Tamiris Barbosa Pires; Raíssa Silveira de Farias

DOI: 10.22167/2675-6528-202601454

Article prepared by the ResumeAI tool, an artificial intelligence solution developed by the Pecege Institute focused on synthesis and writing.

Summary

The research investigated how governance mechanisms and internal controls, applied to “Legal Operations” practices, can strengthen the financial management and budgetary predictability of a legal department in a multinational company. The study aimed to diagnose critical points of the legal budget cycle, from forecasting to payment, and identify process improvements, indicators, and responsibilities between the legal and financial departments. To this end, an applied qualitative research was conducted, configured as a case study. Data collection included interviews with professionals from the legal and financial areas, documentary analysis of cost spreadsheets (2022-2024) and compliance policies, as well as mapping of the legal expenses flow. The results revealed fragilities in interdepartmental coordination, notably in the definition of cost centers and the use of budgetary control instruments. Gaps were observed in process monitoring and in the integration of information from external law firms, as well as opportunities for automation of routines and improvement of management indicators. Budgetary predictability was found to be impacted by exogenous factors, such as the dynamics of the Judiciary, and endogenous factors, such as information quality and the governance of the budget cycle. It was concluded that budgetary predictability depends on the maturity of the governance applied to processes, data, and operational routines. A governance and control model for the legal budget was proposed, focusing on process standardization, strengthening monitoring, and improving decision-making, including process mapping, risk and control matrix, and performance indicators.

Keywords: Automation; Internal controls; Corporate governance; Legal Operations; Budgetary predictability.

1. Introduction

Digital transformation and increasing regulatory complexity have been reconfiguring corporate legal departments. Previously seen as cost centers, they are now challenged to adopt a strategic stance, focused on process governance and resource optimization (Faim and Fernandes, 2025). This evolution requires them to balance technical excellence and financial efficiency, ensuring transparency and risk mitigation. The emergence of “Legal Operations” reflects this need, applying management and technology to improve legal services and expenses. The relevance is accentuated by litigation in Brazil. Recent data from the Court of Justice of Rio Grande do Norte (TJRN, 2024) indicate approximately 84 million pending lawsuits, generating considerable financial impact on multinationals. Effective management of these expenses (costs, fees, provisions) is critical for financial health and operational sustainability.

In this scenario, corporate governance and internal controls emerge as pillars for efficient management and budgetary predictability. Governance, according to the Brazilian Institute of Corporate Governance (IBGC, 2023), is a system of principles, structures, and processes that guide decision-making, aiming for compliance, transparency, and accountability. In legal departments, this translates into clear decision-making processes and definition of responsibilities that impact financial management. Internal controls are essential mechanisms for mitigating risks and ensuring the reliability of financial information. Assi (2021) highlights that their implementation, aligned with risk management, identifies operational weaknesses, optimizes efficiency, and guarantees data accuracy. The Committee of Sponsoring Organizations of the Treadway Commission (COSO, 2013) reinforces that an integrated internal control system is crucial for achieving organizational objectives, including safeguarding assets and the accuracy of financial reports. The absence of robust controls can lead to budgetary deviations, losses, and compliance failures.

The application of these principles in the legal context is enhanced by “Legal Operations”. This approach, according to Tavares (2024) and Camelo et al. (2024), aims to optimize the delivery of legal services through the management of projects, processes, data, and technology, transforming the department into a center of operational excellence. The integration of “Legal Operations” with risk management and internal controls is vital to improve responsiveness, reduce information asymmetries, and increase the traceability of expenses. A central challenge lies in the management of legal risk, which, although categorized as part of operational risk, has specific characteristics. The Central Bank of Brazil (BCB, 2024) and the Basel Committee on Banking Supervision (2006) recognize legal risk as a particular type, associated with contractual failures, regulatory sanctions, and judicial disputes, requiring precise financial provisions. Accuracy in provisioning for legal contingencies is fundamental to avoid unexpected financial impacts and ensure budgetary predictability. However, the materialization of this predictability in corporate legal departments still faces substantial challenges, such as the absence of standardization in cost classification, lack of information integration, and dependence on manual processes, which compromise the reliability of financial estimates and decision-making.

Given this context, the need to improve financial management and budgetary predictability in corporate legal departments justifies this study. The research aims to investigate how governance mechanisms and internal controls, applied to “Legal Operations” practices, can strengthen the financial management and budgetary predictability of a legal department in a multinational company. To this end, it seeks to diagnose critical points of the legal budgetary cycle and identify process improvements, indicators, and responsibilities between the legal and financial sectors.

2. Material and Methods

This study was characterized as an applied research of a qualitative nature, adopting a case study approach. This methodology was selected for its ability to allow an in-depth analysis of the internal functioning of a legal department in a multinational organization. According to the literature, the case study is particularly suitable for investigating complex phenomena in their real contexts, where the researcher does not exercise direct control over events, but seeks to understand them in depth (Yin, 2015). This methodological choice aimed to structure financial and operational flows, as well as to identify the application and impacts of internal controls on budgetary predictability.

The research was developed in the legal department of a multinational company, whose name was omitted to preserve confidentiality. The analysis period covered the years 2022 to 2024, using cost spreadsheets and budgetary data referring to this interval. The unit of analysis focused on the financial and operational processes and routines of the legal department, with specific focus on expense management and budget preparation. This context allowed for the examination of internal dynamics and interactions between the areas involved in the legal budgetary cycle.

The study population was composed of professionals directly involved in the budgetary process of the organization’s legal department. The sample, selected by convenience, included three key participants: a legal professional (E1), a Legal Operations coordinator (E2), and a financial professional (E3). The selection criteria were based on the relevant experience of these individuals within the organization, with tenure ranging from six to over twenty years, ensuring a comprehensive view of routines, controls, and challenges. To ensure confidentiality, the interviewees were anonymized using codes.

Data collection employed a combination of direct observation and documentary analysis. Observation of the legal department’s financial and operational routines was carried out to map payment flows, including costs, forms, fees, and security deposits. Documentary analysis involved examining cost spreadsheets for the period 2022 to 2024, corporate compliance policies, management reports, and workflow evidence. These documents were crucial for identifying weaknesses, risks, and opportunities for improvement in the annual budgeting process.

Complementarily, semi-structured interviews were conducted with the three selected participants. The interviews were guided by a previously developed script, detailed in Appendix A, which addressed topics such as the payment flow for legal expenses, the budgeting process, difficulties in cost forecasting, the frequency of deviations between budgeted and actual costs, budget reliability, existing internal controls, operational risks, communication between legal and finance departments, and improvement opportunities. This script allowed for a standardized yet flexible collection of information to capture detailed perceptions.

The research execution followed sequential steps to ensure the depth of the investigation. Initially, direct observation of routines and mapping of the legal expense flow (AS-IS) were carried out, as detailed in Appendix B, identifying its main phases, risks, and control points. Subsequently, cost spreadsheets and compliance policies were analyzed. Later, semi-structured interviews were conducted. Finally, the collected evidence was structured into thematic categories, aiming to identify patterns and connections between risks, controls, and the department’s financial performance.

The treatment and analysis of the data were predominantly qualitative. The information obtained in the interviews was transcribed and thematically analyzed, seeking to identify perceptions about the budgetary process, internal controls, and the integration between areas. Documentary analysis of cost spreadsheets, reports, and compliance policies allowed for verification of the structure of adopted controls, payment flows, and financial monitoring criteria. This integrated approach enabled a comprehensive understanding of the operational and financial dynamics.

Additionally, the mapping of the legal expenses payment flow (AS-IS) was used to visualize the operational steps, identify associated weaknesses and risks, and propose improvements. The analysis sought to understand the causes of any budgetary deviations and opportunities for improving internal controls. Data triangulation, obtained through different sources such as interviews, documents, and observation, provided greater robustness to the analyses, allowing for the validation and complementarity of information and the identification of relevant patterns regarding the governance of the budgetary cycle.

Ethical procedures were rigorously observed, ensuring participant confidentiality through the anonymization of their identities, referring to them as E1, E2, and E3. Participation was voluntary, and the research objectives were clearly communicated. As a methodological limitation, it is acknowledged that, as this is a single case study in a specific organization, the results obtained cannot be generalized to other companies. However, the depth of the analysis and the triangulation of data sources contribute to the relevance and applicability of the conclusions in similar contexts.

3. Results and Discussion

The empirical evidence collected through semi-structured interviews with key participants (E1, E2, E3) and in-depth analysis of operational materials, such as cost spreadsheets and compliance policies, revealed that the identified weaknesses in the multinational organization’s legal department do not manifest in isolation, but rather as a set of interconnected challenges that permeate the entire budgetary cycle. This recurrence consistently affects the quality of financial information and, consequently, the predictive capacity of the department’s budget. The study’s findings converge towards the understanding that budgetary predictability in the corporate legal context is a complex result of the interaction between exogenous and endogenous factors, which, together, shape the dynamics of expense planning and execution.

Regarding exogenous factors, the dynamics of the Brazilian Judiciary emerge as a central element in the unpredictability of legal expenses. The high litigiousness and the expressive volume of pending cases in the country, according to data from the Court of Justice of Rio Grande do Norte (TJRN, 2024), which indicate approximately 84 million pending cases in Brazil in the fourth quarter of 2023, amplify the complexity of litigation management. This judicial reality, characterized by its structural nature and intrinsic procedural variations, contributes significantly to the volatility in the timing of recognition and realization of disbursements, such as court costs, appeal deposits, and attorney fees. The inherent unpredictability of these events, which often escape the organization’s direct control, makes financial planning a challenging task. The literature corroborates this perception, recognizing that legal risk, often treated as a component of operational risk, can be a significant source of financial uncertainty, requiring accurate provisions to adequately reflect the entity’s exposure (BCB, 2024; COSO, 2017). The difficulty in predicting the outcome and payment schedule of complex litigation is a constant, and the absence of robust mechanisms to integrate this exogenous unpredictability into internal budgetary planning is a critical point. The practical implication of this finding is the need for legal departments to develop forecasting models that not only consider historical internal data but also incorporate analyses of judicial trends, court statistics, and external risk scenarios, perhaps through predictive analytics and artificial intelligence tools, to mitigate the impact of judicial volatility.

From an endogenous perspective, the study’s results reveal that budgetary predictability is not limited to financial estimation capacity but is intrinsically linked to information quality and the governance of the cycle encompassing planning, execution, reconciliation, and reporting. A detailed analysis of operational routines and interviewee perceptions point to significant weaknesses in this cycle. The absence of standardized criteria for classifying expenses and defining cost centers, for example, compromises the consistency and comparability of information over time. This standardization gap, according to Assi (2021), is a risk factor that can undermine the effectiveness of internal controls and the reliability of financial information. Furthermore, the recurrence of manual adjustments and the limitations of existing control instruments contribute to a lack of traceability and difficulty in auditing data. Corporate governance literature, such as that proposed by IBGC (2023), emphasizes that a robust set of practices, structures, and processes is fundamental for guiding decision-making and monitoring organizational activities. When these elements are fragmented, as observed in the legal department studied, the budget’s capacity to serve as a strategic tool is severely limited, often transforming it into a mere record of past expenses rather than a guide for the future. The practical implications are clear: it is imperative to invest in standardizing expense classification processes, reviewing and optimizing cost centers, and implementing integrated systems that reduce reliance on manual adjustments, ensuring the integrity and traceability of financial data.

The absence of structured routines connecting procedural monitoring to events that effectively generate disbursements, such as costs, deposits, settlements, and fees, was identified as a critical factor limiting financial anticipation capacity and hindering the explanation of deviations between budgeted and actual values. Even with planning efforts, the lack of integration between governance, processes, and data reduces the budget’s effectiveness as a decision-support tool. Interviewee E2, for example, highlighted that “the differences between the budgeted amount and the actual amount occur practically every month,” evidencing a persistent gap in budgetary accuracy. This observation resonates with literature addressing the importance of risk management and internal controls for provisioning accuracy (BCB, 2024; Cazzari et al., 2022). The unpredictability of judicial demands, described by E1 as “the big unknown for making the budget more accurate,” underscores the disconnect between the operational reality of litigation and financial projection. Effective corporate governance, according to IBGC (2023), requires not only the definition of responsibilities but also the integration of information for a holistic view of the organization. The observed fragmentation prevents this view, resulting in a budget that does not reflect the real dynamics of legal processes. To mitigate this fragility, it is essential to develop a system that allows direct linking of procedural events (e.g., summons for cost payment, judicial settlement, final and unappealable decision) to their respective financial impacts, automating alerts and projections. This would enable the legal department and the finance area to anticipate disbursements with greater precision, reducing the occurrence of deviations and strengthening confidence in the budget.

From an operational perspective, the research identified risks associated with the volume and complexity of the legal expense payment process. E3’s statement that “the delay in paying each claim is always an imminent risk”, especially given the high number of annual requests, highlights operational vulnerability. These findings suggest that, even in contexts with structured controls and information traceability, budgetary predictability is a direct reflection of the maturity level of governance applied to the legal department’s financial cycle. The fragmented governance of the budget cycle, with gaps in routine standardization and integration between operational and financial flows, exacerbates these risks. The payment process, which involves multiple steps (submission of the claim, entry into a control tool, analysis, approvals, execution), presents significant variations depending on the nature of the expense, taking from one day to up to 25 days to be completed. This variability, combined with the volume of approximately 4,000 claims per year and the dependence on multiple internal systems, increases the risk of delays and reduces process fluidity. Although roles between Legal and Treasury are clearly defined, occasional misalignments in information exchange were identified, indicating opportunities for improvement in routine standardization and budget flow governance. The Legal Operations literature, according to Faim and Fernandes (2025) and Tavares (2024), emphasizes the importance of process structuring and automation to increase efficiency and reduce operational risks. The practical implication is the need to map and optimize the payment flow (AS-IS to TO-BE), standardize procedures for each type of expense, implement a workflow management system that integrates steps and systems, and establish performance indicators (KPIs) to monitor cycle time and identify bottlenecks.

The fragilities in the structuring of cost centers represent another critical point. Although there is a control structure that allows for the analysis of expenses from different perspectives (company, business platform, legal entity, and internal area), the need for multiple classifications generates a high level of complexity in information organization. The payment flow involves different types of expenses – judicial fees, legal fees, and reimbursements – which follow distinct processes within corporate systems, making it difficult to standardize classification criteria and consolidate data. This fragility is particularly evident in the perception of participants in the financial area, who report difficulties in interpreting legal demands, which can lead to incorrect classifications, rework, and operational risks (E3). This scenario, where the lack of standardization and integration between areas compromises information quality, can generate significant operational risks, such as delays in urgent payments and potential penalties associated with non-compliance with procedural deadlines. Literature on governance and control, such as Assi (2021), highlights that clarity in the definition of cost centers and standardization of classifications are essential for the reliability of financial information. The lack of these elements compromises the ability to perform consistent and comparable managerial analyses, directly impacting strategic decision-making. To address this issue, the department should develop a more simplified and intuitive catalog of accounts and cost centers, with clear descriptions and examples for each category. Furthermore, the implementation of an expense management system that allows for automated pre-classification and validation by the legal department before sending it to finance can reduce errors and rework, promoting greater alignment between areas.

Regarding the limitations of control instruments, it was observed that, although the use of spreadsheets with advanced features supports the monitoring of legal expenses, empirical evidence indicates a strong dependence on structured controls in manual tools. Interviewee E2 mentioned the development of “a robust spreadsheet” to consolidate budgeted values and expenses, allowing for “virtually real-time” monitoring and comparison of values through “formulas and pivot tables.” However, this centralization of control in spreadsheets, combined with the high volume of demands and the need for interaction with multiple internal systems, represents significant limitations related to data standardization, information governance, and control scalability. The participants’ own perception points to opportunities for improvement, such as the need for “automation of manual steps” and enhancement in data visualization and analysis through tools like Power BI. The COSO framework (2013) emphasizes that internal control must be a structured set of practices that provides reasonable assurance regarding the achievement of organizational objectives. Excessive dependence on manual controls, even if robust, can introduce risks of human error, data inconsistency, and difficulties in scalability as the organization grows or the volume of operations increases. The analytical capacity to support decision-making is also limited when data is dispersed in spreadsheets and requires manual manipulation. Practical implications include the migration of manual controls to integrated digital platforms, such as legal management systems (LMS) or ERP modules, which offer process automation, real-time data validation, and integration with Business Intelligence (BI) tools for data visualization and analysis. This would not only increase operational efficiency but also strengthen data governance and the ability to generate strategic insights.

Finally, the low integration between procedural monitoring and financial impact was identified by the absence of a systematic connection between the progress of judicial processes and the events that generate disbursements, which reduces forecasting capacity and increases the occurrence of budgetary deviations. Although the payment process is structured in formal stages and has control and monitoring mechanisms, evidence indicates limitations in the connection between the progress of judicial processes and the events that generate disbursements. The unpredictability of judicial demands is the “great unknown” for budgetary accuracy, and “differences between the budgeted amount and the actual amount occur practically every month,” despite continuous monitoring efforts. The operational dynamics of payments, which depend on the submission of invoices by service providers and can vary significantly in timeframe (from payments completed on the same day to flows that take, on average, 25 days), show a dependence on events outside the direct control of financial planning. The suggestion that “closer monitoring of each judicial case would increase the chances of greater budgetary accuracy” reinforces the need for deeper integration between procedural monitoring and financial impact. The Legal Operations literature, according to Tavares (2024), highlights the importance of process structuring and data governance for operational efficiency. The absence of a continuous connection between the status of judicial processes and the financial materialization of events compromises the budget’s predictive capacity, contributing to the recurrence of deviations between budgeted and actual amounts. The practical implications demand the implementation of a case management system that integrates procedural information (phases, status, provisions) with financial data (costs, fees, deposits). This would allow for the creation of automatic alerts for imminent financial events, cash flow projections based on the progress of processes, and scenario analysis for contingencies. The adoption of performance indicators that correlate the procedural cycle time with the financial disbursement time, as well as the variation between budgeted and actual amounts by type of process, would be crucial for monitoring and improving this integration.

In summary, the four main findings – fragmented governance of the budgetary cycle, weaknesses in the structuring of cost centers, limitations of control instruments, and low integration between procedural monitoring and financial impact – converge towards the need for a more holistic and integrated approach in the financial management of the legal department. The literature on corporate governance (IBGC, 2023; Assi, 2021) and Legal Operations (Faim & Fernandes, 2025; Tavares, 2024) offers a robust theoretical framework to improve these aspects, emphasizing the importance of process standardization, data governance, and technology adoption. The transition from manual controls to automated systems, the restructuring of cost centers for greater clarity, and the systematic integration between legal and finance are essential steps to transform the legal budget from a mere record into a strategic management tool, capable of offering predictability and supporting decision-making in a complex and dynamic environment.

4. Conclusion

It is concluded that the objective was achieved by investigating how governance mechanisms and internal controls, applied to “Legal Operations” practices, can strengthen the financial management and budgetary predictability of a legal department in a multinational company. The study diagnosed critical points in the budgetary cycle, revealing that predictability is impacted by exogenous factors, such as the complexity of the Judiciary, and endogenous factors, such as fragmented governance of the budgetary cycle, weaknesses in the structuring of cost centers, limitations of manual control instruments, and low integration between process monitoring and financial impact. These findings allowed for the identification of process improvements, indicators, and responsibilities, culminating in the proposal of a governance and control model for the legal budget, which aims to standardize routines, strengthen monitoring mechanisms, and improve decision-making.

Despite the robustness of the analyses, this study has limitations inherent to its nature as a single case study, which restricts the generalization of the results to other organizations. However, data triangulation conferred consistency to the conclusions, allowing the identification of relevant patterns. For future studies, it is recommended to deepen the quantitative analysis of historical data and expand the research to other legal departments, aiming to validate and refine the proposed governance and control model. Such investigations can contribute significantly to the advancement of literature on financial management and budgetary predictability in the corporate legal context.

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