staff, as well as the firm, and if everyone in the firm is treated equally then nobody should feel uncomfortable with these.