ALA ALA Financial Management and Billing 2 — Questions and Answers
Question 1: What is a blended billing rate?
- A single rate applied to all timekeepers regardless of seniority (Correct answer)
- A rate that changes based on case complexity
- A contingency-based fee structure
- A flat fee negotiated per matter
Correct answer: A single rate applied to all timekeepers regardless of seniority
A blended rate is a single uniform hourly rate applied across all attorneys on a matter, regardless of individual seniority levels.
Question 2: Which budgeting approach starts each period from zero without reference to prior budgets?
- Zero-based budgeting (Correct answer)
- Incremental budgeting
- Capital budgeting
- Rolling budget
Correct answer: Zero-based budgeting
Zero-based budgeting requires every expense to be justified anew each cycle rather than adjusting prior-year figures.
Question 3: Under IOLTA rules, interest earned on pooled client trust accounts goes to:
- State bar legal aid programs (Correct answer)
- The law firm as income
- The individual clients whose funds are held
- The federal government
Correct answer: State bar legal aid programs
Interest on Lawyers' Trust Accounts (IOLTA) is directed to state-administered programs funding access to justice and legal aid.
Question 4: What is a key risk of commingling client and firm funds?
- Professional discipline and potential disbarment (Correct answer)
- Reduced tax liability for the firm
- Faster accounts receivable collection
- Lower overhead costs
Correct answer: Professional discipline and potential disbarment
Commingling client funds with firm funds violates professional conduct rules and can result in bar discipline, including disbarment.
Question 5: What does accounts receivable (AR) represent in a law firm's financial records?
- Money owed to the firm by clients for services already billed (Correct answer)
- Money the firm owes to vendors
- Unbilled time recorded by attorneys
- Partner capital contributions
Correct answer: Money owed to the firm by clients for services already billed
Accounts receivable represents billed but unpaid client invoices that the firm expects to collect.
Question 6: Alternative fee arrangements (AFAs) are designed primarily to:
- Provide clients with cost predictability (Correct answer)
- Increase associate billable hour targets
- Eliminate the need for written fee agreements
- Reduce the firm's professional liability exposure
Correct answer: Provide clients with cost predictability
AFAs such as flat fees, capped fees, and success fees give clients greater budget certainty compared to open-ended hourly billing.
ALA ALA Financial Management and Billing 2
What is a blended billing rate?