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Report Number: 2017-030
The State Bar of California It Needs Additional Revisions to Its Expense Policies to Ensure That It Uses Funds Prudently

Audit Results

Most State Bar Staff Receive Higher Compensation and Work Fewer Hours Than Do Staff at Comparable Agencies

An April 2017 compensation study surveyed a selection of State Bar job classifications and determined that the high ends of the base salary ranges that the State Bar pays (maximum base salaries) that net to an average of 10 percent more than the median base salaries at comparable agencies.³ The State Bar’s total expenses grew from $132 million in 2014 to $148 million in 2016 (a 13 percent increase). As Figure 3 shows, its largest expenses included salaries, which increased by $3 million over these three years (a 7 percent increase), while benefits increased by $4 million over that same period (a 21 percent increase). The State Bar has not conducted an in‑depth update of its job classifications since 2000 and has not reviewed its compensation against comparable agencies since 2006. The State Bar’s chief operating officer also confirmed that the State Bar does not currently have a compensation policy to review its salary and classifications against a comparable market on an ongoing basis.

Figure 3
The State Bar ‘s Expenses From 2014 Through 2016

Source: California State Auditor’s analysis of the State Bar’s JD Edwards EnterpriseOne data.

^* Other Outside Services include expenses for professional services, outside printing, and bank processing fees, among other expenses.

^† Other includes expenses for postage, telephone, and office supplies, among other expenses.

In response to a 2016 state law requiring it to conduct a one‑time compensation and benefit study of those classifications required to conduct disciplinary activities, the State Bar retained the consultant to conduct an agencywide total compensation study. The consultant compared the State Bar’s salaries and benefits against those of 16 similar agencies, including local government, the State’s Judicial and Executive branches, and private sector agencies. Because the State Bar has offices in San Francisco and Los Angeles and competes for talent with private sector agencies, the consultant included private sector salary data for both cities in the compensation study.

In its April 2017 compensation study, the consultant identified that most State Bar employees do not work a 40‑hour workweek. Instead, it found that all State Bar employees, excluding attorney classifications, work a 7.25‑hour workday and a 36.25‑hour workweek. The consultant also identified this reduced workweek as an outlier among comparable agencies. As of April 2017, we determined that 405 of the State Bar’s 506 full‑time staff—or 80 percent—were working this 36.25‑hour workweek, including represented and nonrepresented employees. The State Bar’s records indicate that this shortened workweek has been in place for at least 30 years, based on its inclusion in a 1984 memorandum of understanding with represented staff. However, none of the current management staff or the previous acting executive director could explain the origin of this practice.

To compare the State Bar’s salaries with those of comparable agencies it identified, the consultant converted the State Bar’s monthly salaries to a 40‑hour workweek equivalent and found that the State Bar pays base salaries that net to an average of 10 percent above the labor market median for 14 surveyed classifications. Specifically, the study found that five of six represented classifications and five of six nonrepresented classifications are paid above the market median base salaries. The State Bar also pays the remaining two classifications of legal secretary II and fiscal services specialist, which include both represented and nonrepresented employees, base salaries above the market median. For example, as Figure 4 shows, the maximum annual base salary of the State Bar’s paralegal classification is $96,300—17 percent above the labor market median, and the senior attorney (litigation) classification maximum annual base salary is $157,000—9 percent below the market median. Using the numbers of employees staffed in the 14 surveyed job classifications, we calculated that, overall, the State Bar’s maximum annual base salaries are $418,000 above the market median annual salaries for 2016. Figure B in Appendix B presents this information for all 14 job classifications that the consultant reviewed, along with the salaries of the comparable positions it identified.⁴

Figure 4
Comparison of the Salaries for the State Bar With Comparable Positions in Similar Agencies

Source: The consultant’s study of State Bar employees’ total compensation, April 2017.

Note: This figure presents six job classifications and their maximum annual base salaries, which the consultant converted to reflect a 40-hour workweek: the three classifications that have the most represented employees and the three that have the highest maximum base salary of the nonrepresented employees surveyed. Figure B in Appendix B presents information for all 14 classifications the consultant reviewed.

Further, the compensation study identified that the State Bar provides its nonrepresented staff with health care benefits that are more generous than those provided to its represented employees. Specifically, the State Bar pays 100 percent of the medical insurance premiums for nonrepresented employees, including executive management, compared to the 80 percent of the premiums it pays for its represented employees. Further, as the text box shows, the consultant’s compensation study indicated that the State Bar’s coverage for nonrepresented and represented employees is more generous than that of the State’s Executive Branch and the Judicial Council of California (Judicial Council), which is also part of the State’s Judicial Branch. In addition, the State Bar currently provides its executive management with lifetime post‑retirement health care benefits if they have at least 15 years of service with the State Bar, at a total cost of $961,000 for all retired executive employees in 2016. However, the State Bar does not offer this benefit to any other staff.

The consultant used market median data to make recommendations, as summarized in Table 3, that would help bring the State Bar’s compensation practices in line with those of comparable agencies. According to the State Bar’s chief operating officer, the State Bar is attempting to adopt all of the consultant’s recommendations. She indicated that the State Bar will only need the approval of the board to implement recommendations related to nonrepresented employees, but that it will need to negotiate with the represented staff’s union to adopt the consultant’s salary recommendations. The chief operating officer indicated that because the State Bar’s negotiations with the union have been a slow process, she cannot anticipate when it will complete these negotiations.

In addition, the State Bar is working to implement the consultant’s salary and classification recommendations and workweek hour changes for current nonrepresented employees. The State Bar received the consultant’s final draft recommendations regarding salary and classification recommendations in February and March 2017, respectively, and the final report in April 2017. However, the chief operating officer explained that its personnel system requires a manual adjustment to reflect the conversion from a 36.25‑hour to a 40‑hour workweek basis. The chief operating officer also confirmed that the State Bar will ask the board to adopt these recommendations for current nonrepresented employees at its July 2017 meeting, and she anticipates that the State Bar will implement them at that time. The State Bar has indicated that no current employees would receive a salary reduction. Nevertheless, these employees will be working more hours for the same salaries. Employees with salaries above the consultant’s recommended salary ranges will not be eligible for future merit‑based wage increases, but they may be eligible for future cost‑of‑living adjustments.

Table 3
The State Bar’s Plans for Implementing Its Consultant’s Recommendations for Compensation, Workweek Hours, and Health Care Benefits

ACTION	IMPLEMENTATION DATE
For the State Bar’s represented employees: Implement the consultant’s salary and job classification recommendations. Transition employees to an eight‑hour workday and a 40‑hour workweek.	Depends on the State Bar’s current negotiations with the union.
For the State Bar’s nonrepresented employees: Implement the consultant’s salary and job classification recommendations. Transition employees to an eight-hour workday and a 40‑hour workweek.	• Became effective for new employees hired on or after April 2017. • Plan to complete transition by July 2017 for all current employees.
Require contributions to health care costs equivalent to the contributions of represented employees.	Will become effective January 1, 2018.
For executive employees, require contributions to post‑retirement health care costs at a rate equivalent to their contributions during employment.	Will become effective January 1, 2018, but only includes executive employees hired on or after January 1, 2018.
Develop a method to regularly compare all employee classifications and compensation—for both represented and nonrepresented employees—with those of comparable agencies.	Plan to complete development by December 31, 2017.

Sources: California State Auditor’s review of the consultant’s study from April 2017, meeting minutes from the board, State Bar rules and regulations for nonrepresented and executive staff, and an interview with the chief operating officer.

In April 2017, the board approved revisions to the State Bar’s rules for all new hires into nonrepresented positions to normalize the workweek to 40 hours and revise premium amounts for health care benefits. Additionally, for all nonrepresented employees hired on or after April 17, 2017, the State Bar implemented the consultant’s recommended classifications and salary ranges based on a 40‑hour workweek. Further, as indicated in Table 3, effective January 2018 the State Bar will require all staff—represented and nonrepresented—to contribute to health care benefits at the same rate. However, as of May 2017, the chief operating officer told us that the State Bar has not established the rate for all employees because it will be based on the rate agreed upon with the union. Also, the State Bar will require executive employees hired after January 1, 2018, to contribute to the cost of their post‑retirement health care. The chief operating officer explained that the State Bar is not implementing these changes until January 2018 because it believes that a midyear change to its health care plan will result in a rate increase and possibly cause one of the State Bar’s two insurance providers to withdraw its coverage. In addition, the State Bar hired an actuary to assess the potential costs of providing post‑retirement health benefits to all State Bar employees, and anticipates the analysis will be complete by June or July 2017.

The State Bar Lacks Effective Management Processes to Ensure That Its Travel and Catering Costs Are Reasonable

Although the State Bar has revised some of its expense polices to help ensure a more prudent use of its funds, it still lacks effective management processes—or controls—to ensure that its expenses are reasonable and appropriate. As part of our audit we reviewed 30 expenses from each of the years 2014 through 2016, for a total of 90 expenses. Although the State Bar revised its policies and procedures during this time period, we found that it continues to lack effective management processes in certain areas. These expenses involved purchasing cards the State Bar issued, the purchase of alcohol, the State Bar’s use of higher meal per diem rates for catered events, and the costs of sections’ events. We discuss our concerns with each of these areas in the following sections.

The State Bar Has Poor Controls Over Its Purchasing Cards

The State Bar lacks appropriate oversight of its purchasing card program. As of June 2016, the State Bar had issued purchasing cards to 205 of its 541 employees—38 percent—with monthly credit limits ranging from $5,000 to $75,000. In 2016 the State Bar spent nearly $3.5 million through purchasing cards, an average of about $290,000 each month. The State Bar does not adequately document the business need for issuing staff these purchasing cards, does not maintain justification for increasing a staff member’s credit limit, and infrequently reviews these credit limits.

According to the State Bar’s general procurement manual, the State Bar established the purchasing card program to provide an efficient means to make purchases. In particular, it issues purchasing cards to employees to make low‑dollar purchases easier, to eliminate the need to reimburse personal funds for business‑related expenses and travel, and to diminish the use of petty cash funds. For a staff member to obtain a purchasing card, State Bar policy requires that the employee’s senior director approve a card holder enrollment agreement form that specifies the employee’s dollar limit per transaction and per month. However, the policy does not require documentation of the business need or justification for why the employee qualifies for the purchasing card. According to the State Bar’s general (services director), it is up to each department head to determine which employees have an operational need for a purchasing card. He stated that the general policy is to issue cards to those employees who travel with some regularity or who purchase goods and services on behalf of their department.

As of June 2016, nearly one‑third of the card holders were from the Office of Admissions (Admissions), which buys goods and services for the California Bar exams and sends a large percentage of its employees to staff those exams in multiple locations throughout the State twice a year. However, 40 Admissions staff members only have the cards intermittently. These staff sign out cards before they travel for the exam and return the cards within five business days after the exam. Although these particular procedures appear to be appropriate, we are still concerned that the other 165 employees retain purchasing cards full time as of June 2016, and that the State Bar does not require Admissions or its other departments to document why it is appropriate for the staff to have purchasing cards.

Although the State Bar reviews expenses made through purchasing cards, it does not maintain justification for increasing staff members’ credit limits. The State Bar requires purchasing card holders to submit original receipts along with their monthly purchasing card statement. It also requires the employee’s manager and the procurement department to review purchasing card transactions and receipts. All of the purchasing card expenses we reviewed had supporting receipts. Furthermore, the State Bar has a process to cancel purchasing cards when employees leave the State Bar. However, our review found that purchasing card credit limits documented in the approved enrollment forms often did not reflect the employee’s actual purchasing authority. We reviewed the purchasing card limits for 23 individuals and found that 19 had different credit limits in 2016 than what was documented on their enrollment agreement forms. For example, we noted eight instances in which the card holders’ documented monthly credit limits ranged from $5,000 to $20,000, but according to the bank that issued and administers these cards, their limits were set at $75,000.

According to the services director, the State Bar maintains card holder information, including credit limits, in the electronic system of the bank that provides its credit card services. To change an employee’s existing credit limit, he indicated that the employee’s senior director will email the State Bar’s general services unit, which then enters the credit limit change into the bank’s system. The services director believes this process is an appropriate way to manage credit limit changes because only key staff within his unit have access to change credit limits with the bank. However, the services director acknowledged that his unit does not keep the emails from senior directors that request these changes. Lacking this information, we were unable to determine whether a senior director had approved any of the changes for the 19 employees we tested whose credit limits were increased or whether the changes were reasonable. Moreover, even after the State Bar tried to standardize credit limits in June 2016, it continued to lack a process to document the changes to these limits.

In June 2016, the services director reviewed all purchasing card credit limits and created a tracking sheet to standardize these limits according to each employee’s job position. The State Bar’s revised credit limit policy is shown in the text box, and it generally assigned credit limits ranging from $5,000 to $15,000 to individuals. However, based on requests from department heads, the State Bar granted exceptions to 23 individuals to provide them with credit limits of $20,000 up to $75,000. For example, the senior director of education requested that the monthly credit limits of four employees increase from $40,000 to $75,000 because she wanted all section coordinators to have the same credit limit. In fact, 10 of the 12 employees with a $75,000 credit limit work for sections.

The services director indicated that the tracking sheet was created specifically to facilitate the review and implementation of new limits for all card holders in June 2016. However, he acknowledged that it is not a mechanism that the State Bar maintains on a day‑to‑day basis for monitoring employees’ credit limits, because it relies on the card holder information that its bank maintains. Nevertheless, the services director indicated that he was open to using the tracking sheet as a supplement to the bank’s records. We believe that standardizing credit limits to job positions and requiring senior director approval for nonstandard credit limits is a good practice. However, to make this practice effective, the State Bar also needs a control requiring it to actively track and monitor these credit card limits and document any properly approved nonstandard credit limits.

In addition, we question the business need for employees to have high credit limits. As we discussed earlier, the State Bar intended that purchasing cards be used for making low‑dollar purchases. The services director indicated that staff sometimes pay for contracts with purchasing cards because it is often more convenient and efficient than paying by check. However, using purchasing cards for high‑dollar purchases increases the risk of inappropriate expenses because the State Bar reviews the receipts only after paying the expense. In contrast, the first step in the State Bar’s payment process for contracts is the review and approval of all invoices before paying those invoices, which provides the State Bar the opportunity to decide whether to incur the charge and make a payment. Also, because the State Bar, and not the individual card holder, is liable for charges made with the purchasing card, we believe the State Bar should restrict the use of purchasing cards to the original intent of low‑dollar expenses.

The State Bar Has Revised Its Policies to Prohibit Alcohol Purchases

Until late 2016, the State Bar’s policies allowed staff to purchase alcohol for events and meetings. However, in response to the Judiciary Committee’s inquiries, the State Bar identified alcohol purchases totaling $156,900 for various events, meetings, and meals between January 2015 and September 2016. Of this amount, $148,200 came from the sections’ funding, while the remaining $8,700 came from other funding sources.⁵ In its September 2016 meeting, the board acted to prohibit all alcohol purchases regardless of funding source, effective January 1, 2017. The board indicated that it took this action in response to its independent auditor’s identification of “significant sums of money spent on alcohol in 2015.”

Although this action was an appropriate step on the board’s part, the State Bar has not updated its procurement manual for contracted events to reflect the board’s prohibition on alcohol purchases. The services director indicated that the State Bar has implemented the board’s prohibition and stated that by January 2018 the State Bar will update the procurement manual to incorporate this new policy. He asserted that it will take until at least January 2018 to revise the manual because it covers all of the State Bar’s procurement activities and the process to make these changes is time‑consuming. However, to demonstrate its commitment to addressing this concern, we believe the State Bar should immediately update its procurement manual to reflect the board’s prohibition on purchasing alcohol.

The State Bar Could Reduce Its Catering Costs

Although the State Bar recently imposed limits on its catered meals, it could further decrease its costs by aligning its policies with those of the State’s Executive Branch. The State Bar’s January 2016 travel policy defines catered meals as contracted food and beverage service at an event, but does not set limits on these costs. The 2016 travel policy further states that catered meals can be served on State Bar, hotel, convention site, or restaurant premises. In response to an inquiry from the Judiciary Committee, the State Bar recently performed an analysis of its on‑site catering costs and determined it could have saved $54,000 from January 2015 through September 2016 if it had limited its on‑site catering costs to the State’s per diem rate of $41 per day. For off‑site catering events, this analysis identified an additional $57,000 the State Bar would have saved if it had held these events on‑site and limited its catering costs to the State’s per diem rates.

In February 2017, following this inquiry from the Judiciary Committee, the State Bar updated its travel policy to establish a spending limit for on‑site catered meals to a daily rate of $55 per person for meals at the San Francisco office and a daily rate of $41 per person for meals at the Los Angeles office. The services director indicated that these rates are based on an analysis of the actual costs of on‑site catering in 2015 and most of 2016. Prior to this policy update, the State Bar did not limit catering costs, and its policy indicated that meal per diem rates did not apply to catered meals.

From 2014 through 2016, the State Bar spent $1.5 million on catering for purposes unrelated to its sections. According to the services director, catering for events that are not sponsored by the sections is almost exclusively related to the meetings of volunteers serving on nonsalaried boards, commissions, special committees, and standing committees (volunteers). For example, in 2014, the State Bar paid $3,300 for catering breaks, breakfast, and lunch for 50 volunteers and staff attending a multiday meeting of the Committee of Bar Examiners. As indicated in the text box, the State Bar’s travel policy permits catering at events where the attendees are not exclusively State Bar employees. The services director further noted that because the committees are staffed by volunteers who meet to conduct State Bar business, State Bar policy has historically permitted catered meals in these instances. However, under the rules of the State’s Executive Branch, volunteers may be reimbursed for actual meal expenses subject to standard per diem rates. As the State Bar indicated in its analysis of its catering costs, it would have achieved cost savings had it limited these costs to the State’s per diem rates for meals.

Further, recognizing that off‑site event costs are higher than for on‑site events—particularly off‑site catering compared to on‑site catering—the State Bar revised its travel policy in February 2017 to state that all meetings and events should take place on‑site at State Bar offices in San Francisco and Los Angeles. The revised policy states that staff must have a significant business need to hold an event off‑site and must consider factors such as the cost of the off‑site meeting space and catering and the proximity of the proposed off‑site location to economical transportation and lodging options. The revised policy requires the approval of the State Bar’s executive director or chief operating officer for using an off‑site location and for off‑site catering, but it does not place a limit on off‑site catering costs. The services director indicated that he has not received any requests for off‑site meetings of volunteers since the State Bar revised the policy in February 2017. He noted that volunteers held five off‑site meetings in 2016 and three off‑site meetings so far in 2017, but that all three 2017 meetings were under contract before the State Bar revised this policy in February 2017. Although the State Bar has implemented an off‑site meeting policy, we believe it should limit the costs of catering at these events to the State’s per diem rates.

The Sections’ Travel and Meal Expense Practices Do Not Align With State Bar Policies

Although the State Bar has tightened its policies and practices for off‑site events for volunteers, it has not taken sufficient steps to improve practices related to the sections’ events. As indicated in the Introduction, the sections are voluntary organizations of attorneys and associates who share an area of professional interest. The sections offer educational programs to their members in various fields of law. The State Bar’s director of education indicated that the sections typically hold their 200 educational programs, meetings, and events each year at off‑site venues, for which they spent $4.3 million on catering from 2014 through 2016. Although the 2018 fee bill proposes separating the sections from the State Bar into a private, nonprofit entity, the chief operating officer indicated that until such a separation actually takes place, the sections must comply with the same policies as other State Bar staff regarding travel, purchasing cards, contracting, and business expenses. Further, the State Bar indicated to the Legislature in October 2016 that it was working to review its policies, including those for meals, awards, and lodging, to ensure that all State Bar entities are subject to one set of administrative controls, and it subsequently released its updated travel policy in February 2017. However, its revised policy and procedure for off‑site events requires only State Bar staff—not the sections—to provide written justification of a significant business need for an off‑site event. Specifically, the policy requires the sections to obtain approval of executive management before securing outside venues, but it does not require any written justification of the business need.

According to the services director, the State Bar does not see a need to require the sections to provide a written explanation of the business need for an off‑site venue because the sections have typically held their events at off‑site hotels and law schools to accommodate the nature of the sections’ activities. For example, the sections hold events throughout the State to make them more accessible and because they need larger facilities than the State Bar can provide.

However, although the sections may need off‑site locations for larger events, these off‑site events typically have a higher cost. For example, in April 2016, the trusts and estates section held a four‑day event at the Tenaya Lodge at Yosemite National Park at a cost of $33,300. The charges for this event included $13,500 in catering charges, part of which covered a dinner for 54 people totaling $4,700, or $87 per person—an amount that is $64 more than the State Bar’s dinner per diem rate of $23. In addition to catering charges of $13,500, this event also included expenses for purposes we believe were questionable. These questionable expenses included $1,800 for items purchased from the resort that the State Bar indicated were room gifts to attendees, $1,300 for hiring a disc jockey and a pianist, and $1,775 for a bus tour of Yosemite, none of which appear to be reasonable or necessary to provide education at this event. 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.

Finally, sections frequently paid for hotel rooms that were above the lodging rate in the State Bar’s travel policy. We reviewed 15 invoices in which the sections obtained hotel room rates in excess of what the State Bar generally allows. The lodging rates in these 15 invoices exceeded the State Bar’s lodging rate by amounts ranging from $4 to $330 per night, for a total of $15,800 in excess charges. Regardless of whether the sections separate from the State Bar, they should implement controls to reduce costs and ensure the prudent use of funds.

The State Bar Does Not Request or Maintain Documentation From Its Lobbyists That Justifies Their Charges

The State Bar pays its lobbying expenses with voluntary fees only, thus enabling it to comply with legal and statutory restrictions. However, the State Bar may be paying more than is necessary for its lobbyists because it does not require them to justify the amounts they bill, which totaled $768,000 from 2014 through 2016. A U.S. Supreme Court decision prevents the State Bar from using mandatory fees to pay for lobbying unless those lobbying activities are necessarily or reasonably incurred to regulate the legal profession or to improve the provision of legal services available to Californians. To ensure compliance with this ruling, the State Bar uses only voluntary fees to pay for its lobbying efforts.

The State Bar currently has two contracts for lobbying: one is for lobbying related to topics of interest to the sections, and the other is for lobbying related to legislation of membership fees and for advocating against bills that adversely affect its mission to protect the public, regulate the profession, and enhance the administration of justice. Under both contracts, the lobbyists provide services that include drafting legislation, gathering legislative support, and advocating on behalf of the State Bar or its sections for or against the passage of bills. The contracts authorize the State Bar to pay lobbyists up to $13,500 and $8,000 per month, respectively. Both contracts indicate that the monthly fees are based on the amount of time the lobbyists estimate it will take to provide services and the nature and quality of the work. However, both contracts fail to include provisions disclosing hourly billing rates or requiring the lobbyists to itemize the amounts they bill the State Bar. In the State Bar’s contracts with other consultants, we observed that the consultants provided billings that listed the activities performed with the hours spent performing those activities. However, lacking these contract controls, both lobbyists billed the State Bar the maximum monthly amount that the contracts allowed over the three‑year period we reviewed. The lobbyists billed the maximum monthly fee even in months when the Legislature was not in session, and did not provide documentation indicating what work they had performed.

We asked the lobbyists if they maintained support for their monthly invoices, and they informed us that although they had documentation related to work performed on behalf of the State Bar, including emails and calendars showing the dates for legislation related to the State Bar, they do not maintain an itemized record of work performed each month. However, without an itemized invoice, and lacking documentation supporting the total amount paid for each invoice, we were unable to verify that the amounts the State Bar spent on its lobbying contracts were reasonable.

The chief operating officer and assistant general counsel defended this practice and expressed confidence that the State Bar was receiving maximum value for its lobbying contracts. Specifically, they, as well as the lobbyists, asserted to us that paying a flat monthly fee—a retainer—is a standard industry practice for contracts with lobbyists. Further, the State Bar and its lobbyists asserted that State Bar staff are in frequent and ongoing telephone and email contact to develop strategies and monitor outcomes of legislation.

However, we noted that some lobbyists are willing to itemize their costs. Specifically, the State Bar is renewing its lobbying contracts and received two bids for each lobbying contract. The State Bar ultimately selected the bids from its current lobbying firms based on an evaluation of expertise and cost. However, the bids the State Bar selected did not include cost estimates outside of a total monthly fee, while the competing bids included cost proposals with estimates of total hours and hourly billing rates for each level of the lobbyists’ staff. Further, although both contracts are up for renewal, the State Bar indicates the new contracts will not require that the lobbyists provide an explanation of their activities on the monthly invoices.

Although the State Bar Reduced Costs Related to Its Contracts With Outside Counsel, It Could Make These Contracts More Transparent

Although the State Bar reduced the total amount that it spends on outside legal services from $808,000 in 2014 to $356,000 in 2016, it has not formalized its process to demonstrate its need for outside counsel. It is appropriate to retain outside counsel in certain circumstances, such as when in‑house counsel lacks sufficient expertise to perform a particular legal service or if they have a conflict in a matter, such as when a current or former employee sues the State Bar. During 2016 the State Bar had 11 contracts with outside counsel, five of which it required due to conflicts. In addition to advice or representation provided by outside counsel, the State Bar also contracts with attorneys for other reasons, such as internal employment investigations. Further, according to the State Bar’s rules, it must contract with an attorney to serve in the role of a special deputy trial counsel to investigate a complaint that a member of the public files against a current or former State Bar employee. The general counsel asserted that since October 2015, State Bar staff have handled all new matters that have not involved a conflict. According to the Public Contract Code, state contracts for legal services are not subject to competitive bidding.

We reviewed expenses related to seven different legal services contracts from 2014 through 2016 and determined that all the expenses were allowable and were consistent with the purposes outlined in their contracts. However, we noted that two of the seven law firms billed the State Bar for work they performed four days before the contract approval date. Under State Bar policy, a contract is not effective until both parties sign it, and the policy indicates that the State Bar should not pay for expenses incurred before this time. Additionally, because of its informal selection process, we were unable to verify whether the State Bar had a need for its contracts with outside legal counsel, whether the selected firms were the most qualified, or whether the contracts themselves were reasonable.

The State Bar’s general counsel has taken steps to reduce its reliance on outside counsel. Shortly after she was hired in October 2015, the State Bar’s general counsel sent an email to her staff attorneys requiring them to provide their justification before using outside counsel for new matters. Additionally, the general counsel told us that she reviewed each existing contract for outside legal counsel and canceled one contract that she determined was no longer needed. Further, she asserted that as part of the current practice for contracting with outside counsel, the State Bar assesses whether its own attorneys can perform the legal work, considers its previous experience with law firms it has worked with in the past, trains attorneys to perform the work, and, only when deemed necessary, solicits proposals from several prospective firms. However, the State Bar has not documented in a policy or procedure this practice for determining the need for outside counsel and choosing the selected law firm.

The State Bar has reduced the number of outside counsel contracts from 15 in 2014 to 11 in 2016. According to the general counsel, although her predecessors used outside counsel liberally, she prefers to keep work in‑house. To reduce the need for outside counsel, the general counsel indicated that she filled vacancies in her department with staff that have the expertise and interest in providing a full range of legal services. She noted that 12 of the current 13 attorneys in the Office of the General Counsel started after 2015. These new hires include a former New York assistant attorney general to litigate cases that were formerly handled by outside firms and an attorney with a background in antitrust law to help provide in‑house expertise in that area. As of May 2017, the general counsel was working to fill two of the remaining three attorney vacancies in her office. She stated that, as current ongoing matters are resolved, she expects the number of contracts with outside legal counsel will decrease further. Nevertheless, the State Bar could improve its current practice by documenting the process that the current general counsel considers when deciding to contract for outside counsel and the associated costs. By formalizing these practices, the State Bar would ensure that they remain in place in the future and help to avoid its past reliance on outside counsel.

The State Bar’s Attorney Discipline System Lacks Sufficient Resources and Needs Measurable Goals

The State Bar concluded in May 2016 that it lacks adequate resources to address its backlog of attorney discipline complaints and lacks measurable goals and metrics to determine how effectively it is meeting its core mission of protecting the public from attorney misconduct. Although the State Bar’s discipline system has a persistent backlog—generally defined as the number of complaints as of December 31 of the preceding year that were pending beyond six months after receipt without dismissal, admonition, or the filing of notice of disciplinary charges—it continues to lack resources to ensure that it can resolve complaints in a timely manner. The amount the State Bar has spent on the attorney discipline system has increased only slightly over the past three years—rising from $53.5 million to $55 million. In 2016 the State Bar received more than 15,200 new complaints against California lawyers, a decrease of nearly 550 from the prior year. As indicated in Figure 5, although the number of unresolved cases at the end of 2016 decreased from the previous year, the backlog remained relatively constant at about 1,500 cases for 2015 and 2016.

Figure 5
The State Bar’s New and Unresolved Attorney Discipline Complaints Backlog
2014 Through 2016

Source: The State Bar’s yearly discipline reports.

^* Unresolved cases are all cases still pending, including backlogged cases.

^† Backlog is generally defined as the number of complaints as of December 31 of the preceding year that were pending beyond six months after receipt without dismissal, admonition, or the filing of a notice of disciplinary action.

In its May 2016 backlog report, the State Bar concluded it would need an additional 81 staff at a projected cost of $9.9 million to eliminate its backlog of attorney discipline complaints.⁶ Seventy percent of discipline system expenses are for the Chief Trial Counsel, which is responsible for investigating and prosecuting attorneys for misconduct. Although the number of staff within the Chief Trial Counsel has remained relatively constant in the past two years, in 2017 the State Bar plans to increase its funding for the Chief Trial Counsel by $3.4 million and to add 14 positions using the 2017 special assessment and internal cost savings. Additionally, 22 staff from the Chief Trial Counsel voluntarily separated from the State Bar as a result of the State Bar’s January 2017 reduction in force. Although the State Bar indicated that it plans on filling those positions, this would only put the State Bar back at its 2016 staffing levels and below its stated goal of 81 additional staff that it has asserted it needs to eliminate its backlog.

However, simply working toward a reduced backlog could lead to unintended consequences. Specifically, in our 2015 report we concluded that the State Bar’s consistent and effective discipline of attorneys who engage in misconduct is a crucial measure of its success in fulfilling its mission to protect the public. In that report, we found that when the State Bar had worked to reduce the backlog, it did so in part by decreasing the severity of discipline that it imposed on attorneys.⁷ Although the State Bar tracks its complaints and reports on numerous data—including the number of complaints received, number of cases closed, and size of its backlog—it lacks goals and metrics that would help it determine whether the discipline system is achieving its broader mission to protect members of the public from attorney misconduct.

In addition to tracking its backlog of complaints, the State Bar tracks the types of cases it investigates, such as claims of fraud or unauthorized practice of law by former attorneys, and it records the outcomes of the complaints it receives. However, these statistics are not indicators of the overall success of the discipline system. The State Bar’s director of the Office of Research and Institutional Accountability (research director) acknowledged that these data alone are not appropriate for use by the State Bar in determining the overall success of its mission to protect the public.

The research director indicated the State Bar is working to develop goals for measuring the success of its discipline system as well as implementing a client satisfaction survey to accompany closing letters on discipline cases. Specifically, he informed us that the State Bar is currently reviewing its discipline system and assessing the data it tracks and does not track, and it is determining the value of those data. He confirmed that once the State Bar completes the analysis at the end of the year, it will identify goals for the discipline system as a whole and will develop metrics to track and evaluate how successfully it attains those goals, although he cautioned that defining success as reaching a particular number is not a useful way of improving operations. We agree, and as a result, we believe the State Bar should ensure that it is identifying realistic goals for the discipline system as a whole. However, until the State Bar has identified and committed to meeting set goals and establishing useful metrics for its discipline system, it will not be able to ensure that it is fulfilling its core mission of protecting the public.

Recommendations

To better align its compensation practices with those of comparable agencies, the State Bar should update and formalize its salaries and benefit policies by doing the following:

• Continue negotiations with the union to transition represented employees to an eight‑hour workday and a 40‑hour workweek, and to implement new salary and job classifications.
• Implement an eight‑hour workday and a 40‑hour workweek, as well as new salary and job classifications, for its nonrepresented employees by July 2017.
• Require a contribution rate to health care costs for nonrepresented employees that is equal to the contribution rate for represented employees by January 2018.
  
• For executive employees hired on or after January 1, 2018, require that contributions to post‑retirement health care costs are at a rate equivalent to their contributions during employment at the State Bar.
  
• Develop and adopt a formal policy by December 2017 to regularly compare staff compensation and benefits with those of comparable agencies.
  

To assign purchasing cards only to appropriate staff, ensure that the State Bar’s records of employees’ credit limits reflect those established with the bank, and to verify that staff use purchasing cards only for allowable and necessary expenses, the State Bar should do the following immediately:

• Develop a policy that requires the justification of the business needs for employees to receive purchasing cards, and use this policy to limit the number of staff issued a purchasing card.
• Restrict the use of purchasing cards to its original purpose, which was for low‑dollar and frequently occurring purchases. For purchases above $5,000, the State Bar should require the vendor to bill for payment.
  

To demonstrate its commitment to the board’s prohibition of all State Bar spending on alcohol, the State Bar should immediately update its procurement manual to reflect this prohibition.

To ensure that its costs are reasonable and appropriate, the State Bar should update its meal and catering policy to align with the meal policy of the State’s Executive Branch and should require individuals attending committee meetings for the State Bar to comply with standard meal per diem rates.

To make certain that the costs for section events are reasonable and prudent, the State Bar should require that the sections follow the State Bar’s meal per diem and lodging rates, and require the sections to limit expenses for events to only those activities that are reasonable and necessary. For off‑site events, the State Bar should require the sections to follow the State Bar’s existing policy of providing written justification of a significant business need to hold the event off‑site and obtain approval from the executive director or chief operating officer.

To ensure that its lobbying expenses are reasonable and cover only allowable activities, the State Bar should revise the terms of its pending lobbying contracts to require that the lobbyists provide sufficiently detailed invoices that support the amounts they bill for their services.

To ensure that it contracts only for appropriate and necessary services from outside law firms at a prudent rate, the State Bar should put the following informal practices into a written policy:

• An assessment of the need for outside counsel, including whether the State Bar’s attorneys can provide the specified legal services.
• An evaluation of the State Bar’s past experiences with the law firms being considered.
• The process the State Bar uses to select the outside law firm, including documentation of proposals from other prospective law firms and the costs it considers reasonable for the legal services.
  

To reduce its reliance on outside legal counsel, the State Bar should continue its efforts to hire staff to fill its remaining vacant attorney positions.

To increase transparency, the State Bar should disclose annually to the board a list of all contracts with outside law firms—including a description of the services provided, the need for such contracts, and the value and length of the contracts.

To better measure how well its attorney discipline program is meeting the State Bar’s core mission to protect the public from attorney misconduct, the State Bar should, by December 2017, identify key goals and metrics for the attorney discipline system.

We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the Scope and Methodology section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Respectfully submitted,

ELAINE M. HOWLE, CPA
State Auditor

Date:
June 27, 2017

Staff:
John Baier, CPA, Audit Principal
Ralph M. Flynn, JD
Inna A. Prigodin, CFE
Christopher P. Bellows
Caroline Julia von Wurden
Ashley Yan

IT Audits:
Michelle J. Baur, CISA, Audit Principal
Ben Ward, CISA, ACDA
Shauna M. Pellman, MPPA, CIA

Legal Counsel:
Stephanie Ramirez-Ridgeway, Assistant Chief Counsel

For questions regarding the contents of this report, please contact
Margarita Fernández, Chief of Public Affairs, at 916.445.0255.

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Footnotes

³ The consultant originally surveyed 21 State Bar classifications and found that the State Bar pays base salaries that are on average 11 percent higher than the median base salaries at comparable agencies. However, we confirmed with the State Bar and the consultant that only 14 of the 21 classifications should have been included in the salary calculation. The resulting correction reduced the average salary amount the State Bar pays over the market median to 10 percent.
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⁴ We also included the consultant’s results for two executive positions in Figure B in Appendix B.
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⁵ We identified five alcohol purchases totaling $5,200 that the State Bar overlooked when reporting to the Judiciary Committee.
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⁶ As part of its September 2016 request for special regulatory assessment, the State Bar requested additional funding for the Chief Trial Counsel, although this request was rejected by the California Supreme Court.
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⁷ As part of its September 2016 request for special regulatory assessment, the State Bar requested additional funding for the Chief Trial Counsel, although this request was rejected by the California Supreme Court.
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