A legal fee audit is a process by which an outside financing firm or accountant is brought in to examine legal bills closely. The overall purpose of a legal fee audit, like other types of audits, is to make sure the billing is accurate and reasonable. There are various situations in which it is appropriate to bring in an outside financial expert to review legal bills under an audit.
Reason #1: Dispute Between Client & Law Firm
One of the most common reasons for a legal fee audit is because a client doesn't agree with what they were charged by the law firm they hired to help with their case.
Perhaps they feel that they were overcharged for a service. Or perhaps they feel that they were charged for more time than could have reasonably been spent on the case.
A legal audit will review the bills and determine if they were accurate. If they find them inaccurate, they will suggest a corrected amount.
Reason #2: Losing Party Has to Pay Winning Parties' Legal Fees
Oftentimes in personal injury lawsuits or sometimes even criminal cases, the losing side is ordered to pay the winning side's legal fees. This is often referred to as fee-shifting.
In this type of situation, where another party is paying the legal fees, legal fee audits are almost an assumed part of the process. Since the paying party was not involved in the legal process of the winning party, it makes sense for them to verify the authenticity of the fees that they will be paying.
Reason #3: Insurance Company Has to Pay Someone's Legal Fees
It is common in litigation situations for the insurance company to have to pay the legal fees of the party that it is representing. As a matter of procedure, most insurance companies request a legal fee audit. This is generally just a part of the process that insurance companies undergo.
Most insurance companies will not pay legal fees with a legal fee audit. As a good rule of thumb, insurance companies don't want to overpay on settlements, nor do they want to overpay legal fees.
Reason #4: Fees Need to Be Allocated
If there is a litigation situation where money from a settlement has to be paid to various parties, it is common for a legal audit to be used to make sure the fees are accurate and to help determine how the money from the settlement should be allocated to each party.
Legal audits are a formal process used to ensure the accuracy of legal bills generated by attorneys and law firms. If you find yourself in a situation where you have questions about a legal bill you have to pay, you need to work with a legal audit company to verify the accuracy of the legal bills you are dealing with.