A new audit of the California State Bar Association, an organization that fired CD-46 candidate Joe Dunn in 2014, says leaders were overpaid, financial documents had multiple errors and lacked transparency, and that a massive budget shortfall to pay claims against attorneys exists. Current State Bar leaders are pointing the finger at Joe Dunn’s management of the organization in stories published Thursday in the Sacramento Bee and the legal publication, the Recorder.
From the Bee, 13 executives in the State Bar made more money that Governor Jerry Brown did:
The review, released by State Auditor Elaine Howle on Thursday, says the top 13 executives at the bar are paid more than Gov. Jerry Brown, who takes home $182,791 a year.
Meanwhile, the agency, which is charged with financially compensating victims of attorney misconduct, reported an estimated backlog of 5,500 applications for payment and an expected shortfall of more than $16 million in a fund to settle the claims at the end of last year. The audit found that victims wait as long as five years before they receive any reimbursement.
The State Bar let go of its former director, Joe Dunn, in 2014 and he subsequently sued the agency. Dunn, who is vying for a congressional seat, claimed his dismissal was a form of retaliation for whistleblowing. The State Bar fired back with an investigative report earlier this year that claimed Dunn provided misleading financial information to deceive the agency’s 19-member board.
The State Bar regulates the legal industry and acts as a trade association for the more than 200,000 attorneys in the state. Much of its funding is obtained through membership fees, which the Legislature must approve.
In addition to other problems, the audit highlighted errors and a lack of basic information on executive salary in previous financial reports from the State Bar. It also failed to explain its budget methodology to the Legislature, which hinders lawmakers’ ability to set appropriate attorney-licensing dues, according to the report.
The Recorder story, reprinted entirely here due to registration issues to obtain full copies of stories on the site, suggests the problems in the State Bar go back years.
New State Bar Audit Finds Problems New and Old
By Cheryl Miller, The Recorder
May 12, 2016
SACRAMENTO — Less than a year after concluding the State Bar of California put the public at risk with lax lawyer discipline, State Auditor Elaine Howle issued another critical review of the bar on Thursday that accuses the organization’s leaders of shielding its finances and spending from public scrutiny.
The bar’s financial reports have “contained errors and lack transparency,” have failed to disclose a shortfall in a victim’s restitution account and have mislabeled funding as unrestricted when it was really available only for specific purposes, the report found.
Howle’s office also probed a nonprofit bar foundation, established in 2013 by then-executive director Joe Dunn, and concluded that it was used to pay for thousands of dollars on hotel rooms and meals instead of its stated targets of legal aid and assistance for bar sections. The auditor also questioned bar executives’ pay and benefits, noting that most are significantly higher than comparable positions in state government.
Howle said in the report that she was “optimistic” new executives hired by the bar over the last year will make financial decisions that “reflect better judgment.”
“However, we also believe that increased oversight and improved financial processes could reduce the risk that the State Bar will face similar problems in the future,” she said.
In a statement issued Thursday morning, bar executive director Elizabeth Rindskopf Parker said the organization has already addressed a number of issues cited by Howle. In the bar’s official response, included in the audit’s release, she took a more critical tone, complaining that the report should have made a greater distinction between what happened during Dunn’s tenure and what the new executive team is doing now. She also accused the auditor of using inflammatory headlines in her report, “which we believe is inconsistent with both the audit findings themselves, and the state bar’s overall cooperation and dedicated commitment to transparency and accuracy.”
The report’s release coincides with a simmering battle over the bar’s future, as critics seek to divorce the organization’s traditional regulatory functions from its legal advocacy work. The bar, too, has come under fire from state lawmakers weary of the steady drip of news reports about bar troubles and litigation surrounding Dunn’s firing in 2014.
“The problem is that the dysfunction of the bar traditionally goes so deep and so far back that members are done with the bar’s approach of ‘Let us fix this,'” Assemblyman Mark Stone, D-Scotts Valley, said after being briefed by the auditor Thursday morning on the report. He said he was frustrated by the bar’s “clearly defensive” response to the audit.
Stone, the chairman of the Assembly Judiciary Committee, is carrying the 2017 bar dues legislation, which is likely to include any significant changes to the organization agreed to by him, the chair of the Senate Judiciary Committee and Chief Justice Tani Cantil-Sakauye.
Stone wouldn’t reveal what those changes might be other than a prohibition on bar financial decisions that restrict the Legislature’s ability to lower dues. He said he remains agnostic about de-unification. Stone did say he could “see a path” where the Supreme Court would take more responsibility for overseeing the bar and the Legislature would “have less of a role.” But he also noted that splitting up bar functions would likely have no effect on the administrative problems highlighted in the audit.
“Everybody agrees that there needs to be major reform in the bar’s governance,” Stone said. “What that is isn’t clear at this point.”
The 68-page audit took particular aim at management of the Client Security Fund, which the bar uses to compensate victims of dishonest attorneys. At the same time consumer claims were skyrocketing in 2009 due to loan modification scams, the fund’s balance was cratering. By the end of 2015, the bar had 5,500 claim applications pending, but only $2.2 million in the fund—far less than the estimated $18.9 million needed to provide restitution, the report found.
Bar officials knew about the impending shortfall as early as 2011 but “not only did it fail to take steps to address the problem or to communicate the fund’s true financial situation, it did the opposite: In 2012 the State Bar eliminated from its financial statements any disclosure of future amounts it expected to pay related to the Client Security Fund, reporting instead that the fund’s balance had improved,” Howle said.
The funding shortfall, fueled in part by disciplined lawyers who do not pay restitution, has doubled the amount of time the bar takes to process victims’ claims, from 18 months to three years. Bar officials recently shifted $2 million from other funds to bolster the victims compensation account. The bar is also considering a three-year fee increase to reduce the backlog of victims’ claims, according to the report.
Political columnist Dan Walters took aim at Dunn last month in this column:
Joe Dunn’s ears must have been burning Tuesday.
At 10:31 a.m., the former Orange County state senator, who is now running for a seat in Congress, dispatched a campaign news release touting his support by a school union.
At that very moment, 416 miles to the north, the Assembly Judiciary Committee was delving into dysfunction in the State Bar leading up to Dunn’s dismissal as its executive director in 2014.
The State Bar is a unique entity – a quasi-public agency that simultaneously acts as regulator of the state’s 200,000-plus attorneys and as a trade association that protects lawyers’ financial interests.
That dual role lies at the heart of the controversy. Dunn sued the State Bar after his dismissal, claiming that those who fired him were trying to cover up bad behavior, but an outside investigative report, which the State Bar released two months ago, accuses Dunn of deception and influence-peddling.
“Dunn’s repeated failure to provide adequate or truthful information to the board (of the State Bar) provides an adequate basis to terminate his at-will employment,” the report concluded.
Meanwhile, State Auditor Elaine Howle has castigated the State Bar for failing to protect the public from incompetent or venal lawyers during Dunn’s reign and squandering money meant to support its regulatory activities.
“Rather than using its financial resources to improve its attorney discipline system, the State Bar dedicated a significant portion of its funds to purchase and renovate a building in Los Angeles in 2012,” Howle’s report said.
Elizabeth Parker, who succeeded Dunn as the State Bar’s executive director, described it to the Judiciary Committee as “an organization in turmoil.”
The LA Times weighed in Friday morning:
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.
Walters capped his column with this tidbit:
“Interestingly, a day after the Capitol hearing, Jayne Kim, whom Dunn had appointed as the State’s Bar’s top disciplinarian, abruptly resigned.”