Calif. State Bar Blasted|for Lack of Transparency

SACRAMENTO, Calif. (CN) — The California State Bar lacks millions of dollars in funding to compensate victims of attorney misconduct, but pays some of its executives more than the governor, the state auditor said Thursday.

The state bar, which regulates the conduct of attorneys through its discipline system and administers the California bar exam, is supported primarily through annual member fees.

It also receives revenue through recovery payments from dishonest attorneys who have caused the bar to reimburse their clients. But according to the audit, disbarred attorneys rarely pay the money they owe — leaving the agency to rely almost entirely on annual member fees to reimburse the victims of dishonest attorneys.

The review, released by State Auditor Elaine Howle, said that the agency has not been upfront about its lack of money in its client security fund necessary to compensate all of the victims.

"Since 2010, estimated future payouts to consumers have far outstripped the amount of money in the client security fund available for payments. Because the state bar did not take sufficient action when it first identified this potential problem, it is currently unable to make timely reimbursements," the 68-page audit stated.

At the end of 2015, the agency reported a backlog of 5,500 applications for payment and estimated that it would need to pay a total of $18.9 million related to those claims.

"Nonetheless, it had only $2.2 million available in its client security fund at the time. In other words, the fund's likely future payouts outstripped its assets by $16.7 million," the report stated.

Victims can potentially wait four to five years before receiving any reimbursement, the audit said.

"The state bar's long delays in paying claims harm the people who are waiting and who may be counting on these resources to meet basic needs," the report said.

The audit also pointed out that the state bar's salaries are its largest and fastest-growing expense, with the agency's top 13 executives making more than Gov. Jerry Brown's salary of $182,791.

The senior director of admissions' maximum annual salary is just over $208,000, while the maximum salary for state agencies' civil services executives with comparable responsibilities is just under $136,000.

"If the state bar capped all executive staff salaries in positions below that of the operations officer at the highest level for comparable [executive assignment positions], it could save as much as $428,000 annually," the report said.

The audit also highlighted problems with the agency's errors and lack of transparency when it comes to its financial reports, which limits "stakeholders' ability to understand the state bar's operations and the Legislature's ability to ensure the appropriateness of the state bar's fees," Howle said.

Additionally, the bar has made some inappropriate financial decisions, the report said.

In 2013, the agency created a nonprofit foundation purportedly to collect money from donors and administer activities benefiting two of its programs. However, about two-thirds of the expenses from the foundation's fund over the course of two years were for purposes unrelated to the two programs, according to the audit.

"Without increased oversight, there is a risk that the state bar could create similar nonprofits in the future and use their funds for questionable purposes," the report said.

In a response letter to the audit, the bar's new executive director Elizabeth Parker said that the report "offers a meaningful and balanced analysis of the myriad of issues facing the state bar from which we can benefit, going forward."

However, she said she was disappointed that the final report did not make a more clear distinction between past management issues faced by the agency and the efforts by the new management team to transform the agency's practices over the last seven months.

In addition to Parker taking over as executive director from Joe Dunn — who is currently seeking a Congressional seat — the state bar also has a new chief operating officer and general counsel.

"We believe that external readers need to understand this change in leadership and the efforts it is making to address a host of longstanding organizational, operational, and fiscal challenges. This reform-minded state bar leadership team welcomed the audit and, we believe, exhibited significant openness to the audit process," Parker said.

She disagreed with several of the audit's findings, including that the state bar has not clearly informed stakeholders that it lacks the funding necessary to pay victims of attorney misconduct.

"The status of the client security fund has been reported to the board of trustees via public board reports on multiple occasions, and has been communicated to legislative staff spanning back to the prior executive leadership of the bar, and continuing to discussions regarding the current fee bill," Parker said.

She also pointed out that salaries for the new executive team were based on appropriate comparison entities for executive positions.

"Moreover, a 2016 state bar executive director salary survey sponsored by the District of Columbia Bar reflects the fact that the State Bar of California's executive director salary is well within the range of other comparable positions nationwide," Parker said.

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