Invoices and Expenditures

Handling costs and invoices incurred on client matters.

Cross-reference:

Policy: Case Approvals and Retainers

Reasons For This Procedure

We must avoid expending funds, or become obligated to do so, when we may be unable to obtain reimbursement from a client. We must also avoid incurring expenses in an amount, or for an item which the client has not approved, for doing so strains client relationships and may result in the Firm being unable to obtain reimbursement.

We have had problems with this in the past, including: (a) failing to send invoices to the client for several months after an invoice was received (the PRA was confused when an excessively large invoice was first received and simply did nothing); (b) court reporter fees were billed to a client but not paid, leaving the Firm “on the hook” to pay the reporter without reimbursement (which cost the Firm more than $6,000 in unreimbursed court reporter fees); and (c) cases were settled based upon remaining limits on an eroding policy without checking to make sure that all expense invoices had been received, leading to a situation where no coverage was remaining. These examples are but a few that illustrate the financial losses and client relationship damage that we’ve incurred due to a lack of attention to detail when it comes to costs.

These situations may be avoided by strict compliance with the following requirements in every case.

Prior approval—insurance and corporate matters. For insurance cases, this means following the insurer’s prior approval and documentation requirements. All approvals must be documented in writing. All personnel must have detailed knowledge of insurance company requirements; typically this knowledge will require careful study of the insurer’s Legal Services Agreements or similar documents. Corporate clients often have similar requirements. Failing to follow such requirements carefully will generally result in loss of the client.

Prior approval—private clients. Unless the client has signed a contingency fee that requires the Firm to advance costs that will be deducted from the funds recovered for the client, it is essential to ensure that the client—rather than the Firm—is contractually obligated to the service provider, or pays in the first instance for the item. For example, if the Firm must hire a court reporter, investigator or expert, the client must either contract directly with those vendors or deposit sufficient funds into our trust account to ensure that we will be able to pay the vendor and still have enough in the trust account to cover our own fees. Expenses for such items as air travel, hotels, meals, court reporters and like items will rapidly deplete small retainers. A client who balks at requests for retainers in advance is unlikely to pay bills later.

Prior approval—costs advanced by the Firm. In matters in which the Firm advances costs on a contingency-fee basis, all expenditures must be approved in advance by the President of the Firm, both as to type and amount. In all cases, our agreements with vendors must include budgetary constraints.

Timely notification. It is important to provide prompt notice to our clients (and/or their insurers) when the Firm receives any invoice from outside vendors. Outside vendors include experts, court reporters, process servers, investigators, mediators and other consultants. It is particularly troubling to clients to learn, months after a matter has been closed, that a large payout that has never been discussed must be made by the client.

Client expectations. Of equal importance, we must keep a close eye on whether an outside vendor’s invoice is significantly in excess of what the client expects, for when this is the case, damage to our client relations can result. Clients hate to be surprised by the size of a bill owed to an outside vendor, and when this happens, they tend to hold it against us. 

Record-keeping. The Firm must keep clear records of: (a) when an invoice was received; (b) whether the PRA’s initial examination of the invoice reveals any problems, such as excessively billed amounts, work beyond what was authorized, the timeliness of the invoice and other potential discrepancies; (c) when the invoice was sent to the client; and (d) the total of costs incurred through the Firm’s outside vendors.

Allocation of Responsibilities

The obligation to ensure that the PRA sees a new invoice promptly lies with the person to whom the invoice was addressed—in other words, the first person who sees it. This will sometimes be the PRA, the AA, the CFO or someone else. When an invoice is received by anyone in the Firm, it is very important to check the email to see who else received it; if it is received in paper form, it must be scanned, OCRed and stored in the Correspondence Library, and forwarded to the PRA. The obligation to quickly spot and handle discrepancies in the invoice and promptly forward it to the Firm’s Chief Financial Officer and her Administrative Assistant rests with the PRA. If the PRA is unable to resolve the discrepancy, she will call the client or the insurer and advise them of the problem, also notifying the President of the Firm.

Assuming there are no unresolved discrepancies, the Administrative Assistant will then forward the invoice to the client along with a W-9 tax form signed by the vendor in a cover email to the client. She will then log the invoice on a spreadsheet maintained in the Billing Library for the case, and file a PDF copy of both the cover email to the client in that library. These documents are stored in a folder within the Billing Library in SharePoint entitled “Invoices Forwarded To Client.”

The diagram below and the explanation which follows it will provide further detail:

Explanation of Steps

Cost Spreadsheets

The purpose of the Billing Spreadsheet it to track all costs that are incurred in the handling of a case. They look like this:

To download a blank cost spreadsheet that you can upload into the Billing Library of a matter, click the button below:

Cost Spreadsheets can be sorted and filtered based upon any column. You can filter on Column A to show only items related to a specific vendor, or you can sort on a column such as “Date Received” or any other column. You could also filter on columns J, K and L to see only those items that have been forwarded and not paid, or items that have been advanced but not paid. Under “Comments” (Column M), you can add additional information besides that which is shown, such as when an adjuster or client contact approved various expenditures. The email authorizing expenses are stored as PDFs in the Billing Library in sub-folders for each vendor, and the Cost Spreadsheet is stored at the root level in the Billing Library.

This documentation is of vital importance because it aids in documenting the status of costs incurred, the totals for each vendor or the whole case.

Conclusion

All employees must be conscientious regarding how expenses are incurred, prior approval and incoming invoices.