Spotting the Bad Apple – Dealing with Rogue Partners and Staff (Part I)
Preventing Problems from Arising
One of the many risks that solicitors’ firms face – and one which has been highlighted recently in the Solicitors Regulation Authority (SRA) Risk Outlook 2014 – 2015 is that of the rogue partner or employee. In the section “Misuse of money or assets” the SRA state that they are “particularly concerned when client money or assets are put at risk …. as a result of ….
- poor systems and controls, particularly in relation to client accounts
- a lack of competence, resulting from insufficient training or understanding.”
This is not only because it places client funds at risk but also because it is “a threat to public confidence in legal services. A loss of public confidence in law firms could have an impact on access to justice and the overall standing of the provision of legal services in England and Wales.”
The Risk Outlook goes on to say that typically, the grounds for around 30 percent of interventions involve suspected dishonesty and that often the issue arises “as a result of systems and controls failing to detect a rogue individual or group of individuals misusing money.”
Firms cannot operate effectively unless they place a degree of trust in the partners and staff within the firm. However, the nature of solicitors’ work is such that often individuals are placed in a position where they do have access to substantial sums of money or where there is a duty upon them to act in a particular way that may not always be the most straightforward or easy. Add to this the pressure under which many solicitors and others within a law firm work, and it can readily be seen that misconduct – whether it be dishonesty or simply failure to abide by rules and regulations – is something which can all too easily occur.
In this the first of two articles dealing with rogue partners and staff we look at what firms can do to prevent problems from arising in the first place.
How can firms prevent problems from arising?
Dealing with a rogue employee or partner is one thing – and we will come on to some of the steps for firms to follow shortly. However, a far better approach is to prevent the problem from arising in the first place – prevention always being preferable to cure.
At the outset, it is best to remember that in many cases if an employee is determined to commit an act of dishonesty then there may be little that you can do to prevent it. Often the best that you can hope for is to nip it in the bud at the earliest possible opportunity. However, there are things that you can do to reduce the opportunities or to spot problems at as early a stage as possible. These include:
- putting in place appropriate controls around the recruitment process so that unsuitable staff and partners are not brought in to the firm in the first place;
- putting in place procedures and controls within the firm so that staff and partners will find it harder to commit acts of dishonesty or regulation breach;
- monitoring what staff and partners do in the hope of picking up on any dishonesty, breaches or other aberrant behaviour;
- being vigilant for any warning signs that a person could be a potential threat to the firm.
It is probably a council of perfection but, one of the most effective ways to avoid problems from arising is not to employ those who are likely to be a problem. Easier said than done!
Carrying out status checks before you employ someone is not only good business sense – it is something that the SRA have identified as a step that firms should take if they are adequately to manage risk. Rule 8: General conditions on authorisation provides at 8.2:
“8.2 Suitable arrangements for compliance
(a) An authorised body must at all times have suitable arrangements in place to ensure that:
(i) the body, its managers and employees, comply with the SRA’s regulatory arrangements as they apply to them, as required under section 176 of the Legal Services Act 2007 (LSA) and Rule 8.1 above; and
(ii) the body and its managers and employees, who are authorised persons, maintain the professional principles.
(b) A licensed body must at all times have suitable arrangements in place to ensure that, as required under section 90 of the LSA, the employees and managers and interest holders of that body who are non-authorised persons do nothing which causes or substantially contributes to a breach by the licensed body or its employees or managers of the SRA’s regulatory arrangements.”
Guidance note (iii) that applies to the rule states, inter alia that firms “will need to analyse the effectiveness of their compliance arrangements before applying for authorisation and monitor effectiveness on an on-going basis once authorised” and that common areas for consideration will include making “appropriate checks on new staff or contractors”.
That of course begs the question as to what are appropriate checks.
Firms taking on new staff, even if they are only temporary or unqualified staff (a lot of damage can be done in short time and criminals are known to target law firms to do just that), should always carry out full checks. These checks should include:
- Verifying their identity by requiring that they produce passports and/or drivers licences;
- Checking that they have the right to work in the UK (GOV.UK have a couple of resources which can help you with this[i]);
- If appropriate, carry out a Disclosure and Barring Service (DBS) check (what used to be called CRB checks). The DBS provide a list of appropriate positions that can require such a cheque[ii]. Bear in mind that this should only be done after you have offered someone a post and if, as is likely to be the case for most solicitors, you do fewer than 100 checks a year you will need to use an “Umbrella Body” as opposed to registering yourselves with DBS. Again GOV.UK provides guidance on this.[iii] Make sure that you get the employees consent.
- Proof of qualifications. Don’t take someone’s word for the fact that they have a certain number of GCSE’s or A Levels, a degree or a professional qualification. Ask to see the relevant certificate and if you have any doubts as to its authenticity contact the appropriate awarding body.
- In the case of qualified staff, check with the appropriate regulator – for example by using an online database such as the SRA’s “Check a Solicitor’s Record”[iv] or the Bar Standards Boards “Barristers Register”[v],
- Carry out general online searches against the person’s name including looking at LinkedIn and other similar resources. Bear in mind, however, if they are bogus then their online profiles may also be bogus.
- Take up references – don’t just assume that they will be fine. If you suspect any references may not be valid, ask for alternatives. Try and speak to the referee where possible – you may get a different version than they were prepared to commit to writing. If references are out of date, ask for more current ones or make alternative enquires.
- Carry out a pre-employment credit check as part of the screening process so as to better understand a potential employee’s background and thus help to mitigate the risks posed to the firm by those who are under financial strain. This could be of vital importance if the person’s role involves handling of money, or dealing with accounts or sensitive data. A credit check could, for example, highlight County Court Judgements (CCJs), bankruptcies, voluntary arrangements, decrees and administration orders. Some can even be used as a means for verifying a person’s current address by accessing the electoral roll. Firms may even feel that it is good practice to keep credit information updated to help spot problems that arise in the future.
- Carry out one or more other checks, depending upon the role that a person is to hold. These could include directorship checks to verify previous and currently held directorship roles, a DVLA check to find out the position as to a person’s driving license, or an FCA check for any potential employee who may need to undertake the selling of, or advising on, investments.
Where you are employing someone who is not a qualified solicitor, bear in mind that they may be subject to an order under section 43 of the Solicitors Act 1974 which prevents them from being employed in a law firm without the permission of the SRA. The existence of a section 43 order does not prevent the person from being employed – merely that permission be obtained first. That permission may be subject conditions. Knowingly employing a person who is subject to a section 43 order will result in the employer being referred to the Solicitors Disciplinary Tribunal (section 44(2)). As to the test involved employers would be expected to demonstrate that proper enquiries had been made – “wilful ignorance” would probably still result in liability. Note, however, that the responsibility for obtaining permission rests with the prospective employer and not the employee.
Appropriate Procedures and Safeguards
Simply putting in place checks in the recruitment process will not in itself be enough. Firms must ensure that they have in place robust and effective systems for ensuring that partners and employees are prevented, as far as is possible, from acting dishonestly or in breach of the rules.
The previously referred to Guidance note (iii) to Rule 8 of the SRA Authorisation Rules 2011[vi] contains a number of ways in which firms can help to achieve this, including:
- clearly defined governance arrangements providing a transparent framework for responsibilities within the firm;
- appropriate accounting procedures;
- a system for ensuring that only the appropriate people authorise payments from client account;
- a system for ensuring that undertakings are given only when intended, and compliance with them is monitored and enforced;
- appropriate checks on new staff or contractors;
- a system for ensuring that basic regulatory deadlines are not missed e.g. obtaining or delivery of the firm’s accountant’s report (in accordance with rule 32 of the SRA Accounts Rules 2011), arranging indemnity cover, renewal of practising certificates and registrations, renewal of all lawyers’ licences to practise and provision of regulatory information;
- a system for monitoring, reviewing and managing risks;
- ensuring that issues of conduct are given appropriate weight in decisions the firm takes, whether on client matters or firm-based issues such as funding;
- file reviews;
- appropriate systems for supporting the development and training of staff;
- obtaining the necessary approvals of managers, owners and COLP/COFA;
- arrangements to ensure that any duties to clients and others are fully met even when staff are absent.
Firms can only achieve these requirements if they put in place formal procedures and ensure that all staff are trained in how those procedures apply to them. This is something which is re-iterated in Chapter 7 of the SRA Code of Conduct 2011, which provides various requirements for the effective management of a firm including:
- having a clear and effective governance structure and reporting lines;
- having effective systems and controls in place to achieve compliance with the various rules etc.
- training staff to an appropriate level of competence
- having in place a system for supervising client matters and checking quality of work
- not outsourcing work inappropriately;
Procedures such as these need to be operated pro-actively and not simply be there but unused. All of the systems in the world will not prevent a rogue employee from committing an act of dishonesty or rule breach unless they are enforced. Even the most brilliantly drafted office procedures manual will be of no use unless the processes and guidelines it contains are enforced. For this reason, partners and those responsible for the management of the firm must take a hands on approach to the regulation of those within the firm and not simply trust in the fact that they are all thoroughly decent folks.
Thus, firms must actively review files, check reminder diaries, supervise staff in an appropriate manner and carry out follow up inspections where problems are identified.
Whilst it might be seen as being a policy of mistrust, firms should really take the view that unless procedures are tightened then it is only as matter of time before someone abuses them.
There are a number of other steps that firms can take to help remove temptation and to limit opportunity. These include:
- not allowing employees to have access to documents or files that are sensitive or not relevant to their work. Having open file access, for example, through the firm’s intranet or document management system would allow those who wanted to commit an offence greater opportunity to do so.
- Not allowing employees to prevent their line manager or the partners/members of the firm from having access to emails, documents, phone records and so forth. That way the firm can keep an eye on what activity the employee or partner is involved in
- Keep the physical copies documents, files and records in a central “vault” as opposed to them being stored in a distributed manner around the firm. Requiring files to be signed out, combined with recording who access electronic files, will help firms to monitor problems.
- Ensure that user access to a file or document can be revoked at any time and consider running a system which can limit access to other documents.
- Prevent employees from taking files out of the office except where necessary as part of the job and prevent them from accessing files from portable devices or storing them on memory sticks or cloud accounts.
- Do not trust even senior staff and partners/members with access to information they do not need. Just because someone is a partner does not mean that they need to have unfettered access to, for example, accounts packages.
- Monitor document, email and web usage and watch for patterns which could indicate that a problem exists. This could be anything from a person accessing files that they were not working on to staff and partners using the internet for gambling or pornography.
Firms should be constantly aware of and on the lookout for tell-tale behaviour on the part of their partners and employees. Whilst it is not always the case, often someone who is about to go “rogue” will start to exhibit observable behaviours. These can include:
- Being under the influence of alcohol whilst at work on more than just an odd occasion;
- Being repeatedly late getting in to work or taking longer than usual lunches;
- Falling asleep at work or appearing to be less alert than usual;
- Unexplained absences, especially on a Monday or Friday, or an increase in the number of illness-related absences;
- Erratic, unprofessional, bullying or even abusive and violent behaviour – either in or outside of the workplace – or increased friction or arguments with others within the firm;
- The use of illegal drugs;
- Disregard for rules or authority;
- Changes in behaviour patterns – for example heightened anxiety, unexplained depression, hyperactivity or in extreme cases, threats to harm themselves;
- A decline in performance or work habits;
- Personal hygiene problems – including changes in the standard of dress;
- Rejecting or avoiding social interaction with colleagues;
- Unreasonable perceptions or expectations of colleagues;
- Lying or deception – even in relation to minor matters;
- Financial problems in private life;
- Attempts to access information not usually required for their role;
- Failure to carry out everyday management procedures;
- Inability to account for their time whilst at work;
- Being observed in a part of the building where they would not normally be expected to be;
- Accounting problems;
- Complaints from clients or third parties;
- A change in work load – either up or down;
- A change in the type of clients they are acting for;
- An increase in the number of phone calls/emails received – especially from particular individuals – without a rational explanation;
- Unusual instructions to receptionists/telephonists/secretaries about what to do in the event that certain clients/third parties call – especially not putting them through to other staff members;
- Any other atypical behaviour.
Clearly not all of these will be indicators of someone about to go off the rails in every case. There could be other perfectly reasonable explanations. However, the onus is upon the firm to find out if those other explanations exist and to check that they are true and not simply take the person’s word for it. Thus, for example, if someone is needing to take time off to care for a sick relative, discrete enquiries should be made as to whether this is the case or whether they have some form of addiction or are using the time for purposes that are not in the best interests of the firm.
It is worth bearing in mind also that if someone is becoming a problem they may be attempting to hide the fact. This means that it may not be apparent to managers because the person may be disguising their behaviour at certain times. For this reason it is important for all staff to be made aware of the need for “colleague vigilance” and for the need to spot and then report any warning signs that they observe. Many may be reluctant to do so out of loyalty to a colleague or from a fear that by reporting someone their own position may in some way be worsened. Firms must, therefore, give assurances to staff to that effect (see also the article on whistle blowing elsewhere on this web site).
Check a job applicant’s right to work documents – www.gov.uk/check-job-applicant-right-to-work
[ii] A guide to eligibility for criminal record checks – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/349126/DBS_guide_to_eligibility_v6.pdf
[iv] Check a Solicitor’s Record – http://www.sra.org.uk/consumers/solicitor-check.page
[v] The Barristers Register – www.barstandardsboard.org.uk/regulatory-requirements/the-barristers%27-register
[vi] SRA Authorisation Rules – www.sra.org.uk/solicitors/handbook/authorisationrules/content.page