Audit affirms bar's use of member dues

By NANCY McCARTHY
Staff Writer

The State Bar ensures that its mandatory fees are reasonable and are used properly, but it faces potential deficits by 2005 and should closely monitor the need for a dues increase, the State Auditor reported last month.

The Bureau of State Audits released its findings after reviewing the bar's 2001 and 2002 books and found little to complain about. The audit focused on the discipline system, management of mandatory and voluntary fees, and the procurement and contracting process.

It made just four recommendations, three relating to strengthening the discipline operation and one relating to monitoring the need for a dues increase.

Auditor Elaine M. Howle urged the bar to continue to reduce its backlog of discipline cases and pursue legislation that would permit it to better recover from attorneys the costs associated with discipline.

"The State Bar continues to diligently monitor its financial accounting for activities supported by the required membership fees and by the fees that members pay voluntarily," Howle concluded.

"However, based on its financial forecast of its general fund, it predicts that expenses will exceed its revenues starting in 2003, which will eventually use up the surplus in its general fund. The financial forecast indicates that if membership fees remain at $390, the State Bar has enough in its reserve to avoid a deficit until the end of 2005."

The bar got good marks for its contract control and procurement procedures. No recommendations were made for substantive change.

The audit was the second conducted under legislation adopted in 1999 which enabled the bar to get back to business following its virtual shutdown in 1998 after former Gov. Pete Wilson vetoed its fee bill.

Auditors each time reached virtually identical conclusions, lauding the bar for using mandatory dues properly and chastising it for poor recovery of costs associated with disciplining attorneys.

"Lean and mean has been our theme," said President Jim Herman. "These numbers tell it all. The bar is doing a great job as stewards of the members' dues and as protectors of the public interest."

Johnson

Executive Director Judy Johnson said the bar is considering legislation that will enable it to collect discipline costs as a money judgment and for money paid out by the Client Security Fund to compensate clients for their attorney's dishonest conduct.

She explained that although state law permits the bar to recover some costs for disciplinary activities from affected lawyers, as a practical matter, cost recovery often is low because disciplined attorneys frequently have financial problems. Resigned or disbarred attorneys have virtually no incentive to repay costs — the recovery rates are 5.3 percent and 2.5 percent, respectively.

Johnson said use of the state's Offset Program is not practical. As a result, she said, the bar is willing to pursue legislation through the Enforcement of Judgments Law to help it strengthen its collection authority by giving courts the ability to enforce cost orders.

Herman praised Johnson for creating a budgeting process that requires bar executives to justify their staf-fing levels and expenditures and for steering the bar to efficient management of its money.

"There is a clear dividing line between mandatory and voluntary programs, our costs are distributed fairly and our expenses are predictable," he said. "Judy has made solid budgeting a priority."

Herman also praised the Board of Governors for its budget discipline. "There was a time before the 1997 dues veto when the board would approve programs without necessarily considering budget impact.

I am proud to say the board's current approach is to always ask, 'What program at what cost in member dues and staffing levels?' Our good stewardship of member dues has allowed us to keep our dues flat despite the upward spiraling cost of living increases since 1997."

The audit concluded that the $390 dues level for 2002 was "reasonable," and said its general fund balance is expected to decrease because expenses are growing faster than revenues. The board of governors created a Public Protection Reserve Fund in 2001 as a hedge against the unexpected, and as a result, the general fund likely will not see a deficit until late 2005, the auditor said. The projection assumes no increase in dues or staff salaries.

However, the board approved a 2.5 percent increase for unionized employees, which senior executives said may lead to some layoffs.

An increase in membership fees, the audit concluded, "would generate enough revenue to cover (the bar's) operating expenses in 2005 and thereafter. . . . The State Bar should continue to monitor for the necessity of a fee increase."