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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

June 27, 2017 2017-030

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As required by the Business and Professions Code section 6145 (b), the California State Auditor presents this audit report concerning our review of the State Bar of California (State Bar). This report concludes that, although the State Bar has revised its expense polices to help ensure prudent uses of its 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 the prudence 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 as the adequacy of funding for its attorney discipline system. Our review of these six expense categories from 2014 through 2016 determined that all six categories lacked sufficient management controls to ensure that costs were prudent. For example, although salaries and benefits made up 51 percent of its total 2016 expenses, the State Bar has not conducted an in-depth update of its job classifications since 2000 and, because it lacks a compensation policy, the State Bar had not until recently reviewed its compensation against comparable agencies since 2006. In response to a 2016 state law, the State Bar retained an outside consultant to perform an agencywide compensation study, which revealed that 80 percent of the State Bar’s full-time employees work a 36.25‑hour workweek, it pays base salaries that average 10 percent above the market median for comparable agencies, and it provides more 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 policies and controls. For instance, the State Bar assigns purchasing cards to nearly 38 percent of its employees with monthly credit limits up to $75,000, but it lacks a process to demonstrate that it assigns these purchasing 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 funding of 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 reliance on outside legal counsel, it uses an informal process to demonstrate the need and selection of outside legal counsel. Finally, state law defines the State Bar’s highest priority as protecting the public from attorney misconduct, but its attorney discipline system has historically struggled with complaint backlogs due to a lack of resources and it lacks goals and metrics that would measure the effectiveness of its enforcement efforts.

Respectfully submitted,

State Auditor

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