Morrison on Metrics: Reliance on accounts payable for external spend data

While potentially necessary for many small legal departments, there are drawbacks to solely relying upon this data.

A surprising number of law departments rely on tracking their external spend data only through their accounts payable (A/P) department. Mostly, one- and two-lawyer departments indulge in this practice. Some of the departments that do also keep a parallel database, probably in a spreadsheet, but the official record comes from the finance department. A/P law departments, as we might call them in comparison to matter-management system departments, deal with some drawbacks if they choose to provide external spend data for benchmark surveys.

The primary disadvantage of relying on the accounts payable records and the general ledger is that some expenses might have been miscoded to the legal account (or legal spend miscoded to another account). Unless the law department has a way to verify the correctness of the charges to external legal spending, they will remain uncertain about accuracy. For example, a settlement paid by the company might be treated improperly as an external counsel payment.

A second drawback of not maintaining your own data is that typically you can no longer break out spend by fees and disbursements. To accounts payable, those are all combined. Furthermore, unlike law departments that maintain a matter management system and link invoices to matters, you cannot attribute accounts payable amounts to specific matters. It is all one congealed pool of dollars.

Third, but not as important as the previous two points, the data that comes from the accounts payable system may have a time lag that could influence your numbers. There is almost always a difference between a matter management system’s date of receipt of an invoice or date of the invoice itself and the day the check or electronic payment leaves the company. At the end or the start of the fiscal year, this gap might make some difference.

Sometimes, too, service providers are improperly categorized as legal vendors. For example, for pension and benefit plan consultants should be paid out of the CFO or treasurer’s budget lines, not out of the general counsel’s. Sometimes the level of granularity for breaking out data falls short of what the general counsel needs. If its outside counsel fees are lumped under “Professional Services,” there is no possibility of having accurate numbers for the legal spend.

For one- and two-lawyer law departments, the effort to maintain their own tracking system for external fees may not be worth it. For their internal purposes, it may be sufficient to rely on an accounts payable data. But if you want more insight and to submit reasonably accurate numbers for external benchmarks surveys, you should be sensitive to the shortfalls of relying on accounts payable data.

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