Report 2007-030 Summary - April 2007
State Bar of California:
With Strategic Planning Not Yet Completed, It Projects General Fund Deficits and Needs Continued Improvement in Program Administration
Our review revealed that the State Bar of California:
- Began a strategic planning process in 2003; however, development of many departmental plans and performance measures are incomplete.
- Does not prepare annual budgets based on the results of strategic planning, but rather on projected costs for current levels of staff and resources.
- Is pursuing an increase in annual membership fees from active members to offset a projected deficit of almost $12 million in its general fund by December 2010.
- Continues to await approval of additional authority to collect money related to disciplinary cases, but does not expect the new authority to significantly increase collections in the short term.
- Needs to improve administration of its Legal Services Trust Fund Program to ensure that it maximizes revenue from interest on trust accounts attorneys establish and appropriately completes required monitoring activities.
- Reduced its backlog of open disciplinary cases to 256 cases, moving closer to its goal of 200 backlogged cases.
- Needs to continue improving its processing of disciplinary cases by consistently using checklists and conducting random audits.
RESULTS IN BRIEF
The State Bar of California (State Bar), established by the California State Constitution, is a public corporation with a mission to preserve and improve the justice system. The California Business and Professions Code guides the State Bar in its efforts to fulfill this mission and to protect the public from the unethical or unauthorized practice of law. A 23-member board of governors (board) establishes policy and guides State Bar functions, such as licensing attorneys and providing programs to promote the professional growth of its members.
Our 1996 audit report indicated that the State Bar was not managing its resources effectively.1 One of our conclusions was that it needed to improve its strategic-planning process. Although the board adopted a strategic plan in 2004, the State Bar has not fully implemented the departmental planning process intended to achieve the board's vision. The State Bar's executive director initiated a departmental strategic-planning process to improve customer service and to regularly assess staff effectiveness and efficiency. The executive director asked each department to assess functions within its area of responsibility and identify objectives to implement the board's strategic goals, attain desired outcomes, and collect performance data that measure its success.
The executive director's strategic-planning process requires departments to develop three-year plans that identify ways to improve their operations in relation to the State Bar's strategic plan. Each of the departmental plans should also contain an action plan that outlines specific steps to achieve the strategic plan's objectives and identify timelines for completion. Annual updates of these action plans should allow the executive director to identify accomplishments, measure progress, and pinpoint additional areas for focus and direction in order to enhance service.
Although the various departments initially completed their plans in 2005, the State Bar recognized the need for further revision and editing to provide a finished product that would be useful for both internal and external users. The executive director intended 2006 to be a "shakeout" year for management and staff to assess the plans' validity and revise them accordingly. However, the State Bar cited several challenges, including a recent department reorganization and the retirement of three key senior managers, that slowed the revision process. As of February 2007, eight of the 15 departmental plans and the associated action plans had not yet been revised. Two others contain addenda to serve as updates but have not been officially revised. The State Bar stated it is committed to revising all the departmental plans by July 2007. According to the executive director, once the first set of revisions is completed, a policy directive will be issued that will further direct the use of the plans, as well as provide guidelines for their ongoing revision.
In addition, the State Bar has determined its current information technology systems are not sufficient to enable it to effectively capture performance measurement data that would support the identified projects to achieve the board's strategic goals. According to the chief information officer, $3.4 million to $5.8 million is needed each year through 2013 to pay for the upgrades he considers necessary. However, the State Bar has not determined how to cover the costs of the upgrades. According to the senior executive for Member Services (senior executive), the departments are expected to identify the objectives and performance measures they can attain, given the existing level of resources and information technology. Their annual updates should identify additional objectives and performance measures that can be achieved with information technology upgrades.
The senior executive also stated that the executive director plans to use the action plans and departmental plans to help justify allocating and reallocating resources both within and among the departments. However, the State Bar's strategic-planning process still lacks many viable departmental plans that include meaningful performance indicators and action plans. The senior executive told us that annual budgets for the departments are not developed from the results of those planning efforts, but instead the budget process focuses primarily on estimating the cost of current staff and other resources using known or anticipated price increases.
Using financial forecasts completed in December 2006, the State Bar estimates that its general fund expenses will exceed revenues in future years, resulting in a fund deficit of nearly $12 million by December 31, 2010. For the year ending December 31, 2005, the general fund was substantially supported by membership fees. In 2001 the State Bar began using some of its general fund to maintain its Public Protection Reserve Fund (reserve fund) to ensure the continuity of its disciplinary system and other essential public protection programs in the event of an unexpected financial emergency, such as in 1997 when the governor vetoed a bill that would have authorized the State Bar to assess and collect base annual membership fees. However, the State Bar projects that by 2010 the combined balances of the general fund and the reserve fund will register a deficit of about $6.3 million. The State Bar is investigating various options to solve its projected financial dilemma. However, the fact that it has not fully implemented its strategic plan may hamper its efforts to justify its request to the Legislature for a membership fee increase as of January 1, 2008.
The law authorizes the State Bar to recover certain costs related to the public reproval or disciplining of its members; however, its recovery of these costs remains relatively low. Our 2005 audit report indicated that statutory changes effective January 2004 might improve the State Bar's ability to recover future disciplinary costs as well as some portion of the $72.5 million in costs already billed to disciplined members that remain uncollected.2 Implementation of the new authority remains contingent on the California Supreme Court approving the administrative procedures required to enforce money judgments against disciplined members. However, the State Bar does not anticipate that implementing the law will immediately increase its cost recovery rates since it has found that most of the accumulated billings are owed by disciplined members who have been disbarred or forced to resign and are thus too financially distressed to pay.
The State Bar also needs to improve its administration of its Legal Services Trust Fund Program (legal services program), which provides grant funding for free legal assistance to indigent individuals with civil legal matters. In 2006 the State Bar awarded about $26.7 million to 98 legal service providers. Funding for the program is provided primarily from interest earned on trust accounts attorneys establish to hold client funds that are either nominal in amount or are held only for a short period of time, state budget appropriations, and an allocation of certain court filing fees.
The State Bar's efforts to determine the amount of revenue it should be receiving from trust account interest have not been adequate. As of February 2007 about 25 percent of the members had not reported whether they have established such accounts. The $15.8 million the State Bar reported that it collected in 2006 came from the trust accounts reported by 45 percent of its members. It is possible that the 25 percent who have not reported could make a significant contribution to funding the legal services program. The State Bar believes the majority of its members comply with the program's requirements. However, the State Bar does not maintain the data needed to support its position and states it has no authority to enforce compliance reporting. Further, the State Bar does not monitor legal services program grantees as frequently as it should and does not always document completion of its monitoring steps. As a result, it cannot demonstrate that its monitoring procedures detect whether grantees comply with significant program standards and terms of the grants.
As of December 2006 the State Bar had reduced its backlog of disciplinary cases to 256, the oldest of which dates back to 2003, moving closer to its goal of 200 backlogged cases. Although it created checklists to ensure that staff follow key processing steps and developed random audit procedures to improve its oversight of the processing of disciplinary cases as we recommended in our 2005 audit, it has not always followed those procedures. For example, three of the 30 files we reviewed did not contain properly completed checklists. Further, supervising trial counsel and assistant chief trial counsel who oversee the disciplinary case investigators do not always perform the required random audits.
To ensure that the strategic plan is fully implemented, the State Bar should do the following:
- Complete revisions of the various departments' plans to realize the board's strategic goals and to include meaningful performance measures.
- Limit performance measurement to indicators that can be tracked on an ongoing basis.
- Ensure that its departments, as part of their departmental plan revision process, identify the objectives and performance measures that can be attained, considering existing resource levels and information technology capabilities. In addition, on an ongoing basis the various departments should update their annual action plans to incorporate additional information technology upgrades.
- Take the steps necessary to ensure its information technology systems can effectively capture the required performance measurement data to support the projects needed to accomplish strategic-planning objectives or an alternative means of capturing this data, such as using an Excel spreadsheet.
To effectively allocate its resources and justify its annual membership fees, the State Bar should align its budgets with the results of its strategic-planning process.
To ensure it receives all of the revenue available for its legal services program, the State Bar should consider conducting activities, such as interviewing or surveying a sample of members who do not presently report whether they have established trust accounts. This would allow the State Bar to determine whether some members are holding clients' funds that are nominal in amount or held for a short period of time without establishing the required trust accounts and remitting the interest earned to the State Bar. If the State Bar finds that nonreporting members do, in fact, hold client funds where the interest qualifies for remittance, it should seek the authority to enforce compliance reporting.
To properly monitor recipients of grants from its legal services program, the State Bar should ensure that it performs and documents all monitoring reviews.
The State Bar should continue its efforts to reduce its backlog of disciplinary cases to reach its goal of having no more than 200 cases.
The State Bar should ensure that staff use checklists of key tasks when processing case files and fully implement its 2005 policy for random audits of case files by supervising trial counsel.
The State Bar agrees with our recommendations and states that it is taking action to address them. The State Bar indicates that the recommendations will help it to strengthen its strategic planning process, programs and administrative controls, and to further demonstrate fiscal prudence.
1 State Bar of California: Opportunities Exist to Reduce Fees, Better Control Administration and Planning, and Strengthen an Improved Discipline Process, Report 96021 (May 21, 1996).
2 State Bar of California: It Should Continue Strengthening Its Monitoring of Disciplinary Case Processing and Assess the Financial Benefits of Its New Collection Enforcement Authority, Report 2005-030 (April 28, 2005).