According to the National Association of Legal Auditing (NALA), legal auditing is a litigation management practice and risk management

Risk management

Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...

 tool, used by insurance

Insurance

In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 and other consumers of legal services, to determine if hourly billing errors, abuses, and inefficiencies exist by carefully examining and indentifying unreasonable attorney

Lawyer

A lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an attorney, counsel or solicitor; a person who is practicing law." Law is the system of rules of conduct established by the sovereign government of a society to correct wrongs, maintain the stability of political...

 fees and expenses.

Methods

Legal auditors conduct a detailed analysis of original time records, attorney work production, expenses and hourly rate benchmarks. The purpose of a legal bill auditing is to save money for the insurance company and their clients. Many audits measure performance and quality of services in addition to cost alone. Legal Bill Auditors may be responsible for monitoring the matter as it progresses for purposes of giving a second opinion in major cases or as a post-mortem. Legal bill audits give insurance companies and their clients peace of mind and avoid possible future mistakes.

This year, Forbes Magazine interviewed David Paige to discuss the excessive legal fees in the Madoff litigation. Paige's firm, Sterling Analytics analyzes legal bills and has developed a list of objectionable charges that firms often charge to clients.

Recently, the firm Stuart Maue claimed to have conducted the largest legal audit on record during the OxyContin litigation, involving claims for attorney fees and expenses amounting to over $400,000,000 billed and audited, with the final negotiated settlement

Settlement (law)

In law, a settlement is a resolution between disputing parties about a legal case, reached either before or after court action begins. The term "settlement" also has other meanings in the context of law.-Basis:...

resulting in a reduction of $200,000,000 from the total billed amount.