State Bar Needs to Improve Its Financial Policies

Wednesday, June 28, 2017

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Auditor Finds:

State Bar Needs to Improve Its Financial Policies

Sees Progress—but Not Enough of It

By a MetNews Staff Writer

State Auditor Elaine M. Howle released a report yesterday indicating that while the State Bar has made some progress in cleaning up its act, it is still engaging in unsound financial practices.

“Although the State Bar has revised its expense polices to help ensure the prudent use of its funds,” she wrote, “it still lacks effective controls to verify that its expenses are reasonable and appropriate.”

Howle charged that the State Bar has “poor control” over its distribution to employees of “purchasing cards.” She said:

“As of June 2016, the State Bar had issued purchasing cards to 205 of its 541 employees—38 percent—with monthly credit 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.

Howle said her department’s audit revealed inconsistencies. She said that a look at credit limits for 23 employees produced a finding that 19 had actual limits differing from what their enrollment agreement forms indicated, and there were eight instances where the employees, according to internal records, had limits ranging from $5,000 to $20,000, but bank record showed $75,000 limits.

Howle recommended:

“To ensure that it only assigns purchasing cards to appropriate staff, and to verify that staff use purchasing cards only for allowable and necessary expenses, the State Bar should immediately develop a policy that limits issuing purchasing cards to employees who have a demonstrated business need and should ensure that its records of employees’ credit limits reflect those established with the bank.”

Sections’ Spending

The State Bar dues bill, pending in the Assembly, would require that the 16 sections split off into independent organizations. Howle said whether this happens or not, controls are needed on their spending.

She wrote:

“[O]ur review of the State Bar’s updated policies and procedures revealed that the State Bar allows the sections to provide less justification for booking off-site events than it requires of State Bar staff. The costs for the sections’ events are significant: from 2014 through 2016, the sections spent $4.3 million on catering for these events. Further, we found that the sections frequently paid costs for hotel rooms that exceeded the State Bar’s lodging rate in its travel policy Specifically, among the 15 hotel expenses we reviewed, $15,800 was for charges that exceeded the State Bar’s lodging rate by amounts ranging from $4 to $330 per night.”

Howle noted that section meetings are generally held off the State Bar’s premises, and that the cost of catering for 200 MCLE sessions from 2014 through 2016 was $4.3 million.

Pointing to a particular extravagance on the part of a section, she said:

“[I]n 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….[T]his 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, $1,500 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.”

Howle opined:

“To make certain that the costs for sections events are reasonable and prudent, the State Bar should require that the sections follow the State Bar’s catering and travel policies.”

As to its general meal and catering policies, she said they should be made “to align with the meal policy of the States Executive Branch and should require individuals attending committee meetings for the State Bar to comply with standard meal per diem rates.”

Lobbyists, Lawyers

The auditor questioned the State Bar’s spending on lobbyists and outside counsel.

She said it “may be paying more than necessary for its lobbyists because it does not require them to justify the amounts they bill, which totaled $768,000 from 2014 to 2016. The State Bar is renewing its contracts for both lobbying firms.”

Howle decried the State Bar’s lack of resolve to address this, reporting that its new contracts do not require itemized billings.

“As a result, she wrote, “the State Bar is missing an opportunity to ensure that its spending for lobbying is reasonable and to require that the lobbyists provide an explanation of their activities on the monthly invoices.”

She urged that detailed invoices be required.

Howle credited the State Bar with slashing costs for outside legal counsel from $808,000 in 2014 to $356,000 in 2016, but noted that there is no competitive bidding process that is either legally required or voluntarily utilized.

“[B]ecause of its informal selection process, we were unable to verify whether the State Bar needed its contracts with outside legal counsel, whether the selected firms were the most qualified, or whether the terms of the contracts themselves were reasonable,” Howle wrote.

She proposed:

“To ensure that it contracts only for appropriate and necessary services from outside law firms at a prudent rate, the State Bar should formalize a policy covering its informal practices of assessing the need for legal services and determining the qualifications and reasonableness of the rates for prospective law firms.”

40-Hour Weeks

An outside consultant found in April that salaries of State Bar employees are 10 percent higher than those of employees of comparable agencies and that 80 percent of the State Bar’s full-time employees work only a 36.25 hours a week. That workweek is “an outlier among the 40-hour workweeks of comparable agencies,” Howie remarked.

She called upon the State Bar to “[c]ontinue 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.”

The consultant also found that the State Bar pays 100 percent of the health care premiums for non-union workers and only half of the costs unionized employees—and provides lifetime post-retirement medical benefits for executive staff members with a tenure of 15 years or more, at a cost last year of $961,000. The State Bar has agreed to provide standardized health care benefits for its employees as of next January and, does not plan to drop lifetime medical benefits for retired executives, it will require contributions from them toward the benefits.

Supplying of Alcohol

Howle recited that the State Bar Board of Trustees—in light of disclosures that the group had spent $156,900 for alcohol from January, 2015 to September 2016—promulgated a bar on use of association funds for intoxicating beverages, effective last Jan. 1. She commented:

“To demonstrate its commitment to the board’s decision, the State Bar should immediately update its procurement manual to prohibit staff from purchasing alcohol for events and meetings.”

Howell declared that by the end of the year, the State Bar should “identify key goals and metrics to measure how well its attorney discipline system is meeting the State Bars core mission to protect the public from attorney misconduct.”

Assemblyman Mark Stone, D-Monterey Bay, who chairs the Assembly Judiciary Committee, said in a press release:

“The latest audit of the State Bar shows that—despite some progress towards focusing more closely on its regulatory duties—once again, the Bar continues to hinder itself in carrying out its mission of public protection with poor internal accounting procedures. I hope that this most recent audit will help the Bar implement practices that promote efficient, transparent, and accurate budgeting so that it is not distracted from its primary duty to protect the public from attorney misconduct.”