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A Legal Audit Can Prevent Costly Legal Problems

Categories: Business & Corporate, Article

Legal audit before something goes wrong

Preventive medicine means visiting your doctor once a year or so for a checkup, even if you're not sick or injured. Preventive maintenance means taking your car to a mechanic for a tune-up every 15,000 miles, even if it seems to be running smoothly. And preventive law means doing something now instead of waiting until you get sued, fined or indicted. That something is conducting a legal audit to prevent disputes from becoming lawsuits, to comply with current rules before you're hauled into court and to correct a minor ethical breach before it mushrooms into a front-page scandal. An ounce of prevention usually costs much less than remediation. Curing a serious disease in its advanced stages can cost a lot more than curing it while it's still a minor problem. And paying your doctor for advice on how to prevent disease costs even less.

Large corporations have general counsel, some with a team of lawyers on the payroll, who continuously review the company's operations and plan strategies to minimize legal risks. Smaller companies look to outside counsel. Though they're not on the payroll, familiarize your outside lawyers with your operations, long-term goals and corporate culture, so they can regularly review and advise you on how to minimize your legal risks. A pound of cure Don't wait until you're in hot water to begin the legal-audit process. Your first step is to conduct a comprehensive legal audit with your attorney's guidance. Then he or she can conduct preventive legal reviews for as little as a few hours each month.

Your attorney may have a set of review guidelines or a "risk list" of items to examine or both. But no two legal audits are the same, because every business has different procedures and different kinds of risks. Prepare your own list to make sure the audit misses nothing. You can divide your list into four categories.

1. Documents

You probably store thousands of documents in various files and archives. Out of this jungle of records - and keeping an eye out for problems and potential risks - here's what your lawyer should review:

  • Both "standard" and customized business forms,
  • Invoices, purchase orders and collection letters,
  • Licenses and permits necessary to do business and provide professional services, Entity formation records, such as incorporation articles, partnership agreements and limited liability corporation documents,
  • Insurance policies,
  • Patents, trademark and copyright registrations, confidentiality agreements, and noncompete
  • covenants,
  • Employee benefit brochures, handbooks, posted employment policies and regulations,
  • Asset titles and deeds to real property,
  • Employment and work-for-hire contracts,
  • Leases and rental agreements,
  • Supplier and customer contracts,
  • Loan documents,
  • Document retention policies (including e-mail and electronic files),
  • Documents and correspondence related to pending legal action, and
  • External publications such as newsletters, white papers and seminar materials.

2. Memoranda

Before your attorney begins the audit, write brief memos describing these policies and procedures:

  • email and Internet monitoring and usage policies
  • government rules that cover your specific operations (other than employment and environmental rules that cover all businesses)
  • a short description of training programs for managers and supervisors - including Americans With Disabilities Act and Title VII training

3. Interview issues

Don't try to describe all your policies and procedures in a memo. Rather, use this information as a starting point. And be prepared to discuss with your attorney all pending or potential disputes with suppliers, competitors, customers, and employees, and trade secrets that may need more formal protection.

4. Site visit

List issues to discuss when your attorney visits your office, plant or other facilities, including your:

  • Storage and retrieval systems for paper and electronic documents
  • Electronic file backup and storage
  • Web site disclaimers, potential intellectual property infringement and deep-linking issues.

This list should get your legal audit off to a good start. You may add to or delete items from these lists, but your comprehensive legal audit should cover all four categories. Later audits can focus on narrower lists of items and issues - ask us to help you develop an audit schedule that suits your particular situation.


Founded in 1984, Phoenix law firm Jaburg & Wilk P.C. offers extensive experience, diversity in practice areas and the ability to think like a business owner. We are an Arizona mid-sized AV rated law firm, the highest rating that a law firm can receive. Our attorneys, paralegals, and other support staff's goal is to meet our clients' diverse legal needs and provide exceptional service. In addition to giving exceptional service, Jaburg Wilk was named one of the Best Places to Work 2010 by Phoenix Business Journal.