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Law Firms in the Cross-Hairs of Accounting Scrutiny?

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By Jonathan R. Tung, Esq. on January 13, 2016 2:56 PM

In a recent The Economist piece, Matthew Valencia offered his predictions for the genesis of the next legal-financial scandal. After these last few years of LIBOR manipulation, Volkswagon, and investigation by the CFTC into precious metals manipulation, it can almost be said that the public is inured to these sorts of scandals.

A number of suspects were named, including China (referring to possible market troubles), unscrupulous elites trading art pieces, and of course -- law firms.

"Shillable Hours"

As is typical of The Economist, the author dishes out another great play on words. But Valencia's characterization of lawyers shilling their clients by the hour is not a laughing matter -- for both honest and dishonest lawyers.

It's been accepted that the standard manner in which associate attorneys were judged and evaluated is to look at their number of billable hours. Anything less than the standard number might place your promotion, bonus and even your office in jeopardy.

However, there's been some indication that the legal culture has shifted away from this model. Case in point, the firm Jackson Lewis PC announced recently plans to throw-out the billable hour as means of evaluating young associates.

Still, old law firm habits die hard. And the model has been accused of actually enabling attorneys to dishonestly pad hours to their client's detriment.

The Clients Strike Back

Maybe Jackson Lewis PC made the move in response to the client movement of getting really, really angry. Invoice audits of lawyers bills are on the rise. No longer are clients simply acquiescing to the final total at the bottom of the page. In Valencia's opinion, in fact, the whole legal industry could potentially be racked because of an explosion of a scandal without hours are billed to the client. Firms like Jackson Lewis PC could be letting air out of the balloon -- but perhaps too late?

And don't think small firms can wriggle out of this crisis either. The scrutiny will extend to all levels of the legal profession including to boutique firms that offer specialized services to individuals of certain wealth who seek to hide their overseas assets, or to hide assets in "shell companies." Soon, it will get a lot tougher to do business in the law because restrictions tend to only get tighter.

After all, have you ever heard of rules ever loosening up? Me neither.

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