Report 99030 Summary - April 2001

State Bar of California:

It Has Improved Its Disciplinary Process, Stewardship of Members' Fees, and Administrative Practices, but Its Cost Recovery and Controls Over Expenses Need Strengthening

HIGHLIGHTS

In rebounding from its virtual shut down, the State Bar has made the following improvements:

  • Developed a complaint prioritization system that allows staff to address the most serious disciplinary cases first.

  • Increased the amounts it charges disciplined attorneys to recover discipline costs.

  • Taken steps to ensure that its mandatory membership fees are reasonable and not used to support voluntary programs.

  • Improved controls over contracting.
However, the State Bar needs to make the following additional improvements:
  • Adopt additional collection methods to increase the amounts it actually collects from disciplined attorneys.

  • Clarify and enforce policies regarding its purchasing cards, business expense account, and contracting.

RESULTS IN BRIEF

The State Bar of California (State Bar) is rebounding well since a veto of legislation limited its revenue and forced it to suspend operations almost completely for six months during 1998. Under the California State Constitution, all attorneys who practice law in California must be members of the State Bar unless they are serving as judges, and the State Bar is responsible for disciplining attorneys who have engaged in misconduct. In recovering from its virtual shutdown, the State Bar has reduced costs and improved the effectiveness of its disciplinary process by developing a priority system that allows staff to address the most serious disciplinary cases first. In addition, it significantly increased the amounts it can charge disciplined attorneys to recover disciplinary costs. The State Bar also has taken steps to ensure that its dues are reasonable and that it uses required dues to support only its mandated functions and not the programs in which members participate voluntarily. Nevertheless, the State Bar needs to recover a higher percentage of disciplinary costs from disciplined attorneys to avoid using an unnecessarily large portion of membership fees to reimburse the complainants in disciplinary cases and to pay the costs of these cases. Moreover, the State Bar needs to maintain credibility with its members and the public by making certain that employees use its purchasing cards and business expense account properly and adhere to its contracting policies and procedures.

The State Bar, established by the California State Constitution, is a public corporation with a mission to preserve and improve the justice system in order to assure a free and just society under law. California's 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. In addition, a 23-member Board of Governors establishes policy and guides the State Bar's functions, such as licensing attorneys and providing programs to promote the professional growth of its members.

In 1997, the governor vetoed legislation that would have authorized the State Bar to collect fixed, mandatory fees from its members. Various sources, including our 1996 audit report on the State Bar, already had shown that the State Bar was not managing its resources effectively. The drastic reduction in membership fees meant the State Bar had to curtail its activities significantly and find ways to cut costs. After nearly shutting down during 1998, the State Bar began to improve its disciplinary and administrative processes. In the meantime, however, the State Bar developed a large backlog of disciplinary cases.

To make its disciplinary process more efficient and to address this backlog, the State Bar implemented a priority system that focuses staff efforts on the most serious complaints against attorneys. Further, the State Bar has developed a reasonable plan to reduce the backlog and has implemented a policy to conduct periodic reviews of random cases to ensure that the staff's actions are appropriate and consistent with case law and with the State Bar's policies, standards, and priorities.

The State Bar also has revised its cost model to include all the activities for which it can recover costs from disciplined attorneys. However, it has not updated the cost model to reflect current salaries for State Bar employees. Further, although it is charging disciplined attorneys more, the State Bar continues to have trouble collecting the money. Because its cost-recovery efforts are poor, the State Bar must use an unnecessarily large share of the membership fees to support programs that reimburse the disciplined attorneys' clients and for the disciplinary process. Consequently, the State Bar is missing an opportunity to reduce members' fees.

On the other hand, the State Bar has improved its financial accounting for activities supported by the required membership fees and by the fees that members pay voluntarily. Because legislation precludes it from using mandatory fees to support programs that the law does not require and that are optional for members, the State Bar uses separate funds to account for the receipt and expenditure of voluntary fees. It also has developed a method to allocate administrative costs equitably among mandatory and voluntary programs. Moreover, to ensure that members' fees are reasonable and that mandatory fees do not support voluntary programs, the State Bar has worked to determine the amount of mandatory fees it needs to perform its required functions.

Finally, since it began re-creating itself in 1998, the State Bar has improved its procurement policies. It established a purchasing card program that has strengthened controls over travel and minor business expenses, and it has enhanced controls over its contracting practices by establishing competitive bidding requirements. Nevertheless, it must clarify one of its policies and ensure that employees adhere to others. In a sample of 36 monthly statements for purchasing cards, we identified about $4,400 in questionable transactions that did not represent a prudent use of State Bar funds. The State Bar also exceeded by about $5,500 its general fund budget for discretionary spending in the business expense account. Furthermore, our audit sample disclosed that the State Bar paid about $2,600 for purchasing card transactions even though the employees responsible for the charges failed to provide required receipts for their purchases. The State Bar also did not always enforce its policies and procedures for contracting. Thus, it cannot be certain that expenses are appropriate and that its members are funding only purchases that are necessary.

RECOMMENDATIONS

To improve recovery of costs from offending attorneys so it can reimburse their clients and pay for the disciplinary process, the State Bar should maximize the costs it can recover from disciplined attorneys by including in an updated cost model the current salary costs for State Bar employees. Additionally, the State Bar should pursue other collection strategies, such as participation in the State's Offset Program, which allows the State Controller's Office and the Franchise Tax Board to offset from an individual's tax refund any amounts owed to state agencies.

To prevent abuse of its purchasing card program and to make certain that employees use the cards appropriately, the State Bar should clarify its definitions of purchases that constitute appropriate business expenses and enforce its policy requiring receipts for purchases exceeding $25. It should require employees to charge all discretionary spending to the business expense account, and it should monitor total charges to this account. Finally, to ensure that it obtains the best price and that its purchases are necessary, the State Bar must enforce its policies and procedures for contracting.

AGENCY COMMENTS

The State Bar agrees with our recommendations and outlines its corrective action plans. The State Bar states that it will update its cost model and renew its efforts to participate in the State's Offset Program. In addition, the State Bar will review existing policies related to business expense and purchasing card usage, make revisions as necessary, and redistribute them to all employees. Also, the State Bar will clarify and strengthen its contracting policies and procedures as necessary and plans to provide training for its staff.


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