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CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE STATE BAR OF CALIFORNIA
"To provide clarity and perspective, we are commenting on the response to our audit from the State Bar. The numbers below correspond to the numbers we have placed in the margin of the response.
We did not assess the changes the State Bar made to its case management system. As we note on page 16, the State Bar issued a policy directive in February 2022 regarding those cases in which the complainant withdraws the complaint or otherwise fails to cooperate in the investigation. Because our audit fieldwork was substantially complete, we did not perform testing to determine whether the State Bar’s modification of closing codes would help alleviate our concern. We look forward to reviewing the details of the State Bar’s efforts to address this issue in its 60-day response to our recommendations.
The State Bar’s reference to the American Bar Association’s data bank in response to this recommendation is misleading. Our recommendation regarding the data bank pertains to final orders of discipline. We did not recommend that the State Bar use the data bank for identifying interim actions. Therefore, the State Bar’s mention of the data bank in this context is not relevant.
The State Bar’s response addressing proposed revisions to its intake manual may not result in a meaningful change to its existing policy. As Figure 4 on page 32 shows, one attorney had 34 cases closed as de minimis and was ultimately disbarred based on a federal conviction of money laundering through their client trust accounts. Without additional details on the exceptions that the State Bar plans to make to the approach that we recommended, it is unclear whether this policy will address this type of concern and others we describe. The State Bar’s description of the actions necessary to monitor compliance with policies for closing bank reportable actions indicates that it does not plan to implement our recommendation for limiting de minimis closures as stated on page 6. If the State Bar were to implement our recommendation for revising its intake manual, there would be no need to review the underlying files or check the closing letters. Instead, supervisors could determine whether staff followed the change to the State Bar’s policies we recommend by simply reviewing an attorney’s case history whenever a case is closed as de minimis.
The State Bar’s response overstates the level of review we recommended and does not address the significant failures of its investigative process that we identified. Our recommendation does not suggest that the State Bar should conduct a full financial analysis involving a forensic accountant for every bank reportable action or client trust account case. Rather, when investigating such cases the State Bar should, at a minimum, obtain more reliable evidence, including bank statements and the client trust account reconciliations that the attorney is already required to maintain. The recommendation is intended to address the inadequate evidence that the State Bar has relied on in the past when closing cases, such as those instances we identified in which the State Bar should have conducted a more thorough review. For example, in its investigation of the attorney we describe in Case Example 9 on page 37, the State Bar relied on the attorney’s narrative detailing certain transactions pertaining to overdrafts in a particular month and a bank statement for a different month. Similarly, the State Bar accepted the attorney’s explanation when investigating a complaint described in Case Example 6 on page 33 and closed the complaint without taking further action. Ultimately, the State Bar determined that the attorney had been withdrawing funds from the client trust account to pay for personal expenses. Finally, as we illustrate in Figure 4 on page 32, after a long history of closing complaints against an attorney as de minimis, the State Bar determined that the attorney had used the client trust account for impermissible purposes to pay for personal expenses. The inappropriate transactions that the State Bar did ultimately find were identified through its review of bank records.
Accordingly, we stand by our recommendation on page 7 regarding obtaining bank statements and the attorney’s contemporaneous reconciliations, which are more reliable forms of evidence for investigating client trust account related cases and bank reportable actions than attorney assertions. The statistic that the State Bar describes does not support its conclusions. Based on the State Bar’s statement that 22 percent of the bank reportable action matters it reviewed did not involve a negative balance, it appears to be acknowledging that the remaining 78 percent of those matters did involve a negative balance. Such a substantial number of bank reportable actions involving actual negative bank balances is indicative of high risk and the need for more thorough investigations. In contrast, the State Bar suggests that investigating these matters without considering the underlying facts and merits would be a waste of limited investigative resources and is not sound public policy. However, as we illustrate throughout the report, the State Bar has regularly failed to effectively assess the underlying facts and merits of bank reportable actions, resulting in harm to the public. Thus, the State Bar’s objections to investigating bank reportable actions on a more consistent basis are unreasonable.
We disagree with the State Bar’s assertion that our recommendation would disproportionately require certain attorneys to take time away from their practices to gather and submit documentation. Providing the information we recommend should not represent a significant workload. As we note on page 28, the State Bar’s Rules of Professional Conduct require attorneys to maintain, among other things, monthly reconciliations of their client trust accounts. Thus, attorneys should have the required information readily available to comply with a request from the State Bar. Further, as we describe on page 31, in some cases the State Bar closed complaints without contacting the attorney to obtain additional information or to provide guidance for avoiding future complaints. If the State Bar were to consistently provide information on client trust account resources to attorneys after closing each bank reportable action, as we recommend on page 7, this information may help reduce the number of bank reportable actions for all attorneys.
With respect to the State Bar’s disparate impact concerns, it is the responsibility of the State Bar, just like all auditees, to implement our recommendations in a manner consistent with federal and state law. The resources the State Bar asserts that it needs to implement our recommendations appear to be significantly inflated and based on questionable estimates. For example, the State Bar indicates that it needs three full-time staff to monitor de minimis closures of bank reportable actions. This number appears excessive because its supervisors should already be performing some monitoring of staff’s compliance with the existing policy. Moreover, the change described in our recommendation regarding de minimis closures on page 6 would not require the State Bar to randomly select and review case files, as it proposes to do. The State Bar also asserts that it would need contractual resources to develop a platform for the automated transmittal of bank and attorney records, as well as personnel to maintain that platform. However, it already maintains an electronic case management system that documents records of the type that it would collect pursuant to our recommendation.
Thus, we question why the State Bar believes that it needs a new platform for the collection of such information. Further, as we discuss on page 66, the State Bar overstates the level of review we recommend, thereby inflating its estimate of the resources it would need to investigate client trust account complaints. In particular, it states that our recommendation would add about 1,500 cases to its investigation caseload per year. Such a statement is misleading because the State Bar already performs some level of review during the intake stage for each case, as Figure 1 on page 11 illustrates. In addition, the State Bar’s estimated resource needs for addressing these cases is unreasonably high because it is including staff resources for conducting a financial analysis of each of these cases—an action that we did not recommend. Rather, we recommended that the State Bar obtain bank statements and attorneys’ client trust account reconciliations when reviewing overdrafts and alleged misappropriations from client trust accounts, which would be more reliable evidence for determining whether the relevant transactions are appropriate. Moreover, although obtaining documents for cases that were previously closed as de minimis would require some additional effort, we question whether that additional effort requires the resources that the State Bar estimates.
The State Bar misrepresents our conclusions regarding its 2018 workforce plan. A state law that took effect in 2016 required the State Bar to implement a workforce plan that included the development of an appropriate backlog goal and an assessment of needed staffing. The resulting workforce plan made numerous recommendations, including that the State Bar reorganize the structure of its trial counsel’s office. However, in our 2019 report titled State Bar of California: It Should Balance Fee Increases With Other Actions to Raise Revenue and Decrease Costs, Report 2018-030, we did not recommend that the State Bar should add positions based on the workforce plan. Rather, we recommended a fee increase that would allow the State Bar to hire 19 additional staff—constituting one additional investigative team—and we recommended that the State Bar analyze performance data to make more informed estimates of its future staffing needs. We made that recommendation because the staffing study the State Bar performed as part of its workforce plan was conducted in the midst of its efforts to make a number of significant changes to how it performed its work, including the implementation of a digital case management system, which may have had a significant impact on staff workloads and the associated case processing times.
Therefore, we question whether the State Bar’s estimated resource needs are accurate, given the nature of the changes it has implemented since it conducted the staffing study it used as the basis for those estimates. We question why the State Bar is proposing a new system of proactively monitoring attorney client trust accounts when it is not yet effectively responding to the risks represented by bank reportable actions and complaints. As we describe in Case Example 6 on page 33, Case Example 7 on page 34, and Case Example 8 on page 35, the State Bar did not effectively investigate cases involving bank reportable actions and complaints against attorneys regarding their client trust accounts.
According to a November 2021 report to its board, the State Bar’s proposal would include financial and compliance reviews of attorney client trust accounts chosen using both random and risk-based methods. It is not clear why the State Bar believes that random reviews of attorney client trust accounts would be a more effective method of identifying client trust account violations than thoroughly reviewing the complaints it receives regarding specific attorneys. Further, the State Bar’s proposed new program may be more expensive than its estimates of the costs to implement our recommendations—which it describes as unreasonable. In its presentation to its board, the State Bar estimated that its program would cost $500,000 initially and $3.35 million annually."
This has been going on for more than a decade.
How many thousands of Californians have fallen victim to The State Bar of California and its licensees?
Why does The State Bar of California protect attorneys who violate the public trust?
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