Report 2009-030 Summary - July 2009
State Bar of California:
It Can Do More to Manage Its Disciplinary System and Probation Processes Effectively and to Control Costs
Our audit of the State Bar of California revealed the following:
- The costs of its disciplinary system have escalated by $12 million from 2004 to 2008, while the number of disciplinary inquiries opened has declined.
- It cannot measure its efficiency or identify where to reduce costs because it does not track expenses by key disciplinary function.
- Its offices in San Francisco and Los Angeles calculate discipline costs differently.
- Because of the methodology it uses to calculate the average time it spends to close investigations, it reported a decrease of 11 days from 2004 to 2007 when the average investigation time has actually increased by 34 days.
- Relatively simple changes to its billing procedures would probably yield additional revenue that could offset some of its increased discipline costs.
- Its probation office's workload has increased from 791 cases in 2004 to 867 cases in 2008, yet the number of probation deputies was only recently increased by one.
- It discovered an alleged embezzlement of nearly $676,000 by a former employee and is taking measures to strengthen its internal controls.
- It still needs to fully implement recommendations made in a consultant's report, in the periodic audits conducted by its internal audit and review unit, and in our prior audit.
RESULTS IN BRIEF
As a public corporation established by the California Constitution, the State Bar of California (State Bar) administers a system for disciplining attorneys who have failed to adhere to their professional responsibilities. The costs for the disciplinary system, which account for nearly 80 percent of the State Bar's general fund expenditures, escalated from $40 million to $52 million from 2004 through 2008, while the number of disciplinary inquiries that the State Bar opened declined. During the same five years, the State Bar experienced noticeable increases in salaries, in the number of cases sent to trial, and in the time necessary for staff to process cases. However, because of the way that the State Bar tracks its discipline costs, it is difficult to determine the efficiency of its disciplinary system.
For example, the State Bar cannot easily measure its efficiency or identify where it might be able to reduce its discipline costs because it does not track its expenses by key disciplinary function, such as investigations and trials. Further, although the State Bar believes that salaries are a primary driver of the overall increase in discipline costs, it is not able to break down the salaries by each of its disciplinary functions. As a result, neither we nor the State Bar is able to evaluate whether the salaries are the cause of increased discipline costs of a particular function or whether it may indicate inefficiency. Further, because the State Bar does not track its discipline costs by function, it cannot determine whether a policy change has a positive or negative effect on its expenses. For example, while the number of overall cases declined, the number of discipline cases proceeding to trial in the State Bar Court rose from 65 in 2004 to 127 in 2008, nearly a 95 percent increase. This trend is consistent with the change in policy in response to a 2005 California Supreme Court case that criticized the State Bar for failing to follow all of its own standards for disciplining attorneys who have repeatedly violated professional and legal standards. Nonetheless, administrators at the State Bar cannot demonstrate that part of the surge in discipline costs relates to changes in policy because its accounting methods do not correlate costs with particular functions within the disciplinary system. Contributing further to this problem is the fact that the State Bar's offices in San Francisco and Los Angeles calculate discipline costs differently.
Moreover, the increases in case processing times may prevent the State Bar from fulfilling its mission to protect the public because some attorneys who are targets of complaints and whose cases are moving through the disciplinary system will continue practicing law longer than necessary. However, because the State Bar tracks the time that it spends to close investigations by averaging the number of days it took to close every investigation from 1999 through the most recent year, it was unaware that the decrease in the average time that it took to investigate a case from 197 days in 2004 to 186 days in 2007 that it reported in its annual discipline report was not entirely accurate. Rather, our review indicated that investigation time has actually increased from an average of 168 days per case in 2004 to 202 days in 2007.
Further, the State Bar does not include complete backlog information in a consistent manner to allow for year to year comparisons when it reports to the Legislature. Specifically, although the State Bar excludes several different types of disciplinary cases in its calculation of backlog, it does not always identify these omissions in its annual discipline report. For example, the State Bar does not identify how many cases that it designates as complex. This information would be helpful because, even though state law requires reporting all complaints over six months old, the State Bar does not consider complex cases backlogged until 12 months after receipt of the complaint and considers noncomplex cases backlogged after six months. Further, it has periodically changed the types of cases that it includes, which makes year to year comparisons difficult. By not reporting consistently and not including all pertinent information, the State Bar is limiting its stakeholders' and the Legislature's ability to measure the effectiveness of its disciplinary system.
The State Bar also needs to make changes to its billing procedures and its tracking of cost recovery. State law authorizes the State Bar to recover only certain costs associated with disciplining California attorneys found culpable during the disciplinary process. However, although the State Bar billed about $1 million in discipline charges in both 2007 and 2008, it only collected $550,000 and $766,000 in those respective years and the vast majority of these amounts represent collections from various earlier billing years. The State Bar is unable to evaluate the effectiveness of its cost recovery efforts because it does not track how much it expects to receive annually.
Further, relatively simple changes to the State Bar's billing procedures would likely yield additional revenue that it could use to offset some of the recent increase in discipline costs. The State Bar's weak cost recovery efforts occurred partly because it has not adjusted since 2003 the formula it uses in billing attorneys to defray their discipline costs and partly because it does not consistently include due dates on discipline bills. In addition, the State Bar is hiring out part of its collection efforts, but paid more in fees and reimbursements to an outside collections attorney in one recent year than it received in collections. Conducting a cost benefit analysis of its current efforts to collect on discipline bills could help the State Bar to identify more cost effective alternatives for its cost recovery efforts.
The State Bar also needs to analyze the staff workload in its probation office, which has seen the number of cases rise from 791 in 2004 to 867 in 2008, or nearly 10 percent, a situation that created a workload that is difficult for its staff to successfully manage. Specifically, at the end of 2008, the caseload for each of the four probation deputies averaged 217. The attorneys subject to probation are most of those who receive a type of discipline that does not entail disbarment, and they must comply with specified probation conditions that probation staff monitor. In most circumstances, attorneys are still able to practice law during their probationary period, which typically ranges from one to five years. If an attorney fails to meet the terms of probation, the probation office can either revoke the attorney's probation or report the violation to the Office of the Chief Trial Counsel for disciplinary prosecution. Under the State Bar's 2008 Long Range Strategy, the probation office now attempts to protect the public by making referrals within 30 days of a violation. However, inadequate staffing levels may be hindering the probation office's ability to meet this goal.
The probation office believes that it is understaffed, but it has not determined the appropriate caseload for each probation deputy to monitor probationers effectively, nor is it sure whether a recently approved probation deputy position will fulfill its needs. In our review of 18 initial letters from probation case files, we identified several case processing delays that could have occurred because of inadequate staffing. Specifically, in eight cases, the probation office did not send initial letters reminding disciplined attorneys about the terms of their probation within the required seven days. Further, in four of these cases, the probation office did not inform attorneys of their probationary conditions until some of the conditions were already past due. Additionally, for five of 11 cases we reviewed that were referred to the Office of the Chief Trial Counsel for a probation violation, probation deputies took between 96 and 555 days to make these referrals. In 2008, in an effort to increase the timeliness of referrals, the probation office set a goal of making referrals within 30 days of the violation. However, the probation office later reported that it met this goal only 15 percent of the time. Because attorneys are often still able to practice law during their probationary period, unnecessary delays in referrals for violations may allow errant attorneys to continue to practice law and represent clients despite being in violation of the terms of their probation.
The State Bar has missed opportunities to increase its effectiveness because it has received many recommendations in internal and external reviews of its operations, but has not fully attended to some of them. For example, the State Bar received a consultant's report in October 2007 on its cost recovery processes. This review identified several areas of high risk related to internal control weaknesses in the oversight of cash receipts, some risks of data discrepancies, and insufficient reconciliation processes. The State Bar expected that its implementation of a new cost recovery system would address these weaknesses. However, it is still in the process of implementing the new system. The importance of fully correcting internal control weaknesses was highlighted subsequent to the consultant's review when the State Bar discovered an alleged embezzlement of nearly $676,000 by a former employee. The State Bar's chief financial officer told us that an employee was able to reorganize and consolidate the process of invoicing building tenants and receiving payments, which enabled the employee to intercept rent checks and divert them to a personal account. In response to this event, the State Bar contracted with an outside auditor to evaluate the internal controls over the specific area in which the alleged embezzlement occurred and other processes throughout the State Bar. According to the chief financial officer, the State Bar has already implemented some changes to its procedures and plans to implement other recommendations once the auditor's work is complete.
In addition to addressing the recommendations from external reviews, the State Bar needs to use the results from internal reviews more effectively. Although it formed an audit and review unit in 2004, the State Bar does not have a formal process to ensure that recommendations identified by its periodic audits of disciplinary case files are implemented in response to the unit's concerns. The audit and review manager stated that unit managers address concerns less formally, such as discussing issues with their employees. However, our review of the unit's summaries of audit results noted recurring deficiencies, suggesting the need for a more formal process of ensuring corrective action. For example, we found that because of repeated errors in following certain case processing procedures, the unit recommended the same training for investigators in the two most recent summaries.
Our April 2007 report, titled State Bar of California: With Strategic Planning Not Yet Completed, It Projects General Fund Deficits and Needs Continued Improvement in Program Administration (2007 030), included 10 recommendations to the State Bar. In response to that audit, the State Bar has fully implemented seven recommendations related to improvement of its strategic plans and tracking and monitoring grant recipients under its Legal Services Trust Fund program. However, the State Bar has only partially implemented the remaining three recommendations related to improving its disciplinary system, including improving its cost recovery efforts by entering Client Security Fund and debtor information into its new disciplinary debtor database, reducing its backlog of outstanding discipline cases at year end, and only intermittently adhering to internal policies such as using checklists and performing random audits. Finally, we recognize that the State Bar updated its strategic planning efforts to comply with our recommendations; however, we also note that the Information Technology Strategic Plan (IT plan) cannot be fully implemented without additional resources.
To explain and justify cost increases, and to measure the efficiency of its disciplinary system as well as the impact of policy changes, the State Bar should account separately for the expenses associated with the various functions of the disciplinary system, including its personnel costs. This can be accomplished through a study of staff time and resources devoted to a specific function. The State Bar should also ensure that its various offices track expenses consistently.
To make certain that the State Bar provides accurate and complete descriptions to its various stakeholders so they can evaluate the effectiveness of its disciplinary system over time, the State Bar should do the following:
- Adjust its methodology going forward for calculating case processing times for investigations so that the calculations include time spent to process closed and forwarded cases for the relevant year only. For example, for its 2009 annual discipline report, the State Bar should report the average processing time for only cases it closed or forwarded to the State Bar Court in 2009.
- Include additional information regarding backlog in its annual discipline report to the Legislature. Specifically, the State Bar should identify the number of complex cases over 12 months old in its backlog.
- Identify in its annual discipline report the types of cases that it does not include in its calculation of backlog and explain why it chooses to exclude these cases. Specifically, the State Bar should identify that it presents its backlog by case rather than by member, and that it does not include intake, non attorney, abated, and outside examiner cases.
- Identify the composition of each year's backlog to allow for year to year comparisons, as the law requires.
To ensure that it maximizes the amounts that it may recover to defray the expense of disciplining attorneys, the State Bar should update annually its formula for billing discipline costs and include due dates on all bills. Additionally, to report accurately its collection amounts and to analyze the effectiveness of its collection efforts, the State Bar should compare what it expects to collect against how much it actually collects in payments for discipline costs each year.
To make sure that it is using the most cost effective methods to recover discipline costs, the State Bar should complete a cost benefit analysis to determine whether the benefits associated with using collection agencies outweigh the costs. If it determines that the collection agencies are, in fact, cost effective, the State Bar should redirect in house staff to other disciplinary activities. Finally, the State Bar should also research the various collection options available to it, such as the Franchise Tax Board's Interagency Intercept Collections Program.
To fulfill its responsibility to protect the public and its mission to assist attorneys to successfully complete the terms of their probation, the State Bar should ensure that it effectively communicates with and monitors attorneys on probation by doing the following:
- Continue its efforts to determine the appropriate caseload level for its staff to effectively monitor probationers and adjust staffing as appropriate.
- Ensure that staff comply with procedures for promptly sending initial letters reminding disciplined attorneys of the terms of their probation.
To make certain that it does not create a perception of favoritism or leniency, the State Bar should increase compliance with its goal to improve timeliness and consistency of probation violation referrals to the Office of the Chief Trial Counsel. If the State Bar believes instances occur when probation staff appropriately deviate from the 30 day goal, it should establish parameters specifying time frames and conditions acceptable for a delay in the referral of probation violations and clearly document that such conditions were met.
To ensure that it has adequate internal controls in place, the State Bar should fully implement recommendations from audits and reviews of the State Bar and its functions. Further, the State Bar should ensure that its new cost recovery system and related processes fully address the issues identified in the consultant's 2007 report on its cost recovery process.
To improve its effectiveness, the State Bar's audit and review unit should establish a formal process to follow up on and ensure implementation of recommendations from its twice yearly audits.
The State Bar should continue acting on recommendations from our 2007 report related to the following:
- Continue its efforts to enter all of the Client Security Fund and disciplinary debtor information into its database.
- Take steps to reduce its inventory of backlogged cases.
- Improve its processing of disciplinary cases by more consistently using checklists and performing random audits.
To ensure that it can justify requests to fund the remaining information technology upgrades, the State Bar should follow its IT plan.
The State Bar generally agrees with most of our recommendations and states that it will take corrective action to address them. However, the State Bar did not specifically agree or disagree with two of the recommendations related to establishing parameters for referring probation violations and for consistently using checklists for discipline case processing.