LIT’s Audit of the State Auditor Confirms it Yields Little Power Against CA Bar

In 2019, the State Auditor recommended a change to California’s constitution to implement a bicameral structure to the judicial commission. It appears that was never implemented.

The agency charged with regulating California’s attorneys has failed to give a transparent view of its finances while its top tier of executives have enjoyed more generous salaries than the governor and attorney general, according to a scathing state audit released Thursday.

The review of the State Bar of California also questioned the spending by a special non-profit set up under a previous state bar executive, and the audit faulted the agency’s leadership for a years-long delay in the program that compensates those who are swindled by corrupt and dishonest lawyers.

At the end of 2015, the review found, the state bar had about 5,500 pending claims by the victims of attorney theft – with an estimated $16-million shortfall for the payments. Some victims of misconduct could wait up to five years before receiving reimbursement, the review stated.

“The State Bar’s long delays in paying claims harm the people who are waiting and who may be counting on these resources to meet basic needs,” according to the report released by State Auditor Elaine Howle.

The 68-page report is the latest setback for the nation’s largest state bar, which oversees more than 250,000 attorneys and is funded mostly by annual dues. The quasi-public agency, considered an arm of the state Supreme Court, oversees the licensing of attorneys, imposes a continuing education on active lawyers, and intervenes when people have disputes with their legal counsel. The bar also metes out discipline for misconduct, subject to the approval of the state supreme court.

The organization has long been bedeviled by conflict and controversy, with lawmakers publicly excoriating the agency for being inefficient and overly political. In recent years, internal strife has grabbed headlines beyond legal trade papers.

The recent saga erupted around 2014, when the bar’s board of trustees fired executive director Joe Dunn, a former state senator from Orange County and current congressional candidate. Dunn filed a whistle-blower lawsuit, alleging that the bar was altering records to conceal a backlog in complaints against attorneys.

Acrimony escalated when parts of a confidential investigative report into Dunn’s tenure were released to journalists. An arbitrator later tossed out Dunn’s lawsuit, but gave him the option of amending some of his complaint.

Last month, Jayne Kim, a former federal prosecutor and the bar’s chief trial counsel, announced her resignation, months after the bar’s employees gave her a vote of “no confidence.”

The recent audit faulted the bar for paying its top 13 executives with salaries exceeding that of Gov. Jerry Brown, who annually receives about $183,000. Auditors noted that the state bar’s executive director has an annual salary of $267,000, while the directors of larger state agencies like the Department of Social Services, which has about 4,000 employees, receives about $220,000. The state bar has less than 600 employees between offices in L.A. and San Francisco.

The bar’s accounting practices were also criticized, with auditors knocking the bar for violating its own financial control policies and mis-classifying funds that have restrictions in how they are spent. Such errors distort how lawmakers and bureaucrats assess the organization’s financial status, the audit stated.

Much of the criticism centered on the fund that compensates legal clients that are the victim of theft, which rose precipitously in 2009 amid the recession. Auditors noted that to process the 5,500 pending applications for compensation, the bar has 11 staff members, including three attorneys.

As the backlog stood, however, the bar began in 2012 to omit from its financial reports the estimates of the cost of the victim compensation program. Instead, the financial statements showed only the fund’s overall balance, which improved; the omission had the effect of masking the looming financial trouble, according to the audit.

Many of the difficulties in the compensation program owe to the roughly $91 million in outstanding debts since 2003 from attorney misconduct cases, according to the audit. State reviewers acknowledged it is difficult to collect money from resigned or disbarred attorneys, who may have little incentive or resources to pay. The bar’s top lawyer has filed hundreds of money judgments to recover the funds, the audit stated.

Elizabeth Rindskopf Parker, the executive director who succeeded Dunn, accepted the vast majority of the audit’s recommendations but faulted the report for using “highly critical” headlines that overstate the organization’s issues and for not distinguishing between recent changes.

During the past few months, the bar’s new leadership has taken a “reform-minded” approach to resolving “longstanding organizational, operational and fiscal challenges,” Parker wrote.

“We believe a close look at the audit findings shows we have made significant progress,” Parker said in a separate statement.

Parker did take issue with criticism of her salary, noting that it is within the range of similar positions at other state bars. And she was clear about her view on the nonprofit that was set up in 2013 by Dunn, calling its operations “highly unusual,” according to her statement.

The non-profit was established to allow tax-deductible donations to support niche legal programs and legal aid to the indigent, according to the audit.

But the nonprofit ended up spending two-thirds of its funds on expenses unrelated to its stated purpose, including a $4,800 Sacramento hotel bill and a $17,000 state fair exhibit, according to the audit. The latter expenses occurred months before the non-profit was actually established, but it paid the bills anyway.

When the nonprofit developed a nearly $15,000 deficit in late 2015, the bar used general funds to cover the bill – without the state bar’s oversight board knowing or approving of the expenditure, according to the audit.

State auditors feared what may befall the agency if such lax financial controls go unchecked: “Lacking proper oversight, the State Bar could create a similar nonprofit in the future and use it for questionable purposes.”

The State Bar of California does not consistently protect the public from bad lawyers and lacks financial accountability, according to a state audit released Thursday.

Instead of focusing resources on enforcement, the bar spent more than $76 million to purchase and renovate a building in Los Angeles, the audit says.

The agency struggles to resolve complaints in a timely way, potentially delaying discipline, the audit concludes. Efforts to reduce a backlog that topped 5,000 cases in 2010 included a rush of settlements, some of them “inadequate.” Efforts to reduce the backlog prompted settlements in 1,500 cases — more than in any of the other four years assessed in the audit.

In fact, the California Supreme Court returned 27 cases the State Bar settled in 2011 for re-examination due to the appearance of insufficient discipline. Upon further consideration by the bar, 21 or the 27 cases resulting in recommendation of further discipline, including five disbarments.

“To reduce its backlog, the State Bar allowed some attorneys whom it otherwise might have disciplined more severely — or even disbarred — to continue practicing law, placing the public at risk,” State Auditor Elaine Howle wrote in a letter to the governor and legislative leaders enclosed in the audit.

Information the bar reports annually to the legislature remains “problematic” because the organization continues to report fewer cases than the law permits, the audit concludes.

In surprising spin on the document, state bar officials released a statement Thursday saying the audit “confirmed the integrity of the State Bar of California’s discipline case data.” Also acknowledging areas identified for improvement, State Bar president Craig Holden said the organization embraces the recommendations, “many of which we began addressing late last year.”

One problem is the current reporting structure of the audit-and-review unit “creates a risk that the chief trial counsel may be able to minimize or fail to act upon findings resulting from an audit or review,” the audit says. Auditors allege former chief trial counsel, without notifying the state bar’s board of trustees, disbanded the second-look review function of the audit-and-review unit in 2010 and redirected unit staff to help reduce its discipline case backlog.

Among recommendations to fix widespread problems at the bar, the audit says the organization should adhere to its own quality-control processes to ensure consistent enforcement — and “take steps to prevent its management or staff from circumventing those processes.” The audit further recommends the audit-and-review unit report to the executive director rather than the chief trial counsel to ensure independent oversight.

Auditors point to a lack of financial accountability and urge a policy “that requires accurate cost-benefit analysis.” The bar underestimated the cost of its Los Angeles building by $50 million, the audit says.

Noting the bar has, for six years, collected annual membership fees that exceed its operational costs, the audit recommends the Legislature limit how much the bar can accumulate in fund balances and establish a different approval process for bar membership fees.

In its official response included in the audit, the State Bar generally agreed with the recommendations but said having the chief trial counsel’s audit-and-review unit report to the executive director and including authority to conduct “second looks” at closed complaints is “problematic.” A separate, bar-wide audit unit that can audit the chief trial counsel and other bar operations may be a better idea, the bar contends.

Among recent initiatives, the board has launched a strategic planning process and increased board oversight over and transparency of bar finances, Holden said in the news release. A special meeting is scheduled Monday to focus further on response measures.

Officials agree too many bar resources were focused on reducing the backlog in 2011 at the expense of the discipline system — but that policy changed in 2012, bar officials said in the release.

The state bar’s new Los Angeles office was overseen by former executive director Joe Dunn, the bar statement adds.

Dunn was fired in November. He contends in a lawsuit he was fired for trying to expose improprieties by members of the board and staff.

A search for a new executive director is underway. Holden says the audit will provide good feedback for the new executive director. A hiring announcement is expected soon.