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California state bar advised to control spending, improve integrity of attorney probes

California's auditor said the state bar is in danger of running out of money to sustain its operations.

SACRAMENTO, Calif. (CN) — The State Bar of California must act to protect the integrity of its attorney investigations and slow a spending deficit that could cripple its operations, according to a new audit.

In a report released Thursday, California State Auditor Grant Parks said that the state bar will have to increase its mandatory licensing fee in 2024 to keep operating because it often spends more than it gets in revenue. 

Parks also determined the bar must improve the disciplinary process for using contracted investigators, who handle complaints against attorneys for which the bar has a conflict of interest. The auditor said that he found multiple errors and omissions in the case management data and that the bar has not formalized a process to ensure that external investigators have no conflicts of interest. 

In 2022, the state bar received about $96 million in mandatory licensing fee revenue, and spent $60.9 million operating the Office of the Chief Trial Counsel. The office reviews and analyzes complaints of unethical and unprofessional conduct against attorneys, and prosecutes formal disciplinary hearings for violations of the State Bar Act.

The bar also spent more than $14 million to operate its court for handling formal disciplinary matters that may result in a recommendation of discipline to the California Supreme Court.

The bar used fee revenue to pay for nearly 80% of administrative costs in 2022, which increased by $6.5 million or 17% since 2020.

The Legislature already authorized a mandatory licensing fee increase beginning in 2020, but the state bar’s general fund reserve fell from $19 million to $12.4 million by the end of 2022. The bar in its 2023 approved budget projected a revenue shortfall of $4.3 million and that its reserves will fall to $8.1 million by the end of the year.

Parks also said that the bar’s administrative offices have not fully met their performance metrics and it may need to spend to fill vacancies that have hit nearly 21% to make these offices more effective.

He also said that the bar could save by selling the buildings it owns in San Francisco and Los Angeles. The bar occupies 60% of its San Francisco space and 80% of its Los Angeles space. It is trying to sell the San Francisco building by June. 

Parks said the bar spent nearly $5.7 million on both capital improvements and building operations for its San Francisco building, and could save an average of more than $4 million annually in building operating expenses if it sells. It could then fully repay a 2021 loan for improvements and information technology projects, trimming $2.4 million in ongoing annual expenses by 2024 and at least $1 million annually through 2036. 

If it does not sell the building in the first half of 2023, the bar will submit a mid-year budget adjustment to its board. It has not yet decided whether to try selling its Los Angeles building, which is smaller, requires fewer capital improvements and has only one tenant.  

The auditor recommended that the Legislature set the maximum annual licensing fee in 2024 to $414 for actively licensed attorneys and $103.40 for inactive licensees. He said that the bar can minimize this and future increases by raising fees for other services. 

Parks also found that the bar’s team of about 20 independent contractors, which investigates and prosecutes complaints against attorneys for which its staff have a conflict of interest, could raise concerns about impartiality in part because the bar has not formalized a process to ensure that external investigators are free from conflicts of interest.

His team found multiple errors and omissions in data related to such cases through its case management system, impeding the bar’s ability to effectively monitor investigations. Although state law sets a goal for the bar to conclude such investigations within six months, Parks said external investigators did not consistently close investigations within this time frame. 

The bar’s rules require the chief trial counsel to recuse the Office of the Chief Trial Counsel from investigating or prosecuting complaints against attorneys if a conflict of interest could raise concerns about the office’s impartiality. Those complaints or inquiries go to a special deputy trial counsel administrator.

"When investigators do not close cases in a timely manner, they risk failing to adequately protect the public," Parks said. He cited one case that was open for years, after being closed within six months and then reopened. 

“The state bar lacks the ability to monitor the timeliness of certain external disciplinary cases, leaving it less able to identify when and why delays in case processing occur,” he said. 

The report recommends that by September, the bar should complete its fiscal analysis to determine how much money and time is spent on external disciplinary cases, and by October conduct in-depth audits of external investigators’ billing statements.

Parks also recommended that the bar review all data it holds for managing external disciplinary cases, and verify its accuracy. He said it should formalize the administrator’s process identifying any external investigators’ conflicts of interest on disciplinary cases.

“The state bar agreed with all of our recommendations, but included what it referred to as additional contextual information in its response. The state bar also indicated its willingness to work with the Legislature to implement all of our recommendations,” Parks said. 

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