Report Reveals Calif. Bar Still Needs to Rein in Spending

(CN) – The California State Bar still needs to rein in its spending and perks, according to State Auditor Elaine Howle’s updated report on the agency released Tuesday.

“Although the State Bar has revised its expense policies to help ensure the prudent use of its funds, it still lacks effective controls to verify that its expenses are reasonable and appropriate,” Howle said in her new report.

Howle specifically called out spending on employee salaries, credit cards, catering and generous lifetime health care benefits for executives, as well as offsite events hosted by the Bar’s specialty law groups. Of the Bar’s $148 million in expenses last year, $76 million went to paying salaries and benefits, according to the report.

In an April 2017 compensation study, a consultant found that 80 percent of Bar employees, such as attorneys and paralegals, work fewer hours than staff at comparable government agencies, with a 36.25-hour work week compared to 40 hours. It also provided lifetime post-retirement medical benefits to its executives at a total cost of $916,000 in 2016.

Howle noted that while the Bar has committed an additional $3.4 million in funding to its attorney discipline system, it still needs to find and devote more resources to decreasing its backlog of pending discipline cases.

The State Bar, which has historically functioned as both a trade group and a disciplinary body for lawyers, has been steeped in controversy in recent years with the ousting of its former president, Joseph Dunn. That was followed up with a whistleblower lawsuit, accusations that the Bar tampered with its disciplinary case backlog that culminated in the exit of its chief trial counsel after a vote of no confidence, and harsh criticism from the Legislature, which last year ended its session without passing the usual fee bill that would allow the agency to collect annual membership dues.

A bill to allow the Bar to collect dues now sits in the Assembly, but it is contingent on the Bar splitting from its 16 “sections”—  specialty law groups that are funded through voluntary membership dues and provide lawyers with continuing education.

In May 2016, Howle released an audit of the State Bar that blasted it for lacking transparency in its financial reports to the Legislature, mismanaging member fees, and failing to compensate victims of attorney misconduct from its client security fund.

State law requires Howle to audit the Bar’s operations every two years.

Howle’s newest report acknowledges that the Bar has recently revised its expense policies and banned alcohol at its events, but says it needs to exert more control over other areas, such as catered meals and credit cards.

Howle also took the agency to task over off-site education programs, of which the sections host 200 a year.

While the sections announced plans to split from the Bar earlier this year, Howle said the Bar should ensure that the sections’ travel and meal expenses comply with the same policies as the Bar’s staff until the separation.

She pointed to a $33,000 off-site event for the trusts and estates section at the Tenaya Lodge at Yosemite National Park that included room gifts, a DJ and pianist and private bus tour for attendees.

“The State Bar agreed that such expenses are not appropriate. Although the sections may need off‑site locations for larger events, they should take measures to limit the cost of these off‑site events to applicable per diem and lodging rates, and to incur only those expenses that are necessary,” Howle said.

“Regardless of whether the sections separate from the State Bar, there is a need for controls and limits over expenses to ensure a prudent use of funds,” she added.

In her response to Howle, State Bar Executive Director Elizabeth Parker said the new audit contained “helpful suggestions,” and that the Bar intended to promptly implement the majority of its recommendations, but also said that some of the trouble areas Howle highlighted required clarifying facts.

“The State Bar’s past failings are well known, but we believe it is also important to clarify the process for identifying problems and the State Bar’s actions in response,” Parker said in a written response attached to the audit.

The Bar declined to comment beyond Parker’s statement.

In her letter to Howle, Parker said the State Bar is in the midst of reevaluating its lifetime healthcare perk, and will require its executives to contribute to their post-retirement healthcare benefits if they are hired on or after January 1, 2018.

“Imposing this change on current management staff can be expected to persuade many key managers to retire early, destabilizing the Bar at a time of significant reform of its internal management,” she said.

Parker said the Bar will also reduce its on-site catering costs and set per diem limits, but disagreed that it should tighten controls on the sections.

“Sections’ activities are entirely self-funded from voluntary membership fees and the Sections are likely imminently separating from the State Bar. Imposing additional restrictions on Sections’ spending would create both an administrative burden and a distraction from the important work being done to transition the Sections to a standalone entity,” Parker said. “In the Bar management’s judgment, the Bar’s limited staff resources are better spent helping the Sections successfully depart the Bar for a private, non-profit than in further refining oversight of expenditures which will soon come to an end.”

This isn’t enough, said Howle, whose response to Parker also noted that the Bar did not address the use of off-site catering. “The intent of our recommendation is to address all catering costs, not just those incurred on-site,” she said.

The Bar must also strengthen its controls over employees’ credit card purchases, Howle said, by developing a policy requiring its employees to justify the need for a credit card and document their purchases. Some of the credit cards issued to employees, Howle’s audit noted, had monthly credit limits of up to $75,000.

Assemblyman Mark Stone, D-Monterey Bay, chairs the Assembly Judiciary Committee and said in a statement that he hopes the newest audit will result in more significant progress toward the Bar’s chief mission of protecting the public from errant attorneys.

“The latest audit of the State Bar shows that – despite some progress towards focusing more closely on its regulatory duties – once again, the Bar continues to hinder itself in carrying out its mission of public protection with poor internal accounting procedures,” he said. “I hope that this most recent audit will help the Bar implement practices that promote efficient, transparent, and accurate budgeting so that it is not distracted from its primary duty to protect the public from attorney misconduct.”

The Bar has 60 days to formally respond.


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