Long awaited audit report of Judicial Council released

The California State Auditor has released the audit of the Judicial Council/AOC. The reports states that due to “Questionable Fiscal and Operational Decisions, the Judicial Council and the Administrative Office of the Courts Have Not Maximized the Funds Available for the Courts.”

The entire report can be viewed at: https://www.auditor.ca.gov/pdfs/reports/2014-107.pdf

The highlights of the report are as follows:

“Our review of the funds administered by the judicial branch and the Administrative Office of the Courts (AOC), highlighted the following:

The Judicial Council did not adequately oversee the AOC in managing the judicial branch budget, which allowed the AOC to engage in questionable compensation and business practices. The AOC:
Provides its staff with generous salaries and benefits—the AOC pays eight of its nine office directors more than the governor and many other high-ranking executive branch officials receive.
Employs over 70 contractors and temporary employees and could save about $7.2 million per year by using state employees in comparable positions.
Maintains a fleet of 66 vehicles without requiring its offices to justify the need.
Made about $386 million in payments over the last four years on behalf of trial courts using funds appropriated to them but could have paid a portion of those payments from its own funds.
The AOC has sole autonomy in deciding how to spend certain judicial branch funds due to the lack of Judicial Council’s involvement in the budgeting process.
The AOC has few policies, procedures, or controls in place to ensure funds are appropriately used and spent and, unlike the executive branch, is not required to undergo an annual independent financial audit.
Although it provides services to the courts, the AOC has never comprehensively surveyed the courts to identify the needs of the courts and ensure that services it provides are useful.
RESULTS IN BRIEF

California’s judicial branch is the largest of its kind in the nation. Consisting of the State’s courts and other judicial entities, its appropriations in fiscal years 2010-11 through 2012-13 totaled more than $11.8 billion. The Judicial Council of California (Judicial Council) has policy and rule-making authority over the judicial branch and holds the ultimate responsibility to ensure it spends public funds in prudent ways. Because state law affords the Judicial Council a significant amount of autonomy in developing budgets and approving expenditures, it has an obligation to act in the best interest of the public, especially during times of fiscal hardship like the one that the State has experienced over the past several years. This fiscal crisis forced the Legislature to reduce judicial branch funding by $1.2 billion, resulting in the closure of hundreds of courtrooms and the layoff of thousands of judicial branch employees. In order to maximize the amount of funding available to the courts, we expected the Judicial Council to have carefully scrutinized its operations and expenditures to ensure that they were necessary, justified, and prudent. However, we found that this was not always the case.

Specifically, the Judicial Council failed to adequately oversee the Administrative Office of the Courts (AOC), its staff agency, which assists it in managing the judicial branch budget and provides administrative support to the judicial branch entities.1 The level of the Judicial Council’s involvement in the AOC’s budget process and expenditure decisions appears to have been more ministerial than substantive. In the absence of adequate oversight, the AOC engaged in questionable compensation and business practices, and failed to adequately disclose its expenditures to stakeholders and the public.

For example, we identified about $30 million in questionable compensation and business practices over a four-year period, plus additional savings if the AOC were to consolidate its operations in one location. In particular, the AOC provides its staff with generous salaries and benefits: The average salary for AOC employees is about $82,000, while salaries in the executive branch average $62,000 and those in four large trial courts average $71,000. Furthermore, at a salary of over $179,000, the AOC pays eight of its nine office directors more than the governor and other high-ranking state officials receive, yet those officials have much broader responsibilities. The AOC also provides some employees certain benefits that exceed those in the executive branch, including paying some employees’ shares of their retirement contributions at a total cost of more than $858,000 over a four-year period.

The AOC has also made questionable business decisions to the potential financial detriment of the rest of the judicial branch. For example, the AOC employs at least 70 contractors and temporary employees. Our review of these contractors determined that if the AOC used state employees in comparable positions, it could save about $7.2 million per year. The AOC has also maintained a fleet of 66 vehicles without requiring its offices to justify their necessity; in fact, the AOC does not maintain a centralized inventory of its vehicles. In light of the significant funding cuts to the judicial branch, it is difficult to understand why these practices have continued. Had the AOC discontinued some or all of the questionable business practices, additional funds might have been available for redirection to the trial courts.

Moreover, had the Judicial Council reviewed the AOC’s financial information in detail, it might have identified that the AOC spent certain judicial branch funds in a questionable manner. Specifically, over the past four fiscal years, the AOC made about $386 million in payments on behalf of trial courts using the trial courts’ local assistance appropriations. We believe the AOC could have paid a portion of those payments from its own state operations appropriations instead. As a consequence, an indeterminate amount of additional funds might have been available to support the courts. Even though state law authorizes the Judicial Council and AOC to spend funds on behalf of the trial courts, the AOC has considerable flexibility in how it spends some of those funds. As a result, we believe the Legislature should take steps to ensure the accountability and transparency of the payments the AOC makes on behalf of the trial courts, such as amending various provisions of state law.

The lack of Judicial Council involvement in the budgeting process resulted, in some cases, in the AOC having sole autonomy in deciding how to spend certain judicial branch funds. This practice is of particular concern as it relates to the AOC’s compensation practices and business decisions. According to the AOC’s chief of staff, of the questionable practices we identified, the Judicial Council or Chief Justice only directly approved two—staff salaries and retirement contributions. Of equal concern is the fact that the AOC has few policies, procedures, or controls in place to ensure that its employees expend funds appropriately, or for how they should charge expenditures to appropriations. Furthermore, unlike the executive branch, the judicial branch is not subject to financial audit requirements; thus, the Judicial Council has never required the AOC to undergo an independent financial audit. As a result, the Judicial Council lacks the assurance that an independent financial audit would provide that the AOC has spent judicial branch funds responsibly and legally.

The Judicial Council has not always ensured that the AOC has been transparent or accurate in reporting its efforts to improve its operations. Specifically, the Chief Justice charged the Strategic Evaluation Committee (evaluation committee) with conducting an in-depth review of the AOC with the goals of promoting transparency, accountability, and efficiency. The resulting May 2012 report contained 124 recommendations and harshly criticized the AOC for its expanding budget and staff, lack of coordination with trial courts, and failure to present comprehensible information to the public. However, the information available on the AOC’s Web site does not allow the public to easily understand the AOC’s progress in addressing these recommendations because the Judicial Council reworded and renumbered the 124 recommendations into 145 Judicial Council directives. To illustrate, as of June 2014 the AOC reported completing 109 of the 145 directives; however, had it reported on the status of the recommendations, it could have reported that 82 out of the 124 recommendations were complete—information that the AOC does not make available because it only reports on the status of the directives. Moreover, when we assessed the status of the implementation efforts, we found that only 51 recommendations have been completed.

Because the AOC’s primary function is to provide services to the courts, we expected it to have taken steps to identify the needs of the courts in a comprehensive manner. For example, it could periodically survey them to determine how often they have used the services that it offers. However, we found that the AOC has never surveyed the courts in this manner. Therefore, we surveyed the trial courts, courts of appeal, and the Supreme Court to determine whether they have used each of the services that the AOC asserted that it provides. The results illustrate the importance of periodically determining the courts’ needs. In response to our survey, courts indicated that they have used some services more than others, but that each trial court has used an average of 55 percent of the services that the AOC provides. The results also demonstrate that the needs of the courts change over time—especially during a fiscal crisis—which further supports the importance of regular surveys.

If the AOC does not focus its efforts on improving services and being proactive in offering only those services that the courts need, it cannot provide assurance that it uses resources in a way that best serves the courts. To ensure that its budget and staff are appropriate, the AOC should also examine its business processes by engaging in workforce planning. Workforce planning is a seven-step planning model, which the California Department of Human Resources (CalHR) developed to assist state agencies in aligning their staffing levels with their strategic mission and critical needs. This model begins with determining the needs of the organization’s customers—a step that the AOC has thus far failed to take.

Given the lapses in the Judicial Council’s oversight and the AOC’s decision making that we identify in this report, we believe significant change is necessary to ensure that the State’s courts receive the critical funding they require to provide access to justice to all Californians. One change could come in the form of a fee-for-service delivery structure for the AOC, which would redirect some of the funding that it currently receives to the courts and empower them to use that funding to pay for only those AOC services that they need. We are concerned that without significant changes, the Judicial Council and AOC will continue to publicly embrace addressing the weaknesses that we and others have identified but fail to take the steps necessary to actually repair those weaknesses in a meaningful and transparent way.

RECOMMENDATIONS

The Judicial Council should adopt procedures that require a regular and thorough review of the AOC’s compensation practices. This review should include comparisons to comparable executive branch salaries.

To decrease its expenses, the AOC should conduct a cost-benefit analysis for using a temporary worker, contractor, or consultant instead of a state employee and for maintaining its pool of vehicles.

Once the AOC has identified savings related to its compensation and business practices, the Legislature should consider ways to transfer this savings to the trial courts.

To determine the cost to the State of providing support to the trial courts, the Legislature should amend various provisions of state law to clearly define the difference between local assistance expenditures and state operations expenditures.

The Judicial Council should create a separate advisory body, or amend a current committee’s responsibilities and composition, to review the AOC’s state operations and local assistance expenditures in detail to ensure that they are justified and prudent. This advisory body should be staffed with public and judicial branch finance experts.

To ensure that it spends funds appropriately, the AOC should develop and implement controls to govern how its staff can spend judicial branch funds and develop written fiscal policies and procedures as the rules of court require.

To bring more transparency to the AOC’s spending activities and to ensure that the AOC spends funds prudently, the Legislature should require an annual independent financial audit of the AOC. This audit should include examining the appropriateness of the AOC’s spending of any local assistance funds.

To increase transparency, the Judicial Council should conduct a more thorough review of the AOC’s implementation of the directives that resulted from the evaluation committee’s recommendations by more closely scrutinizing the AOC’s actions.

The AOC should conduct a comprehensive survey of the courts on a regular basis—at least every five years—to ensure the services it provides align with their responses and reevaluate any services identified as being of limited value or need.

To justify its budget and staffing levels, the AOC should conduct the steps in CalHR’s workforce planning model in the appropriate order, including establishing a mission and creating a strategic plan, determining the services it should provide to achieve the plan’s goals, making future staffing changes based on CalHR’s model, and developing and using performance measures to evaluate the effectiveness of this effort.

To ensure that it provides services to the trial courts as efficiently as possible, the Judicial Council should explore implementing a fee-for-service model for selected services.

AGENCY COMMENTS

The AOC agreed with our recommendations, but some of its responses lacked a clear plan or timeline for implementation. Instead, in these instances, the AOC indicated that it would present the recommendations to the Judicial Council for consideration.”

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