Introduction
Background
Established by the California Constitution, the State Bar of California (State Bar) is a public corporation within the judicial branch of California. State law requires that every person admitted and licensed to practice law in California belong to the State Bar, unless the individual holds office as a judge in a court of record. With 226,000 members, the State Bar is the largest in the country. It maintains offices in San Francisco and Los Angeles, and its responsibilities include the following:
- Regulating the professional and ethical conduct of attorneys through an attorney discipline system.
- Administering the California bar examination.
- Administering funds to provide access to free or low‑cost legal services for the citizens of California.
- Managing the Client Security Fund, which helps protect consumers of legal services by alleviating monetary losses resulting from the dishonest conduct of attorneys.
- Administering requirements of continuing legal education.
- Assisting the governor in the judicial selection process by providing evaluations of candidates for judicial appointment and nomination.
The State Bar is governed by a 19‑member Board of Trustees (board) that meets eight times per year. Thirteen of its members are lawyers: State Bar members elect six, and either the California Supreme Court (Supreme Court) or the Legislature appoints seven. Either the governor or the Legislature appoints members of the public to the remaining six positions. In its 2012 strategic plan, the board set the direction for the State Bar, focusing on its mission of public protection by devising, supporting, and enforcing rigorous standards of competence and ethical behavior in the legal profession. To meet its responsibilities, the board has seven committees, including a regulation and discipline committee that oversees the State Bar’s management of the attorney discipline process and an audit committee that oversees the State Bar’s annual financial audit. In addition, the board delegates many responsibilities to State Bar staff. As Figure 1 below illustrates, the State Bar’s various offices implement the responsibilities the board delegates.
Figure 1
Structure of the State Bar of California
Source: State Bar of California’s organization charts.
* The chief trial counsel reports to the Board of Trustees, and the executive director has management oversight of the chief trial counsel’s resources.
The State Bar has experienced significant managerial turnover in recent years, leaving several high‑level managerial positions vacant or filled by interim employees. Currently, the State Bar employs an acting executive director and an acting general counsel. In addition, the chief financial officer is on administrative leave and the director of budget and performance analysis position was vacant as of February 2015. Moreover, the current chief trial counsel, who oversees intake, enforcement, trials, and audit and review assumed an interim role for that position in mid‑September 2011 and was confirmed by the Legislature in May 2012.
The State Bar’s Attorney Discipline System
State law defines the State Bar’s highest priority as protecting the public in exercising its licensing, regulatory, and disciplinary functions. To protect the public from attorneys who fail to fulfill their professional responsibilities, the State Bar established a discipline system that receives, investigates, and prosecutes complaints against attorneys, as shown in Figure 2. As part of the discipline system, the State Bar’s Office of the Chief Trial Counsel receives complaints against attorneys, investigates those complaints, and may initiate and prosecute disciplinary proceedings in the State Bar Court when allegations of attorneys’ unethical conduct appear to be valid. The State Bar dedicates many of its resources to its discipline system. In December 2014 the State Bar employed 536 staff. Of these, more than half—281 staff—worked within the discipline system.
Figure 2
The State Bar of California’s Attorney Discipline System
Sources: The deputy chief trial counsel of the State Bar, and the State Bar’s 2014 Annual Discipline Report.
The discipline process begins with the intake stage in the State Bar’s intake unit. The intake unit—within the Office of the Chief Trial Counsel—receives complaints and may initiate inquiries into attorney conduct in response. In addition, the State Bar can initiate inquiries into attorney conduct based on information received from anonymous sources or media reports. Finally, the State Bar’s intake unit also receives, investigates, and prosecutes what it calls reportable actions. Reportable actions include insufficient funds notifications from banks related to attorneys’ client trust accounts. As shown in Figure 3, the number of complaints the intake unit has opened has generally declined over the past five years, from about 21,000 in 2009 to 16,000 in 2014.
Figure 3
Complaints Opened and Closed in the State Bar of California’s Intake Unit 2009 Through 2014
Source: California State Auditor’s analysis of data obtained from the State Bar of California’s Discipline Case Tracking System.
If the intake unit determines that a complaint warrants further investigation, it forwards the case to the investigation stage of the State Bar’s discipline system. At the investigation stage investigators and attorneys determine whether to bring disciplinary proceedings in the State Bar Court. In the prefiling stage, the Office of the Chief Trial Counsel prepares a notice of disciplinary charges, but before filing charges, it attempts to negotiate a stipulation to facts and proposed discipline. After it files disciplinary charges, the Office of the Chief Trial Counsel prosecutes the case in the State Bar Court. The number of cases the State Bar Court opened and closed peaked at around 2,500 in 2011 and has generally declined through 2014, as we describe further in the Appendix. Attorneys who settle disciplinary complaints or whom the State Bar Court finds culpable of violating its Rules of Professional Conduct or state law may be subject to several different types and levels of discipline, including suspension or disbarment, which prohibits them from practicing law. The Supreme Court must review the State Bar Court’s recommended discipline for suspension or disbarment, and may adopt more severe levels of discipline for other types of discipline the State Bar Court recommended, but the State Bar Court has the authority to impose reprovals—discipline for misconduct not warranting suspension or disbarment.
The State Bar’s audit and review unit gives complainants a medium through which they can appeal cases that the State Bar closes without filing of disciplinary charges. The State Bar established the audit and review unit in 2004, but the Office of the Chief Trial Counsel closed it in 2010 to devote the unit’s staff to helping reduce the backlog of disciplinary cases. The State Bar reopened the audit and review unit in 2011. In 2014 the audit and review unit received 1,029 requests for review and resolved 1,466 requests, some of which had been submitted in prior years. The unit’s functions also include random checks on approximately 500 closed cases per year to ensure that the Office of the Chief Trial Counsel’s actions are appropriate. These random checks may result in the State Bar reopening cases for further investigation or in recommendations for staff training.
State law requires the State Bar to submit an Annual Discipline Report to the Legislature to provide measurements of the efficiency and effectiveness of its discipline system. A key component of these reports is the number of the State Bar’s backlogged disciplinary cases and the average length of time it takes for it to process a case. State law requires the State Bar to set its case-processing goal at six months after receipt of a written complaint.2 State law also defines the backlog as including the number of complaints as of December 31 of the preceding year that have been pending for six months or more after their receipt without dismissal, admonition, or the filing of a notice to show cause (although state law does not limit the backlog to this definition). In 2014 the State Bar reported that its backlog was 1,973 disciplinary cases. We discuss the backlog and case-processing time in Chapter 1.
The State Bar’s Revenues, Expenditures, and Financial Processes
The State Bar does not receive appropriations from the State to fund its operations. Instead, mandatory membership fees and other funding sources pay for the majority of its activities. Historically, annual legislation has given the State Bar the authority to assess the membership fee; however, in 1997 the governor vetoed the annual fee bill, and as a result, the State Bar was unable to assess a fee for 1998 and 1999. For 2014 state law authorized a base annual membership fee of $315 for active members and $75 for inactive members.
In past years, state law also authorized the State Bar to charge members additional fees for specific purposes. For example, from 2008 through 2013 state law authorized the State Bar to collect an additional $10 from each active member to pay for upgrades to information technology (IT) systems. State law also authorized the State Bar to collect an additional $10 from each member from 2009 through 2013 as a means to pay for the costs of financing, constructing, purchasing, or leasing facilities to house State Bar staff in Southern California. Members also have the option of deducting certain amounts from their membership fees. For example, members have the option of deducting $5 if they do not want to support the State Bar’s lobbying and related activities. As shown in Table 1, in 2014 active State Bar members paid between $380 and $420 in membership fees. Inactive members paid between $105 and $145 for that same year.
| Minimum fee | Maximum fee | |
|---|---|---|
| Required fees | ||
| Base fee | $315 | $315 |
| Discipline | 25 | 25 |
| Client Security Fund | 40 | 40 |
| Lawyer Assistance Program/diversion fund | 10 | 10 |
| Legal services, voluntary assistance | – | 30 |
| Optional deductions | ||
| Optional deduction for legislative activities | (5) | – |
| Optional deduction for elimination of bias | (5) | – |
| Total membership fee | $380 | $420 |
Sources: California State Auditor’s review of the California Business and Professions Code and State Bar of California documents.
In 2014 membership fees amounted to $82 million of the State Bar’s $140 million in total revenues, or 59 percent. The remaining revenue sources include examination application fees, grants, and fees from sections—voluntary organizations of attorneys and affiliates who share an area of interest, such as family law. The State Bar organizes its revenues into 26 different funds, some of which we describe in Table 2. While state law sometimes limits the use of the State Bar’s revenue sources, the board restricts all of its funds except for its general fund—that is, the State Bar can use these restricted funds only for specific purposes. For example, the State Bar established an IT Special Assessment Fund after receiving legislative authority to assess the previously mentioned $10 IT assessment fee from its members. State law limited the use of these funds to only the costs of upgrading the State Bar’s IT systems, including purchasing and maintenance costs of both computer hardware and software. The board restricted the uses of this fund for upgrading, replacing, or maintaining various IT systems, including modernizing its computer systems and networking infrastructure. Even though the board places administrative restrictions on these funds, it does allow the State Bar to make transfers among funds. From 2009 through 2014, the State Bar made 50 transfers amounting to $64.2 million. As shown in Table 3 below, the State Bar’s overall fund balance at the end of 2014 was $138 million.
| Fund | Definition |
|---|---|
| General Fund* | Accounts for membership fees and resources of the State Bar of California (State Bar), including the revenues and expenses of maintaining, operating, and supporting its attorney discipline system. It also includes State Bar resources not related to other fund activities. |
| Admissions Fund† | Accounts for the State Bar’s fees and expenses related to administering the bar examination and other requirements for the admission to the practice of law in California. |
| San Francisco Building Fund‡ | Accounts for the State Bar’s physical facilities, including purchasing, constructing, and equipping furnishings, land, and buildings. |
| Building Special Assessment Fund‡ | Contains revenue collected from the additional $10 building assessment fee, which the Legislature authorized for the State Bar’s finance, lease, construction, or purchase of a new building in Southern California. |
| Client Security Fund‡ | Accounts for revenue collected from annual assessments and maintains funds from which members’ clients can be reimbursed for pecuniary losses resulting from attorneys’ dishonest conduct, which State Bar rules set for an amount not to exceed $100,000 per application. The annual assessments can also be used for the costs of administration including, but not limited to, the costs of processing, determining, defending, or insuring claims against the fund. |
| Elimination of Bias and Bar Relations Fund† | Accounts for revenue collected from optional annual assessments included in members’ annual membership fees to fund programs to eliminate bias in the judicial system and legal profession and to increase participation of attorneys who have been underrepresented in the administration and governance of the State Bar's programs and activities such as female, ethnic minority, gay, lesbian, and disabled attorneys. |
| Information Technology (IT) Special Assessment Fund‡ | Accounts for revenue collected from a special assessment fee for technology included in members’ annual membership fees during 2008 and 2013 to upgrade the IT system, including purchasing and maintenance costs of both computer hardware and software. |
| Los Angeles Facilities Fund† | Accounts for all activities related to the property the State Bar purchased in Los Angeles in 2012. |
| Legal Education and Development Fund† | Accounts for competency-based education programs whose major purpose is to reduce the severity and frequency of professional liability claims. |
| Legislative Activities Fund† | Accounts for activities in support or defense of lobbying, funded by members electing to support these activities. |
| Public Protection Fund† | Assures the continuity of the State Bar's discipline system and its other essential public protection programs. |
| Technology Improvements Fund† | Used to fund technology projects that the State Bar had previously funded through its general fund. |
Sources: State Bar’s annual financial report for 2013, the State Bar’s 2013 Statement of Expenditures of Mandatory Membership Fees and Independent Auditor’s Report, and the State Bar’s Board of Trustees Policy Manual.
Note: Although the State Bar maintains 26 program funds, we included definitions only for those that we refer to in this report.
* Funds that the State Bar can use to finance day-to-day operations without constraints established by debt covenants, enabling legislation, board restrictions, or other legal requirements.
† Board restrictions imposed: Funds that the State Bar's Board of Trustees have restricted for specific uses and purposes.
‡ Legally restricted funds: Funds that may only be used for purposes specified in law.
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Beginning fund balance | $105.2 | $99.0 | $100.2 | $107.3* | $135.0 | $130.9 | ||||||
| Total revenue | 132.7 | 131.4 | 133.0 | 158.1 | 137.4 | 140.0 | ||||||
| Total expenditures | (138.9) | (130.2) | (145.0) | (130.4) | (141.5) | (132.8) | ||||||
| Fund balance | $99.0 | $100.2 | $88.2 | $135.0 | $130.9 | $138.1 | ||||||
| Dollars | Percentage | Dollars | Percentage | Dollars | Percentage | Dollars | Percentage | Dollars | Percentage | Dollars | Percentage | |
| Restricted | $47.2 | 48% | $46.5 | 46% | $33.9 | 38% | $73.4 | 54% | $44.1 | 34% | $43.3 | 31% |
| Unrestricted | 18.5 | 19 | 21.6 | 22 | 22.6 | 26 | 11.2 | 8 | 8.6 | 7 | 20.2 | 15 |
| Invested in capital assets | 33.3 | 34 | 32.1 | 32 | 31.7 | 36 | 50.4 | 37 | 78.2 | 60 | 74.6 | 54 |
Sources: State Bar of California’s (State Bar) audited financial statements for 2009 through 2014.
Note: Percentages do not always total 100 percent due to rounding.
* State Bar restated its 2012 beginning fund balance due to a change in accounting for liabilities of its Client Security Fund.
The State Bar is statutorily required to attempt to recover certain costs it incurs from the attorneys it disciplines. The law further requires the State Bar to recover from disciplined attorneys any payments that it makes from its Client Security Fund, which the State Bar uses to relieve or mitigate financial losses resulting from the improper conduct of its members arising from or connected to the practice of law. To determine the costs it may recover from disciplined attorneys, the State Bar uses a formula—an amount primarily based on how far the case proceeds through the discipline system before resolution. Typically, the State Bar adds these costs to the disciplined members’ next membership fee statements.
Prior Audits Conducted by the California State Auditor
Our July 2009 audit titled State Bar of California: It Can Do More to Manage Its Disciplinary System and Probation Processes Effectively and to Control Costs, Report 2009-030, included 14 recommendations to the State Bar related to the efficiency and effectiveness of its discipline system. In that report, we found that the State Bar did not present backlog information in a consistent manner in its annual discipline reports to the Legislature to allow for year-to-year comparisons. We reported that the State Bar had limited its stakeholders’ and the Legislature’s ability to measure the effectiveness of its discipline system because it periodically changed the types of cases it included in its calculation of the backlog without identifying those changes in its annual discipline reports. We recommended that the State Bar identify the composition of each year’s backlog to allow for year-to-year comparisons, as the law requires, and that it also report the types of cases it does not include in the backlog and the reasons for those choices.
In addition, our 2009 report included recommendations for the State Bar to improve the efficiency of its discipline system. We reported that even though the costs for the discipline system, which accounted for nearly 80 percent of the State Bar’s general fund expenditures, had escalated from $40 million to $52 million from 2004 through 2008, the number of disciplinary inquiries that it opened during that time had declined. We recommended that the State Bar separately account for its personnel costs and other expenses associated with the various functions of the discipline system, noting that it could accomplish this through a study of staff time and resources devoted to specific functions. We also recommended that the State Bar implement recommendations from its audit and review unit and from other audits, including our April 2007 audit titled State Bar of California: With Strategic Planning Not Yet Completed, It Projects General Fund Deficits and Needs Continued Improvement in Program Administration, Report 2007‑030, which included recommendations that the State Bar take steps to reduce its inventory of backlogged cases and that it follow its IT plan.
As we discuss throughout this report, the State Bar has yet to fully address some of the recommendations from our 2009 audit. However, the State Bar has successfully implemented a recommendation related to improving its discipline cost‑recovery processes. In our 2009 audit we recommended that the State Bar research the various collection options available to it, such as the Franchise Tax Board’s intercept program. This program intercepts income tax refunds, lottery winnings, and unclaimed property disbursements when individuals have delinquent debts owed to government agencies and California colleges. The disciplinary costs the State Bar recovered increased from 21 percent in 2008—the year before we released our report—to 43 percent in 2014. The State Bar joined the intercept program in 2014, which will likely further increase the percentage of disciplinary costs it recovers. In addition, we issued reports in 2011 and 2013 related to the State Bar’s Lawyer Assistance Program and contracting practices, respectively. The State Bar implemented all of the recommendations from these reports.
Scope and Methodology
The California Business and Professions Code requires the State Bar to contract with the California State Auditor to audit the State Bar’s operations every two years, but it does not specify topics that the audit should address. For this audit, we focused our efforts on the State Bar’s discipline system and its finances. We list the objectives and the methods we used to address them in Table 4 below.
| Audit Objective | Method |
|---|---|
| 1. Review and evaluate the laws, rules, and regulations significant to the audit objectives. |
|
| 2. Determine the State Bar’s total revenues, expenditures, and fund balances for 2009 through 2014. |
|
| 3. For 2009 through 2014, determine and assess the number of cases, case-processing time, and outcome of each case within each stage of the State Bar’s discipline process (intake, investigations, State Bar Court). |
|
| 4. Determine and assess the State Bar’s backlog of discipline cases for 2009 through 2014. | Used the State Bar’s discipline tracking data to determine and assess the backlog of discipline cases and identified backlog trends. |
| 5. Determine the efficiency, effectiveness, and transparency of the State Bar’s discipline system for 2009 through 2014. |
|
| 6. Evaluate the efficacy of the State Bar’s audit and review unit for 2009 through 2014. |
|
Sources: California State Auditor’s analysis of state law, planning documents, and information and documentation identified in the table column titled Method.
Assessment of Data Reliability
In performing this audit, we obtained electronic data files extracted from the information systems listed in Table 5. The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of the computer-processed information that we use to support our findings, conclusions, or recommendations. Table 5 describes the analyses we conducted using the data from these information systems, our methods for testing them, and the results of our assessments. Although these determinations may affect the precision of the numbers we present, there is sufficient evidence in total to support our audit findings, conclusions, and recommendations.
| Information System | Purpose | Method and Result | Conclusion |
|---|---|---|---|
The State Bar of California (State Bar) Discipline Case Tracking System (discipline database) Data tracking complaints against attorneys from receipt through final disposition. |
We analyzed data for the period of 2009 through 2014 for all purposes, except where noted.
|
|
Sufficiently reliable for the purpose of this audit. |
|
These purposes required data related to all discipline cases, including data from before our audit period of 2009 through 2014. However, we did not perform accuracy and completeness testing on data from prior to 2009. | Undetermined reliability for the purpose of this audit. Although this determination may affect the precision of the numbers we present, there is sufficient evidence in total to support our audit findings, conclusions, and recommendations. | |
| To make a selection of State Bar complaints and cases open during the period from 2009 through 2014. | This purpose did not require a data reliability assessment. Instead, we gained assurance that the population was complete. See the completeness testing described above. | Complete for the purpose of this audit. |
Sources: California State Auditor’s analysis of various documents, interviews, and data from the State Bar.
Footnotes
2 State law allows the goal for complaints designated as complicated matters by the Office of the Chief Trial Counsel to be set at 12 months; however, the State Bar no longer designates cases as complex or non‑complex. Go back to text