Legal Invoice Auditing:

Transcription

1 Legal Invoice Auditing: Debunking Myths and Identifying Pitfalls M. Kelley Johnston Acuity ELM 5 East 2nd St Richmond, VA / kjohnston@acuityelm.com

2 M. Kelley Johnston serves as Acuity ELP s President / Chief Executive Officer. Acuity ELM is a software-as-a-service provider of legal e-billing, matter management, analytics and collaboration technology. Kelley brings over 25 years of experience in litigation management and applied legal technology to Acuity s executive team. Kelley joined Acuity in April She was named president and CEO in January Prior to her involvement with the company, Johnston practiced law for 17 years, defending Fortune 500 companies in products liability, mass tort and complex commercial litigation. Throughout her career, Kelley s focus has been litigation management - coordinating the defense of multiple cases and designing and developing management tools, such as document and resource databases, standardized discovery responses and witness development resources, to increase the efficiencies and effectiveness of the business of law. She began her career in private practice in 1983 with McGuire Woods. Johnston joined the firm of Wright Robinson in 1989, progressing to shareholder and client relationship partner for several of the firm s products liability clients. Johnston holds a bachelor s degree in English and History from Duke University and a law degree from Emory University.

3 Legal Invoice Auditing: Debunking Myths and Identifying Pitfalls Table of Contents I. Introduction...5 II. Auditing Process: Types of Audits...5 III. Achieving a Clean Bill: Top Ten Areas of Invoice Adjustment...6 IV. Conclusion...12 Legal Invoice Auditing: Debunking Myths and Identifying Pitfalls Johnston 3

4

5 Legal Invoice Auditing: Debunking Myths and Identifying Pitfalls I. Introduction The goal of any attorney should be to produce an informative, timely and accurate bill. One which passes easily through an audit with few or no exceptions, generates a positive (or at least not negative) reaction from the client who can clearly recognize the worth of services rendered, contains no surprises, and thus results in a stronger attorney-client relationship. Yet this is the exact point at which an otherwise healthy relationship can falter. From the client s perspective, a firm s invoice that is submitted 3 months late, loaded with red flags representing billing guideline violations, and containing significant unanticipated charges is more than ripe for a heavy write off, no matter how positive the relationship was from the beginning. So instead of making that difficult phone call in an attempt to recreate events surrounding work product that occurred several months earlier, the client turns to auditing options to unload this bogey man. Auditing, however, need not be the enemy. Bill audits are great sources of information - they can teach you how to do it right: how to avoid the pitfalls of future write downs and how to strengthen your relationship with your client. And the more knowledge you have, not only about the pitfalls of bill content, but also the various audit processes they may go through, the quicker you can succeed at this endeavor. First the process. II. Auditing Process: Types of Audits The days of block billing and payment of invoices without question are over. Furthermore, fewer and fewer clients are reviewing paper bills highlighter in hand. Today s legal invoices typically go through some kind of formal review. Clients are either using third party auditors, electronic billing systems or both. While some may still require that the claims adjuster or in-house counsel participate in the review process, often your client contact may not have the initial review or even the final one. So it is vitally important to understand the specific process your client uses: whether the process is completely outsourced, or involves a review by your specific client contact. Third party auditors performing a subjective review of your invoice will look for billing accuracy identifying duplicate invoices/ time entries and validating approved attorney rates. They will assess your compliance with the client s billing guidelines. Finally, they will make judgement calls on the reasonableness of amounts/ time billed, and the efficient and appropriate use of your firm s resources. They often use an electronic billing system that enables sorting, filtering and flagging to Assess specific line items Compare amounts and hours billed by task or activity Compare amounts and hours billed by timekeeper category (partner/ associate/ paralegal) Assess amounts and hours billed by specific attorney or paralegal Assess expenses by expense type Electronic systems alone can also do much of the objective auditing and scrubbing above, and can flag fees or expenses that violate guidelines or that reflect a certain pattern of billing, for further client or auditor review. Understanding the structure of auditor / e-billing process and the audience to which your invoice will be presented will aide you in successfully navigating this process. Legal Invoice Auditing: Debunking Myths and Identifying Pitfalls Johnston 5

6 III. Achieving a Clean Bill: Top Ten Areas of Invoice Adjustment So how do you avoid the invoice write down, the appeal process, the delayed payment and the unhappy client? Acuity reviewed representative invoice adjustments across 450 firms performing litigation defense work for the period to determine the most frequent reasons for bill adjusts and any patterns that could be ascertained. Based on our review, the top ten reasons for bill write downs are as follows: 1. Excessive / Inefficient Use of Time: This was the most frequent reason for legal fee adjustments, resulting in the largest total monetary write downs. Adjustments occurred most frequently for case assessment tasks, with the largest dollar write downs for fees related to analysis and strategy (ABA Code L120) and the most frequent number of write downs for settlement / ADR work (ABA Code L160). File review, file organization and deposition review by senior associates and partners drew significant attention, as client invoice reviewers noted such activities were better suited to lower priced staff. Other themes we noted were excessive amounts of time spent on initial case reports and research, with reviewers docking fees where they felt such research was unauthorized or consisted of reinventing the wheel especially where a certain issue had been previously addressed by the same firm on a similar matter or the same matter. Of note here: electronic review makes analysis of a specific activity and / or a specific timekeeper over multiple invoices and multiple claims much easier. Don t assume you can get away with lobbing billing entries of 0.2 hours across all of your files at the end of the month. 6 Annual Meeting October 2017

7 Sample Fee Descriptions Evaluation and analysis of Plaintiff s claim file in connection with ensuring all proper documentation was sent with discovery responses and preparing Privilege Log. ANALYZE MEDICAL RECORDS SENT FROM PLAINTIFF. COMPARE TO RECORDS PREVIOUSLY SENT AND BATES STAMPED IN PREPARATION TO SUMMARIZE RECORDS AND AVOID DUPLICATION. ORGANIZE IN CHRONOLOGICAL ORDER. Continue dictating status report including discussion of the Plaintiff s deposition testimony including its inconsistencies, offer of judgment and settlement negotiation status, motion practice including necessary motion to strike and reasons for same, additional specific engineering findings as they affect defenses, along with our recommendations as to future handling Conduct comprehensive legal research regarding Georgia and nationwide law pertaining to the. defense in light of client s desire to file a supplemental Motion for Summary Judgment with respect to this issue Hours Adjustment Reason Adj -2.5 Sufficient time allowed previously (3.5 hours) to identify documents to produce in response to discovery request. Preparing documents is considered a clerical task or activity and consequently is not billable This is work that could have been done by an administrative assistant or paralegal -3.8 Majority of the report is redundant to the initial report and other reports posted in [e billing system] -3.5 Excessive time conducting research regarding nationwide law, given that client already has this information pulled together. 2. Administrative/ Supervisory Tasks: Similarly, the second most popular reason for fee adjusts was for activities the client considered to be administrative or supervisory work or overhead. Drafting routine correspondence wins the prize here. Time billed for preparing fax sheets, cover letters transmitting material to the court or client were summarily written off as clerical tasks and thus nonbillable. Other big ticket write- offs targeted file review, file management and file organization again considered overhead by client auditors. Legal Invoice Auditing: Debunking Myths and Identifying Pitfalls Johnston 7

8 Fee Description Drafted correspondence to Superior Court Civil Clerk enclosing Answer and Request for Tribunal. Compile and organize exhibits to hearing and sort duplicates. Review status and completeness of electronic and hard copy files transferred from prior firm; conference with new paralegal and pro hac counsel re. history and imminent deadlines; prepare for substitution of counsel. Draft/revise 15 letters requesting records from each medical provider and attach the following, certification forms, signed authorizations, death certificates, and order appointing administrator over estate Hours Adjustment Reason Adj -0.2 Please do not bill for letters to the court Secretarial work; no analysis done -1.5 Time billed for tasks as described is considered overhead Letters with attached releases requesting medical records, films, etc. non-billable items per guidelines 3. Nonbillable Tasks: Write offs here focused on clear billing blunders, with largest deductions taken for unauthorized work, travel time and intra-office communications. Client auditors also wrote off time spent on routine file review, scheduling and budgeting. More attention to the client s billing guidelines can help attorneys navigate these avoidable adjustments. And a word of advice don t bill a client for writing a thank you note to that very client. 8 Annual Meeting October 2017

9 4. Overstaffing: Firm bills were cut where it appeared that multiple staff billed for the same task. The most frequent number of write offs occurred for overstaffing early fact investigation, case development and strategy activities particularly where one attorney reviewed/ revised another s work. Another area drawing attention was double or triple attorney coverage on conference calls, depositions, trial preparation and trials. The largest average line item deductions were taken for whole days of billing trial or deposition attendance particularly where the client s guidelines limited multiple attendance or required prior approval for additional attorney coverage. Piling on as described by a number of auditors, can be a significant red flag, particularly where multiple attorneys are covering the same routine call, low risk deposition or hearing. Fee Description Hours Adj Adjustment Reason Prepare for plaintiffs deposition -0.3 multiple attorney timekeepers preparing for this deposition; this attorney did not even attend this deposition Review and analysis of new complaint and forward report to client. Appear for/attend initial meeting with Dr. [XYZ] and Partner [ABC] Participate on call with [Attorney 1], [Attorney 2], [Attorney 3], and [Attorney 4] to discuss furtherance of defense. Work on opposition to motion to compel further discovery; conference with Mr. Ed [Partner] re same and s with Ms. [Attorney] re declaration supporting opposition -0.4 Multiple senior partners performing same routine task attorney permitted per meeting We will only pay for the attendance of one person on a conference call -4.0 Ed [Partner] already billed almost $13,000 to research and write this motion. He finalized it on 7/28. Seems like unnecessary duplication of work. Deposition of R, [Witness], day two -7.1 two lawyers not preapproved to attend full day of testimony. Legal Invoice Auditing: Debunking Myths and Identifying Pitfalls Johnston 9

10 5. Duplicative Tasks Billed: Here auditing caught exact or nearly exact duplicate tasks: an attorney or paralegal billing the same day/time/activity/description/amount in the same invoice or in a previous one. Also in this category were individual line items billed for multiple form letters or pleadings by the same person for the same or similar amount of time. Lesson here is attention to invoice hygiene make sure you or your billing administrator reviews draft bills to remove such duplicates. If line items are truly not duplicative, insure the descriptions and line time detail reflect different substantive work. Sample write down for similar/ duplicative work: a total of almost an hour to send what looks to be three identical s to experts. All line items were in same invoice. 6. Vague or Insufficient Description of Work Performed: Clients want to know what they are paying for. Attorneys who bill 3, 4 or 5 hours at a time on file review or analysis of issues without more detail are going to raise some eyebrows. Fee Description Hours Adjustment Reason Adj File review -3.0 Not clear Telephone attendance -1.4 Regarding what? ATTEND AND PARTICIPATE IN THE DEPOSITION -3.4 Please provide name and title of deponent OF Analysis re same -1.7 Too vague Update -0.5 Vague 7. Rate Adjustments: Most of the auditing here represents adjustments to bring billed fees within a preapproved rate for the specific timekeeper or within an overall matter budget. Clients are serious about compliance with authorized billing rates, and are getting more and more serious about budget limits. Make sure you are aware of your client s preapproved rates for each biller 10 Annual Meeting October 2017

11 and any matter budget constraints. Most billing systems will display matter budget limits and budget to actual totals. Many will even alert you or your billing administrator when you are reaching a matter budget limit. Here proactive communication is warranted. It lets your client know you are aware of its budget constraints and, if applicable, have solid reasons for negotiating a budget increase. 8. Partner Grazing : Like excessive or inefficient use of time above, these audits specifically targeted higher paid partners performing what the bill reviewer considered to be associate or paralegal work. The largest dollar and most frequent adjustments were for case assessment tasks (L110 and L190). Other frequent write offs included partner fees for document / file management (L140), routine depositions (L330) and preparation of pleadings (L210). 9. Overhead / Nonbillable Expenses: The most frequent expense adjustments were for charges the client considered to be overhead or nonbillable. Notable in this category were write offs for travel and meals (failure to comply with travel guidelines); copy and print charges; unauthorized litigation support vendors; online research; and delivery services or messengers. Most corporate clients and insurance companies no longer reimburse for what they consider to be typical law firm overhead: telephone, fax, postage, word processing, internet / on line research. Word of advice: if, pursuant to agreement with your client, your firm is paying vendors and then passing them through your expenses, do not bill your client for late fees or interest charged by the vendor due to late payment by you. This simply adds fuel to the fire. Legal Invoice Auditing: Debunking Myths and Identifying Pitfalls Johnston 11

12 10. Expense Billing Errors/Missing Information: The largest monetary write down of expenses occurred as a result of simple accounting/administrative errors, such as incorrect mileage rates, expenses posted to the wrong file, or missing receipts/back up. A few extra minutes by you or your billing administrator in reviewing expense line items can help you avoid significant headaches downstream and enable you to collect reimbursement on out of pocket expenses that much faster. IV. Conclusion My humble words of advice: read and familiarize yourself with your client s billing guidelines and make your associates and billing staff review them as well. Review your draft bills before submission with client eyes. How would you react to such a bill presented to you? Avoid red flag words such as scheduling, intra office conference, organizing and indexing, words that do not give substantive meaning to the analytical work you are actually performing. And if you are spending time on such clerical tasks stop and delegate. Communicate, communicate, communicate both before and during the work being performed, so that your client is fully aware of the steps you are taking to represent him or her. And document any agreements with your client such as the agreement to take that extra deposition and attach it to the invoice as a gentle reminder of what you both discussed. 12 Annual Meeting October 2017