When you hear the phrase “internal audit,” the picture you naturally jump to is one of a box-ticking, clipboard based, reactive exercise perhaps only relevant to large corporations. 30 years ago, you would have been correct with this assumption.
However, Internal Audit has come a long way with successful, forward thinking and growing law firms utilising Internal Audit as a dynamic, strategic function that drives value creation, improves governance and helps Executive Boards achieve their long-term goals. Far from being an administrative overhead, it offers valuable insights into operational resilience, risk management and governance unlocking real competitive advantage in an increasingly complex legal landscape.
The legal sector is evolving rapidly, significantly increasing the level of risk that Executive’s need to manage within law firms of all sizes. This is driven by clients demanding more value, regulators expecting more oversight and technology is reshaping how legal services are delivered. Internal Audit are an enabler to help Board’s firstly better understand these risks and uncertainties and, more importantly, validate that the performance of processes, controls and activities are sufficient to manage the risks within the Board’s risk appetite. As a firm grows, so does its span of controls, so does the interest from stakeholders (both external and internal) and so do the firm’s own expectations – therefore Internal Audit becomes a necessity to help firms manage this new scrutiny.
The real strategic value of Internal Audit is that it can provide assurance that firm’s activities, investments and colleagues are aligned with its strategic goals, helping leadership mark informed decisions. It does this by:
- Enhanced risk management: Legal practices face a unique blend of operational, regulatory, reputational and cyber risks. Internal audit identifies and assesses these risks proactively, driving actions to mitigate them before they escalate.
- Improved operational efficiency: By reviewing internal processes – from client onboarding to billing and case management – internal audit can provide insight to inefficiencies and present opportunities for improvements that save time and resources.
- Stronger compliance and governance: With increasing scrutiny from regulators and clients alike, internal audit provides a higher level of assurance that firms are not only compliant with legal and ethical standards but are also demonstrating accountability and transparency.
- Strategic alignment: Internal auditors can assess whether the firm’s activities and investments are aligned with its strategic goals, helping leadership make better and more informed decisions.
Firms that embed internal audit into their governance framework are better positioned to:
- Respond to regulatory changes e.g. SRA requirements, GDPR and AML regulations
- Protect client confidentiality and data integrity
- Navigate complex partnership structures and financial arrangements
- Demonstrate due diligence in mergers, acquisitions or restructuring
- Successfully implement transformation programmes that deliver real value to the firm
- Understand their ESG (Environmental, Social, and Governance) credentials
A common misconception is that Internal Audit is only feasible for large firms, but smaller legal practices can take advantage of the benefits of internal audit and should incorporate internal audit into their governance structure, even where budgets are limited. This can be in a few simple steps:
- Start small and scale: Begin with targeted audits in high-risk areas such as client money handling or billing practices. Over time, expand into more strategic areas such as transformation, as the output and value becomes evident.
- Outsource: Many firms will outsource their Internal Audit function when a full-time internal auditor may not be viable. An agreed portfolio of audits is delivered and this can scale as the firm grows. This provides flexibility and access to specialist knowledge without long-term overheads.
- Use technology: Affordable audit and risk management tools can streamline the process, making it easier to document findings, track actions and report to stakeholders.
- Embed a culture of self-assessment: Encourage teams to regularly review their own processes using internal audit principles. This builds awareness and accountability across the firm.
More legal firms are establishing Internal Audit functions to keep pace with how their peers manage risk and increased scrutiny. Key steps to stay aligned include:
- Engage with professional bodies: Organisations like the Chartered Institute of Internal Auditors (CIIA) and the Law Society offer resources, training and networking opportunities to help firms stay informed.
- Invest in training: Equip senior leaders and risk owners with a basic understanding of internal audit principles. This ensures buy-in and effective collaboration with auditors.
- Report transparently: Whether through annual reports or client communications, demonstrate how your firm is managing risk and ensuring quality through internal audit. This builds trust and differentiates your brand.
Dispelling the myth of internal audit requires a mindset shift from viewing it as a compliance burden to recognising it as a strategic enabler. For UK legal firms, embracing internal audit is not just about ticking boxes it’s about building resilience, enhancing performance and securing long-term success.
Whether you’re a boutique practice or a mid-sized firm, internal audit can be tailored to your needs and scaled to your resources. The key is to start the conversation, explore the options and take that first step toward a more robust and forward-looking governance framework.