COMMITMENT • INTEGRITY • LEADERSHIP	View full PDF report
State Bar of California It Should Balance Fee Increases With Other Actions to Raise Revenue and Decrease Costs Report Number: 2018-030

Appendices

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• Appendix A
  
• Appendix B
  
• Appendix C

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Appendix A

Scope and Methodology

We conducted this audit pursuant to the audit requirements contained in California’s Business and Professions Code. Specifically, we reviewed State Bar’s budget, its proposed licensing fee increase, its proposed special assessment fee, and its five‑year projection of its revenue needs. We also assessed the security fund’s and assistance program’s fee needs, as well as other issues of concern related to the two programs. Finally, we evaluated the performance measures that State Bar has established to achieve efficiencies that may reduce its costs and examined its use of its real estate. Table A lists the audit’s objectives and the methods we used to address them.

Table A
Audit Objectives and the Methods Used to Address Them

AUDIT OBJECTIVE		METHOD
1	Review and evaluate statutes, regulations, rules, and court decisions relevant to State Bar’s operations.	Reviewed portions of the California Constitution, state laws, and State Bar policies that are relevant to State Bar’s operations.
2	Evaluate each program or division of State Bar receiving support from the annual State Bar licensing fees and other fees required of active and inactive licensees, including the following for each program or division: a. Assess how much fee revenue, staff, and resources are currently budgeted and subsequently expended to perform existing tasks and responsibilities.	Interviewed State Bar’s finance and executive staff. Identified and reviewed State Bar’s budgeting policies. Reviewed State Bar’s financial statements and actual departmental expenditures for 2016 and 2017 as well as State Bar’s budgets from 2016 through 2019.
	b. Assess whether State Bar has appropriate program performance measures in place and how these measures are used for budgeting purposes.	Interviewed State Bar executive staff. Reviewed State Bar’s five‑year strategic plan, a consultant’s report on defining and adopting agencywide performance measures and goals, and relevant board materials outlining the executive director’s strategy for instituting performance measures. For State Bar’s discipline function, interviewed staff from the trial counsel’s office and State Bar’s Office of Research and Institutional Accountability. We reviewed State Bar’s performance reports and the board’s action approving performance measures for the discipline system. We also evaluated the performance measures that the board adopted for the trial counsel’s office. For the security fund, interviewed executive staff and the program director. We also reviewed performance reports to identify relevant performance measures. For the assistance program, interviewed the program director. We also reviewed the program’s three‑year strategic plan and two consultant reports containing recommendations for performance measures, and we determined the program’s progress in implementing recommendations from those three documents.
	c. Assess the usage of real property owned by State Bar.	Interviewed State Bar administrative and executive staff responsible for managing the San Francisco and Los Angeles buildings. Obtained and reviewed tenant contracts and, for the San Francisco building, determined past, current, and future vacancies. Procured the services of a real estate appraiser to conduct visual inspections of the Los Angeles and San Francisco buildings, research market rates for leases of similar properties in Los Angeles and San Francisco, and compare these rates to State Bar’s lease rates. The appraiser also calculated the amount of space State Bar occupies in both buildings, compared that to industry standards, and reviewed and assessed State Bar’s property management agreement.
	d. Review State Bar’s cost allocation plan used to allocate administrative costs.	Interviewed State Bar finance and executive staff. Identified and reviewed State guidance on cost allocation plans. Reviewed State Bar’s 2016 consultant report evaluating its cost allocation plan and determined State Bar’s progress in implementing associated recommendations. Evaluated State Bar’s current cost allocation plan.
	e. Review any proposals for additional funding or resources requested by State Bar to determine whether these proposals are necessary to meet State Bar’s public protection function, as well as the accuracy of identified associated funding needs, after reviewing how existing resources are used.	Interviewed State Bar executives and staff working in finance, administration, IT, and programs. Obtained State Bar’s five‑year general fund projection and evaluated its proposed licensing fee calculations and those calculations’ underlying assumptions, including workload studies, labor agreements, and benefits analysis. Evaluated the proposed special assessment for capital improvement and IT projects, including analyzing State Bar’s project development cycles, strategic plan, and capital improvements plans. Reviewed and evaluated the proposed special assessment for rebuilding State Bar’s general fund reserve. Evaluated State Bar’s proposal to increase the security fund fee by interviewing executive and program staff and reviewing State Bar’s calculations supporting its proposed fee increase. We also analyzed security fund data to develop claims payment scenarios to support State Bar’s revenue projections for 2020. Reviewed State Bar’s 2018 security fund report outlining initiatives to improve the program’s financial condition, related board agenda materials and minutes, and related legislative analysis.
	f. Calculate how much fee revenue would be needed from each State Bar active and inactive licensee to fully offset State Bar’s costs to perform existing tasks and responsibilities and to support additional proposed expenditures determined to be necessary to meet State Bar’s public protection function. This calculation shall take into account any proposed business process reengineering, reallocations, or efficiencies identified by the State Auditor.	Based on analysis outlined in item e, we calculated the licensing fee increase for active and inactive licensees necessary to cover State Bar’s reasonable operating costs in 2020. Calculated for active and inactive licensees the special assessment necessary for capital improvements and IT projects from 2020 through 2024 and for the general fund reserve for 2020. Calculated for active and inactive licensees the necessary fees for the security fund and assistance program.
3	Review and assess any other issues that are significant to the audit.	To determine the optimal method for setting licensing fees, reviewed policies of regulatory agencies in the Department of Consumer Affairs and best practices from the U.S. Government Accountability Office and Government Finance Officers Association.

Source: Analysis of state law, planning documents, and information and documentation identified in the table column titled Method.

Assessment of Data Reliability

The U.S. Government Accountability Office, whose standards we are statutorily obligated to follow, requires us to assess the sufficiency and appropriateness of computer‑processed information that we use to support our findings, conclusions, or recommendations. In performing this audit, we relied on electronic data files we obtained from State Bar. These files included State Bar’s projections for its proposed 2020 through 2024 fee increase. Because State Bar generated these Excel files independently from any database, we could analyze only the assumptions supporting them. We did this by reviewing source materials, such as State Bar budgets, consultant reports, project plans, and estimates, and by calculating the totals. We also used data from State Bar’s security fund database to analyze the security fund’s historical number of claims paid and average claim amounts, as well as to calculate the average elapsed time for State Bar to process a claim. We verified the nature of the data with State Bar staff, and we also verified record counts and control totals for claims paid. We also conducted logic tests of key data fields, including the case numbers and dates associated with claim activity. We found the data to be sufficiently reliable for our purposes.

 

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Appendix B

Recommended Fees for Inactive Licensees for 2020

Table B shows our recommended mandatory fees for inactive licensees in 2020. Attorneys under the age of 70 can pay the inactive licensing fee to maintain their licenses, although inactive licensees cannot practice law in the State, among other limitations. However, an inactive licensee may become active—and thus be able to practice law in California—by submitting an application and paying all required fees. As we discuss in the Audit Results, the licensing fee increase that we recommend reflects the costs of increasing health benefits for State Bar’s eligible retired employees and of adding up to 19 staff to the trial counsel’s office to perform functions related to the discipline process. The discipline fee is currently set in state law and is in addition to the licensing fee, which is why we show it separately in the Table.

Table B
The State Auditor’s Recommended Mandatory Fees for Inactive Licensees in 2020

MANDATORY FEE	2019	STATE BAR PROPOSAL	STATE AUDITOR RECOMMENDATION
Licensing	$68	$96	$88
Discipline	25	25	25
Special Assessment*	0	70	11
Security Fund	10	30	20
Assistance Program	5	5	0†
Totals	$108	$226	$144

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Appendix C

Recommended Special Assessment Fees From 2020 Through 2024

Table C.1 shows our recommended special assessment fees for both active and inactive licensees from 2020 through 2024. As we discuss in the Audit Results, these assessment fees would provide funds for State Bar’s IT projects, capital improvements, and general fund reserve. Because State Bar has planned that its IT and capital improvement projects will generate different costs each year depending on project timelines, the related assessment amounts that we recommend would change annually to reflect its actual revenue needs. We recommend implementing a special assessment that would span a five-year period for these projects because the projects have defined timelines and costs that vary during this period. Table C.1 also shows the special assessment amount necessary for State Bar to rebuild its depleted general fund reserve. However, we have proposed an assessment amount for this purpose for 2020 only. Here in the Audit Results, we describe why we are not projecting the reserve special assessment amount for future years.

Table C.1
The State Auditor’s Recommended Special Assessment Fees for 2020 Through 2024

	2020		2021		2022		2023		2024		TOTALS
SPECIAL ASSESSMENT	ACTIVE	INACTIVE	ACTIVE	INACTIVE	ACTIVE	INACTIVE	ACTIVE	INACTIVE	ACTIVE	INACTIVE	ACTIVE	INACTIVE
IT projects	$22	$5	$11	$2	$14	$3	$6	$1	$12	$3	$65	14
Capital improvement projects	16	5	13	4	1	0	0	0	0	0	30	9
General fund reserve	3	1	*	*	*	*	*	*	*	*	*	*
Totals	$41	$11	*	*	*	*	*	*	*	*	*	*

Table C.2 shows the projected five-year costs for the capital improvements and IT projects that we recommend that State Bar implement. As we describe in the Audit Results, we eliminated certain capital improvements and IT projects from State Bar’s projection, and we did not include these projects in the Table.

 

Table C.2
The State Auditor’s Projected Five-Year Costs for Recommended Capital Improvements and IT Projects
(Dollars in Thousands)

	ESTIMATED COST
PROJECT	2020	2021	2022	2023	2024	FIVE-YEAR TOTALS
Capital Improvements
HVAC (Los Angeles)	$800	$0	$0	$0	$0	$800
HVAC (San Francisco)	950	53	143	0	0	1,146
Fire/life safety (San Francisco)	266	0	0	0	53	319
Energy management system (San Francisco)	350	0	0	0	0	350
Generator (San Francisco)	572	0	0	0	0	572
Elevators (San Francisco)	0	2,653	0	0	0	2,653
Floor 4 restroom upgrade (San Francisco)	164	0	0	0	0	164
Ground floor infrastructure (San Francisco)	200	0	0	0	0	200
IT Projects
Hardware upgrades	$3,708	$292	$1,053	$601	$1,670	$7,324
Oracle Fusion	336	246	255	266	276	1,379
Licensee Information Management System (LIMS)	250	1,250	1,400	300	312	3,512
Network security assessment	0	200	0	0	200	400
Application security assessment	0	0	200	0	0	200
Disaster recovery services	150	200	0	0	0	350
Totals	$7,746	$4,894	$3,051	$1,167	$2,511	$19,369

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