Legal Agent Account Verification Process
April 2011

3. Observations – Processes for verifying and determining accuracy of legal agent accounts

3.1 Financial Monitoring of Legal Agent Accounts

Improvements in the written guidelines for financial monitoring of legal agent accounts and regional compliance to the guidelines are required.

LPCM has not been prescriptive enough in their written guidelines on instructing counsel’s financial monitoring duties for legal agent accounts. Monitoring is an important tool for ensuring that oversight of legal agent accounts is carried out and appropriate information is collected. The requirements for financial monitoring should be well documented and the importance of regional compliance to those requirements must be clearly articulated by LMPC and understood by the regional legal service portfolios and instructing counsel.

Although we found evidence of financial monitoring on each file examined, the methodology used by instructing counsel varied significantly, and as a result, financial monitoring was not consistent across all regions. Some instructing counsel in the regional portfolios are using the iCase disbursements module in conjunction with their own locally developed spreadsheets to monitor legal agent accounts. For example, both the PSDI in the BCRO and the Aboriginal Law Division in the ORO use the iCase disbursements module to track legal agent fees and disbursements. Each portfolio downloads the iCase information into a spreadsheet and then adds to this spreadsheet details from the contract (e.g. the value and term of the contract). In all regions, a summary of information from the contract is typically appended as a form to the legal agent account and is considered in the instructing counsel’s review. This summary form varies in level of detail. In the ORO Business and Regulatory Law Division, for example, the form advises the instructing counsel of the contract amount expended to date and the percentage of the budget remaining, and also attests to such things as the counsel working on the case and the arithmetic correctness of the account. Other portfolios rely on LPMC to advise when the contract threshold has been reached.

We also found that the regional portfolios visited did not have a standardized approach to the timing and frequency of financial monitoring. Some portfolios monitor legal agent accounts immediately upon receipt of the legal agent invoice for taxation, others monitor on a monthly basis, and yet others request legal agents to provide the portfolio with quarterly reports on legal agent fees and disbursements.

LPMC needs to provide comprehensive and specific written guidance on the requirements for financial monitoring of legal agent accounts and instructing counsel within the regional portfolios need to demonstrate compliance to the guidelines by performing consistent and complete financial monitoring on all legal agent accounts. Monitoring information should include, for example, the various types of data required by both the regions and LPMC (e.g. total of disbursements or professional fees, agent’s years of experience), date the file is closed, changes in personnel or rates of remuneration, etc. Other important monitoring information could include changes in the circumstances of a case that may have contract implications (e.g. delay in court proceedings or early resolution of a case).

Recommendation and Management Response

4. It is recommended that the Director, LPMC strengthen the written guidelines for the financial monitoring legal agent accounts. (Medium Risk)

Agreed. The LPMC will strengthen the written guidelines for the financial monitoring of legal agent accounts. This will be undertaken in conjunction with the review of the taxation procedures, which will be completed within this fiscal year, as referenced in our response to Recommendation 1.

Timelines:
Review of the written guidelines and drafting of the Directive: March 31, 2012
Implementation of the Directive and related training: June 30, 2012

Payment of legal agent accounts by the client department is often late, resulting in Justice Canada receiving overdue account notices.

The Treasury Board Directive on Payment Requisitioning and Cheque Control stipulates that accounts should be processed in a timely and accurate manner. The directive stipulates that an account rendered for payment by a supplier of goods and services is to be paid within 30 days of receipt. The directive also states that when gaps in performance are observed, corrective action must be undertaken to ensure compliance with the directive.

Our analysis of a sample of transactions confirmed that, from the date of receipt of a legal agent account (invoice) at Justice Canada to the time the payment is made by the client department, normally more than 30 days have passed. We found that there are no performance standards in place at Justice Canada stating the required timelines for taxing of an account. Some legal agent accounts were forwarded to clients for payment as quickly as four days after receipt of the account, while others took as long as 28 days. However, we were told that it takes on average 15 to 20 days after a taxed account has been received from Justice Canada for the client department to process the account for payment. As a result, the payment made by the client department is often late and the legal agent sends an overdue account notice to Justice Canada. This often includes interest charges for late payment. The overdue account notice then needs to be reviewed by Justice Canada before it is provided to the client department. In one file examined, we found accounts overdue by four months as well as several overdue account notices sent to Justice Canada that were subsequently forwarded to the client department for action. The audit did not include an examination of the payment processes of client departments.

In our view, LPMC needs to establish standards for instructing counsel to tax and forward the legal agent accounts to client departments. These standards should take into consideration the average time taken by client departments to process a payment. Such standards would provide greater assurance that the requirements of the Treasury Board Directive will be met.

Recommendation and Management Response

5. It is recommended that the Director, LPMC institute service standards for instructing counsel to tax and forward legal agent accounts. (Medium Risk)

Agreed. The LPMC will develop service standards expected of instructing counsel in completing the taxation process. The requirement to comply with the service standards will be implemented by June 30, 2011 and will be communicated to all relevant stakeholders by the ADAG, Litigation. The service standards will also be integrated in the updated taxation procedures that will form an integral part of the operational Directive referenced in our response to Recommendation 1.

Timelines:
Implementation of taxation service standards: June 30, 2011

3.2 Reporting on Legal Agent Accounts

There is a need to establish additional regional reporting requirements for legal agent account activity.

With regard to legal agent activities, LPMC maintains reports that provide summary and detailed data on, for example, the number and type of sole-source and competitive contracts being awarded, the contract value, the legal agents engaged, the client served, and the portfolio involved. When LPMC requires additional information on legal agent accounts to address ATIPand senior management requests, it asks for ad hoc reports from instructing counsel in the regions. We were told that no routine regional reports on legal agent accounts are provided to LPMC. Requesting reports on an ad hoc basis is time-consuming and may result in the information not being provided in a timelyk manner.

LPMC also uses the IFMS to obtain information on legal agent accounts. The IFMS is LPMC’s primary tool for financial monitoring account activity and provides reports on the disbursements and fees paid against each legal agent contract. Although LMPC requires the regions to submit copies of taxed invoices so that expenditure information can be captured in the IFMS system, LPMC staff expressed concern that legal agent account data entered in the IFMS is not validated for completeness or accuracy. Most instructing counsel in the regions do not have access to the IFMS and therefore cannot validate information entered. LPMC staff indicated that, as a result, at various stages of the appointment they complete a reporting template developed by LPMC to check whether the legal agent account has been entered in the IFMS by PPSC. If the account has not been entered in the IFMS, LPMC staff contact the instructing counsel in the region to verify the status of the account.

We were told there is no requirement for instructing counsel to inform LPMC when a legal agent file has been closed and there are no means by which LPMC can gather this information from the IFMS. LPCM confirmed with the audit team that account reviews conducted by LPCM found that not all legal agent accounts sent to client departments for payment had been entered into the IFMS by PPSC.

During the audit, we selected 13 legal agent contracts from the IFMS. These contracts amounted to $332,372 of expenditures during the period April 1, 2009 to March 31, 2010 and reflected the three regions audited. A comparison was made between the amounts client departments had paid and the amounts entered into the IFMS. For these 13 contracts, we found no duplicate payments or overpayments. However, we found a discrepancy of $83,741 between the amounts that client departments had actually paid and the amounts recorded into the IFMS in the same period. Moreover, in nine instances, the IFMS did not reflect the full amounts paid by the client departments. In our opinion, without periodic reporting from the regional legal portfolios, LPCM has no assurance that the information in the IFMS is complete.

LPCM is aware of the issues associated with reporting and advised the audit team that there are plans to develop the reporting component of the Agent Affairs Program with a view to having a complete reporting system in place over the next fiscal year. The audit team supports this planned initiative. In our view, regions need to provide LPCM with formal, periodic status reports on legal agent accounts. This will ensure that LPCM receives a reliable and complete source of data for reporting purposes.

Recommendation and Management Response

6. It is recommended that the Director, LPCM, establish additional regional reporting requirements for legal agent account activity. (Medium Risk)

Agreed. The Department uses two systems for recording legal agent information: IFMS, for financial reporting, and iCase, for substantive case management including the monitoring of legal agent appointment activities. To date, the emphasis has been on the use of IFMS to track legal agent activities.

The LPCM is currently exploring how to optimize the use of iCase to facilitate the monitoring and reporting of overall legal agent activities. The LPCM will be identifying standard data elements pertaining to legal agent appointments that regional offices and legal services units will be required to capture in iCase. The use of iCase will facilitate LPCM’s capacity for centralized monitoring and reporting of overall legal agent appointment activities and provide a means for LPCM to validate and reconcile the financial data being captured in IFMS. The requirement for standard data capture will be broadly communicated through the existing iCase channels by September 30, 2011.

In addition, all functions pertaining to data entry and reporting in IFMS, which are currently being performed by PPSC, will be transferred to Justice Canada operations as referenced in Recommendation 10. As some of these transferred functions will be performed by the LPCM, this will provide the LPCMwith more direct control over agent account activity and the financial information being recorded in IFMS. IFMS remains the system of record in respect of the financial monitoring and reporting of legal agent activities. Discussions are currently ongoing to ensure that we make optimal use of IFMS in that context, as referenced below in our response to Recommendation 7.

Timelines:
Implementation of data capture standards in iCase: September 30, 2011
Implementation of validation and reconciliation process: March 31, 2012

3.3 Use of iCase for Financial Monitoring and Reporting

There is a need to determine whether iCase could be used for financial monitoring and reporting of all legal agent accounts.

iCase is a web-based legal information management system that provides timekeeping, billing, case management, document management, and case-reporting functions for headquarters, regional legal portfolios, and LSUs. We were told that legal agent case files can be identified in iCase, and for each case, there is a disbursements module that may be used to track agent fees and disbursements. While the use of iCase is required for all legal files, LPCM has not made the use of the iCase disbursements module mandatory to track legal agent accounts. Instructing counsel may or may not use the disbursements module at their discretion.

We found that several regional legal portfolios use the iCase disbursements module as their primary tracking and financial monitoring tool for legal agent accounts. After each legal agent account has been taxed by the instructing counsel, the totals of fees and disbursements are entered into iCase using the disbursements module, which enables immediate validation of data. Additional account fee and disbursement details (e.g. printing charges) are available in the legal agent hard copy file. As the majority of instructing counsel do not have access to IFMS, they monitor the file and print routine iCase reports on the amount billed to date by the legal agent. We found that the regional legal portfolios supplement the iCase report with additional data from locally developed spreadsheets. Instructing counsel noted that several improvements could be made to iCase that would eliminate the need for these spreadsheets.

In our view, consideration should be given to using iCase for financial monitoring and reporting of all legal agent accounts.

Recommendation and Management Response

7. It is recommended that the Director, LPMC, in consultation with the Chief Financial Officer, consider and determine whether iCase could be used for financial monitoring and reporting of all legal agent accounts. (Medium Risk)

Agreed. The Department uses two systems for recording legal agent information: IFMS, for financial reporting, and iCase, for substantive case management including the monitoring of legal agent appointment activities.

The LPMC and CFOB have had several discussions regarding the use of iCase as the financial monitoring tool for legal agent accounts. Further to these consultations, LPMC and CFOB have agreed that the Department’s system of record in respect of the financial monitoring and reporting of legal agent activities should remain in IFMS. Continued discussions will take place to ensure that we make optimal use of IFMS in the financial monitoring and reporting of legal agent accounts.

As described in our response to Recommendation 6, the LPMC is currently exploring the use of iCase as the system in which regional offices and legal services units can capture standard data elements pertaining to legal agent appointments and related accounts. This improved use of iCase will provide the LPMC with a means of validating and reconciling the financial data being captured and support financial reporting through IFMS.

Timelines:
Consideration of the use of iCase for financial monitoring: Completed
Optimization of the use of IFMS: September 30, 2011

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