State Bar reports possible embezzlement of rent money

The State Bar has reported to the Special Crimes Unit of the California Department of Justice in San Francisco the possible embezzlement by a long-term former employee of rents received from tenants at the bar’s 180 Howard St. headquarters. The bar requested the DOJ to assume jurisdiction due to the bar’s state agency status and the Special Crimes Unit’s expertise with white collar financial crime investigations. The DOJ criminal investigation is independent of the bar’s own internal investigation.

Bar officials alerted the board of governors Audit Committee when discrepancies in tenant rents were discovered. The committee promptly retained an outside audit firm to determine the extent of the loss and to evaluate the bar’s internal controls. Preliminary audit results indicate that several hundred thousand dollars may be involved.

The State Bar’s primary source of revenues — attorney licensing and other fees — are unaffected. The loss is limited to real property tenant rent revenues in San Francisco. The full extent of the loss is still being quantified as well as how the employee evaded internal controls.

The State Bar is audited annually by independent financial auditors and every other year by the California State Auditor.

“This is a situation of major concern which has been reported to law enforcement authorities and is being fully investigated by the State Bar’s board and its audit committee,” said Laura Chick, the Los Angeles City Controller who is a public member of the board. “The State Bar must be vigilant to ensure that safeguards are in place to guarantee that this never happens again.”

Added bar President Holly Fujie, “I want to assure everyone that this situation is firmly under control. The audit committee and the board are overseeing the process and will report to the State Bar’s stakeholders once the investigation is completed.”

The bar is cooperating fully with the DOJ investigation. The outside audit firm is moving forward with its assessment of the situation and with an overall evaluation of the bar’s internal controls.

The bar also has submitted a claim for the potential loss to its commercial crime insurance carrier and is considering its civil remedies. Its commercial crime insurance policy has a limit in excess of the potential loss.