The State Bar Of California: It Needs Additional Revisions .
June 2017The State Bar of CaliforniaIt Needs Additional Revisions to Its Expense Policiesto Ensure That It Uses Funds PrudentlyReport 2017-030COMMITMENTINTEGRITYLEADERSHIP
CALIFORNIA STATE AUDITOR621 Capitol Mall, Suite 1200 Sacramento CA 95814916.445.0255 TTY 916.445.0033For complaints of state employee misconduct,contact us through the Whistleblower Hotline:1.800.952.5665Don’t want to miss any of our reports? Subscribe to our email list atauditor.ca.govFor questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255This report is also available online at www.auditor.ca.gov Alternate format reports available upon request Permission is granted to reproduce reports
Elaine M. Howle State AuditorDoug Cordiner Chief DeputyJune 27, 20172017-030The Governor of CaliforniaPresident pro Tempore of the SenateSpeaker of the AssemblyState CapitolSacramento, California 95814Dear Governor and Legislative Leaders:As required by the Business and Professions Code section 6145 (b), the California State Auditorpresents this audit report concerning our review of the State Bar of California (State Bar). This reportconcludes that, although the State Bar has revised its expense polices to help ensure prudent uses ofits funds, it still lacks effective controls to verify that its expenses are reasonable and appropriate.Over the last year, the Legislature has questioned the State Bar’s operational structure and theprudence of its expenses. For this audit, we focused on the appropriateness of the State Bar’s expenses,including salaries and benefits, travel, catering, lobbying activities, and outside legal counsel, as well asthe adequacy of funding for its attorney discipline system. Our review of these six expense categoriesfrom 2014 through 2016 determined that all six categories lacked sufficient management controls toensure that costs were prudent. For example, although salaries and benefits made up 51 percent ofits total 2016 expenses, the State Bar has not conducted an in-depth update of its job classificationssince 2000 and, because it lacks a compensation policy, the State Bar had not until recently reviewedits compensation against comparable agencies since 2006. In response to a 2016 state law, the StateBar retained an outside consultant to perform an agencywide compensation study, which revealedthat 80 percent of the State Bar’s full-time employees work a 36.25‑hour workweek, it pays basesalaries that average 10 percent above the market median for comparable agencies, and it providesmore generous health care benefits to its nonrepresented employees than its represented employees.Further, our review of 90 expenses concluded that improvements are needed to the State Bar’s policiesand controls. For instance, the State Bar assigns purchasing cards to nearly 38 percent of its employeeswith monthly credit limits up to 75,000, but it lacks a process to demonstrate that it assigns thesepurchasing cards to appropriate staff and it does not document changes to employees’ credit limits.Further, although its contracts with two lobbyists comply with legal restrictions related to its fundingof lobbying activities, the State Bar does not require its lobbyists to justify the amounts they bill,which totaled 768,000 from 2014 to 2016. Additionally, while the State Bar has reduced its relianceon outside legal counsel, it uses an informal process to demonstrate the need and selection of outsidelegal counsel. Finally, state law defines the State Bar’s highest priority as protecting the public fromattorney misconduct, but its attorney discipline system has historically struggled with complaintbacklogs due to a lack of resources and it lacks goals and metrics that would measure the effectivenessof its enforcement efforts.Respectfully submitted,ELAINE M. HOWLE, CPAState Auditor621 Capitol Mall, Suite 1200S a c r a m e n t o, C A 9 5 8 1 4916.445.0255916.327.0019 faxw w w. a u d i t o r. c a . g o v
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California State Auditor Report 2017-030June 2017ContentsSummary1Introduction7Audit ResultsMost State Bar Staff Receive Higher Compensation and Work FewerHours Than Do Staff at Comparable Agencies15The State Bar Lacks Effective Management Processes to EnsureThat Its Travel and Catering Costs Are Reasonable20The State Bar Does Not Request or Maintain DocumentationFrom Its Lobbyists That Justifies Their Charges27Although the State Bar Reduced Costs Related to Its ContractsWith Outside Counsel, It Could Make These ContractsMore Transparent28The State Bar’s Attorney Discipline System Lacks Sufficient Resourcesand Needs Measurable Goals30Recommendations32Appendix AResults of Our Employee Survey at the State Bar37Appendix BResults of the CPS HR Consulting Total Compensation Studyof the State Bar Job Classifications41Response to the AuditThe State Bar of California45California State Auditor’s Comments on the Response Fromthe State Bar of California53v
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California State Auditor Report 2017-030June 2017SummaryResults in BriefThe state constitution requires that every person licensed topractice law in California belong to the State Bar of California (StateBar). Supported primarily by member fees from its more than260,000 members, the State Bar licenses and regulates individualspracticing law in California. State law requires the State Bar tocontract with the California State Auditor to audit the State Bar’soperations every two years, but it does not specify the topics thatthe audits should address. Over the past year, the Legislaturehas questioned the State Bar’s operational structure and theprudence of some of its expenses. For this audit, we focused onthe appropriateness of the State Bar’s expenses, including salariesand benefits, travel, catering, lobbying activities, and outside legalcounsel, as well as the adequacy of funding for the State Bar’sattorney discipline system.Although the State Bar has revised its expense polices to helpensure the prudent use of its funds, it still lacks effective controlsto verify that its expenses are reasonable and appropriate. Wereviewed the six categories of expenses listed above from 2014through 2016 and found that all six categories lacked sufficientmanagement controls to ensure that costs were prudent. Forexample, although salaries and benefits made up 51 percent ofits total expenses in 2016, the State Bar has not conducted anin‑depth update of its job classifications since 2000 and, becauseit lacks a compensation policy, the State Bar had not until recentlyreviewed its compensation against comparable agencies since2006. In response to a 2016 state law requiring it to obtain acompensation and benefit study of those classifications requiredto conduct disciplinary activities, the State Bar retained an outsideconsultant—CPS HR Consulting (consultant)—to perform anagencywide total compensation study.In its April 2017 compensation study, the consultant notedthat 80 percent of the State Bar’s full‑time employees work a36.25‑hour workweek, making the State Bar an outlier amongthe 40‑hour workweeks of comparable agencies. To compare theState Bar’s salaries with those of comparable agencies it identified,the consultant converted the State Bar’s monthly salaries to a40‑hour workweek equivalent. The consultant found that for theselection of job classifications it reviewed, the State Bar pays basesalaries that average 10 percent above the labor market medianfor comparable agencies—including local governments and theState’s Judicial and Executive branches. The State Bar is currentlynegotiating with its employees represented by an employee unionAudit Highlights . . .Our review of the State Bar’s expenses—salaries and benefits, travel, catering,lobbying activities, outside legal counsel—and funding for its attorney disciplinesystem, revealed the following:» Although the State Bar has revisedits expense policies to help ensure theprudent use of its funds, it still lackseffective controls to verify that itsexpenses are reasonable and appropriate.» The State Bar has not conducted anin-depth update of its job classificationssince 2000 and, until recently, had notreviewed its compensation againstcomparable agencies since 2006. Most full-time employees (80 percent)work a 36.25-hour workweek. After adjusting to a 40-hourworkweek, it pays base salaries thataverage 10 percent above the marketmedian for comparable agencies. It provides more generoushealth care benefits to itsnonrepresented employees than itsrepresented employees.» The State Bar lacks a process todemonstrate that it only assignspurchasing cards to appropriate staff andhas no process for documenting changesto credit limits.» It could further decrease its catering costsby aligning its policies with those of theState’s Executive Branch.» Because it does not require thetwo lobbyists it contracts with to justifythe amounts they bill, the State Bar maybe paying more than necessary—it paid 768,000 for lobbying activities from2014 to 2016.continued on next page . . .1
2California State Auditor Report 2017-030June 2017»» Although the State Bar reduced its costs foroutside legal services, it has not formalizedits process to demonstrate its need for andselection of outside counsel.»» Because of a lack of resources, its attorneydiscipline system has struggled historicallyto promptly resolve all the complaints itreceives, potentially delaying the timelydiscipline of attorneys who engagein misconduct.(represented employees) to adopt the consultant’s salary andclassification recommendations. It is also transitioning staff from a36.25‑hour workweek to a 40‑hour workweek.The consultant also identified that the State Bar provides moregenerous health care benefits to its nonrepresented employeesthan to its represented employees. The State Bar currently pays100 percent of the health care premium costs for nonrepresentedemployees compared to the 80 percent of premium costs it paysfor its represented employees. Moreover, the State Bar providesits executive management with lifetime post‑retirement medicalbenefits, which it does not offer to other staff. According tothe compensation study, the State Bar’s enhanced health carecoverage for nonrepresented employees is more generous thanthe health care coverage at comparable agencies. The State Barplans to standardize health care benefits for all its employeesbeginning January 2018, but it will continue to provide lifetimepost‑retirement medical benefits for executive employees.Our review of 90 State Bar expenses from 2014 through 2016concluded that the State Bar could improve its policies and controlsover these expenses. For example, although the State Bar assignspurchasing cards to nearly 38 percent of its employees, withmonthly credit limits ranging from 5,000 to 75,000, it lacks aprocess to demonstrate that it only assigns purchasing cards toappropriate staff and has no process for documenting changesto credit limits. Specifically, we found eight instances in whichthe State Bar’s records reflected that employees’ monthly creditlimits ranged from 5,000 to 20,000, while the bank showed alltheir limits being set at 75,000. With no documentation for thesechanges, we could not determine whether the increased creditlimits were authorized by the State Bar as necessary.Until late 2016, the State Bar’s policies allowed staff to purchasealcohol for events and meetings. In response to scrutiny from theLegislature, the State Bar identified alcohol purchases totaling 156,900 for events, meetings, and meals between January 2015and September 2016. Subsequently, the State Bar’s board oftrustees (board) prohibited all State Bar spending on alcoholas of January 2017. However, the State Bar has not updated itsprocurement manual to reflect the board’s prohibition on alcoholpurchases. To demonstrate its commitment to the board’s decision,the State Bar should immediately update its procurement manual toprohibit staff from purchasing alcohol for events and meetings.Although the State Bar also recently imposed limits on its cateredmeals, it could further decrease its costs by aligning its policieswith those of the State’s Executive Branch. In November 2016, theState Bar analyzed its catering costs and determined that it could
California State Auditor Report 2017-030June 2017have saved 54,000 from January 2015 through September 2016had it implemented the State’s Executive Branch per diemrates. Although the State Bar recently placed a limit of 55 perperson per day on catering costs at its San Francisco office, thisis still more generous than the limit of 41 per day for the State’sExecutive Branch.Further, the State Bar should take steps to align the expensepractices of its sections with the State Bar’s policies. The sectionsare voluntary organizations of attorneys and associates who sharea professional area of interest and offer educational programs totheir members in various fields of law. Current legislation proposesseparating the sections from the State Bar and turning them intoa private, nonprofit entity. Notwithstanding this proposal, theState Bar has indicated that the sections currently must complywith the same policies that State Bar staff follow for travel, the useof purchasing cards, contracting, and business expenses. However,our review of the State Bar’s updated policies and proceduresrevealed that the State Bar allows the sections to provide lessjustification for booking off‑site events than it requires of State Barstaff. The costs for the sections’ events are significant: from 2014through 2016, the sections spent 4.3 million on catering for theseevents. Further, we found that the sections frequently paid costsfor hotel rooms that exceeded the State Bar’s lodging rate in itstravel policy. Specifically, among the 15 hotel expenses we reviewed, 15,800 was for charges that exceeded the State Bar’s lodging rate byamounts ranging from 4 to 330 per night. Regardless of whetherthe sections separate from the State Bar, there is a need for controlsand limits over expenses to ensure a prudent use of funds.Just as it should improve and better implement its spendingpolicies, the State Bar should develop stronger policies governingits contracts with lobbyists. Although the State Bar’s contracts withtwo lobbyists comply with legal and statutory restrictions relatedto its funding of lobbying activities, the State Bar may be payingmore than necessary for its lobbyists because it does not requirethem to justify the amounts they bill, which totaled 768,000from 2014 to 2016. The State Bar is renewing its contracts for bothlobbying firms. However, the State Bar indicates the new contractswill continue to allow the lobbyists to submit invoices that donot detail their monthly activities. As a result, the State Bar ismissing an opportunity to ensure that its spending for lobbying isreasonable and to require that the lobbyists provide an explanationof their activities on the monthly invoices.Although the State Bar reduced costs related to its contractswith outside legal counsel, it could make its justification for thesecontracts more transparent. Specifically, the State Bar reduced itscosts for hiring outside counsel from 808,000 in 2014 to 356,0003
4California State Auditor Report 2017-030June 2017in 2016; however, it uses an informal process to demonstrate bothits need to hire outside counsel and its process for selecting theselaw firms. State Bar rules allow it to contract with outside counselwhen its members lack the necessary expertise in a particulararea of law. In addition, the State Bar is required to use outsidecounsel when it has a conflict in the matter, such as when currentor former employees sue the State Bar. Contracts for legal servicesare generally exempt from the competitive bidding requirementsof the Public Contracting Code. Nevertheless, because of itsinformal selection process, we were unable to verify whether theState Bar needed its contracts with outside legal counsel, whetherthe selected firms were the most qualified, or whether the termsof the contracts themselves were reasonable.Finally, state law defines the State Bar’s highest priority asprotecting the public from attorney misconduct, but its attorneydiscipline system has struggled historically to promptly resolveall the complaints it receives, potentially delaying the timelydiscipline of attorneys who engage in misconduct. Specifically,the State Bar’s attorney discipline system has a persistent casebacklog—generally defined as cases open for more than 180 daysas of December 31 each year. Although the State Bar previouslyidentified a lack of resources in the attorney discipline system asa major reason for this backlog, the State Bar has been unable toobtain the needed resources. In May 2016, the State Bar estimatedthat it would need an additional 81 staff, at an annual cost of 9.9 million, for its attorney discipline system to successfullyeliminate its case backlog. In September 2016, the State Barattempted to obtain an additional revenue assessment to bolsterits attorney discipline system, but the Supreme Court of Californiadenied this request. The State Bar did budget an increase of14 positions and 3.4 million in funding for its attorney disciplinesystem for 2017 from the 2017 special assessment and internalcost savings. However, the attorney discipline system’s staffing andfunding levels still fall short of its estimated need. Although theState Bar tracks certain workload data, including the number ofcomplaints received, number of cases closed, and size of its backlog,it lacks goals and metrics that would measure whether the attorneydiscipline system is achieving its broader mission to protect thepublic from attorney misconduct.Selected RecommendationsTo better align its compensation practices with those of comparableagencies, the State Bar should continue its efforts to update andformalize its salaries and benefit policies to bring them in line withcomparable agencies.
California State Auditor Report 2017-030June 2017To ensure that it only assigns purchasing cards to appropriate staff,and to verify that staff use purchasing cards only for allowable andnecessary expenses, the State Bar should immediately develop apolicy that limits issuing purchasing cards to employees who havea demonstrated business need and should ensure that its records ofemployees’ credit limits reflect those established with the bank.To demonstrate its commitment to the board’s prohibition of allState Bar spending on alcohol, the State Bar should immediatelyupdate its procurement manual to reflect this prohibition.To ensure that its costs are reasonable and appropriate, the StateBar should update its meal and catering policy to align with themeal policy of the State’s Executive Branch and should requireindividuals attending committee meetings for the State Bar tocomply with standard meal per diem rates.To make certain that the costs for sections events are reasonableand prudent, the State Bar should require that the sections followthe State Bar’s catering and travel policies.To make certain that its lobbying expenses are reasonable andcover only allowable activities, the State Bar should amend itslobbying contracts to require detailed invoices that support theinvoiced amount.To ensure that it contracts only for appropriate and necessaryservices from outside law firms at a prudent rate, the StateBar should formalize a policy covering its informal practicesof assessing the need for legal services and determining thequalifications and reasonableness of the rates for prospectivelaw firms.The State Bar should, by December 2017, identify key goals andmetrics to measure how well its attorney discipline syste
practice law in California belong to the State Bar of California (State Bar). Supported primarily by member fees from its more than 260,000 members, the State Bar licenses and regulates individuals practicing law in California. State law requires the State Bar to contract with the California State Auditor to audit the State Bar’s
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