The Law Society of Upper Canada’s audit committee says the governing body needs to trim the fat when it comes to professional regulation costs.
“Perhaps we should look at whether it is possible to do professional regulation in a more efficient and cost-effective way,” Bencher Beth Symes, chairwoman of the committee that presented LSUC’s audited financial statements for 2007 at Convocation’s April 24 meeting, tells Law Times in an interview.
Symes reported that, in 2007, the law society spent about $15.4 million on professional regulation, up from approximately $13.3 million in 2006. A $1.2-million overrun in budgeted payments to outside counsel - incurred despite the hiring of 11 new staff members - was the main source of extra costs, said Symes.
The law society’s general fund took a loss of $390,000 in 2007, versus a $568,000 surplus in 2006, with total revenues last year of $65.697 million and expenses of $66.087 million, according to the report. But the overall loss was attributed mainly to the amortization of capital assets, which was pegged at $3.113 million.
The law society aimed to reduce spending on professional regulation by hiring 11 new staff members last year, said Symes. The new staff members include two dealing with investigations, three in complaints resolution, four in discipline, and two in trustee services, according to the report.
The report said the rising cost of outside counsel “is generally attributable to a number of sensitive or unusual matters.”
That included an increase in the use of experts for mortgage-fraud cases; “potentially high-profile matters involving complex issues”; “highly contested unauthorized practice matters”; and the hiring of outside counsel for matters “deemed especially significant to our role as a regulator,” according to the report.
Symes told Convocation that steps are being taken to address the overrun in professional regulation, a list of which was to be presented to benchers. Those details were not made public.
The audit committee met with Zeynep Onen, director of LSUC’s professional regulation department, to address the problem, said Symes.
“She has assured us that she has put in place a system to, first of all, monitor and address the retention of outside counsel, and the amount spent,” Symes tells Law Times. “We’ve been looking at it for six months, and have been assured that, going forward, the number of outside counsel has been reduced and that the amount of money spent on outside counsel has also been reduced.”
Other highlights from the financial statements include a lower than expected deficit in LSUC’s new paralegal fund. A projected loss of $2.4 million for 2007 played out at only an $822,000 deficit, as the law society last year received $1.077 million in paralegal fees, while it spent $1.899 million on paralegal regulation, according to the report.
The difference was attributed to a greater than expected number of grandparent and transitional applicants for paralegal licences. The deficit is expected to be covered early in 2008 with examination fee revenues.
It was also reported that revenues from lawyers’ fees rose to $44.1 million in 2007 from $40.1 million in 2006, with the addition of about 825 lawyers and a fee increase of $92 per lawyer.
Professional development and competence revenues went up to $9.7 million from $9.3 million the previous year, after licensing process fees were raised $150 per candidate to $2,750.
On the costs side, net expenses increased to about $66.1 million in 2007 from approximately $58.6 million in 2006, according to the report. The largest “departmental changes” were in lawyer regulation and the new paralegal regulation.
Administrative expenses at LSUC increased to $8 million in 2007 from $7.1 million in 2006, said the report. Such expenses include the law society’s departments of finance, information systems, and human resources.
“The increase was spread across all three areas as operations of the law society are enhanced and services expanded in line with the cumulative increase in licensees over recent years,” said the report.
Other expenses for 2007 included areas such as bencher expense reimbursements, functions, and remuneration, which increased $370,000 in 2007 to $1.9 million, and LSUC catering costs, which totaled $953,000 in 2007.
Overall, “other expenses” for 2007 - which also included expenses such as payments to the Federation of Law Societies and CanLII totalling $1.3 million - increased to $6.1 million from $5.3 million in 2006.
Financial statements for the law society’s compensation fund and LibraryCo Inc. also were presented at the meeting.
The compensation fund’s financial position “remains strong,” according to the report, with a surplus for 2007 of $907,000, down from a $1.4-million surplus in 2006.
LibraryCo, which the law society took over administration of in 2007, lost $111,299 in 2007, versus a $26,335 surplus in 2006. “The deficit is attributable to expenses incurred as LibraryCo transitioned to the new administrative arrangement,” said the report.
The audit committee’s report included the following caveat:
“The law society’s success in fulfilling its mandate is not measurable in terms of profits or the creation of members’ equity value, but rather through qualitative, non-financial results discussed in the Performance Highlights section of the annual report.
“Nevertheless, management does have financial stewardship responsibilities, which this report references within the broader context of fulfilling the role statement.”