The Los Angeles County
Citizen's Economy and
Gunther W. Buerk
Task Force Members
Chun Lee, Chair
Richards D. Barger
Fred P. Balderamma
David W. Farrar
John A. FitzRandolph
Jonathan S. Fuhrman
Jaclyn Tilley Hill
William J. Petak
Robert H. Philibosian
Randolph B. Stockwell
Randall H. Stoke
Albert M. Vera
Bruce J. Staniforth
The mission of the Economy and Efficiency Commission is to examine any function of County government at the request of the Board of Supervisors, on its own initiative, or as suggested by others and adopted, and to submit recommendations to the Board directed toward improving local government economy and efficiency, and effectiveness.
May 9, 1995
Honorable Gloria Molina, Chair
Los Angeles County Board of Supervisors
500 West Temple Street
Room 856, Hahn Hall of Administration
Los Angeles, CA 90012
Dear Chairperson Molina:
At its meeting held September 21, 1993, the Board of supervisors adopted a motion requesting the Economy and Efficiency Commission to follow-up on the recommendations made in its Risk Management and Liability Cost Study by taking the following action:
"7. Request the Citizens Economy and Efficiency Commission and McGladrey & Pullen, which remains under contract to the Commission, to review and comment to this Board on the reports and recommendations called for in Nos. 1 through 6 above; and further instruct the Departments to share their reports and recommendations with McGladrey & Pullen as soon as they are completed."
Since McGladrey & Pullen requested to be relieved from their contract, the Commission engaged ARM Tech to assist in the development of this report. ARM Tech was engaged based upon their qualifications and upon their experience as a subcontractor in the preparation of the original Risk Management and Liability Cost Study.
The attached report entitled, Risk Management and Liability Cost Study - Follow Up, is herein submitted. The conclusions and recommendations of this report were based upon documentation provided by the County agencies that are identified in Appendix A.
This report, which has been coordinated with CAO and County Counsel, makes 14 recommendations to improve operations and management of the Risk Management function. These recommendations are also offered to improve efficiency and reduce county costs.
The Commission appreciates the opportunity to assist the Board and the Chief Administrative Office in achieving a more efficient and effective program and looks forward to providing any further support that the Board may require.
Each Economy and Efficiency Commissioner
Sally Reed, Chief Administrative Officer
DeWitt Clinton, County Counsel
Alan T. Sasaki, Auditor-Controller
William Stewart, ISD
On July 30, 1993 the "Risk Management & Liability Cost Study" prepared by the firms McGladrey & Pullen and Advanced Risk Management Techniques, Inc.(ARM Tech) was submitted to the Economy & Efficiency Commission of Los Angeles County (EEC). Based upon this report (the McGladrey report) the EEC prepared a separate report entitled "Los Angeles County Risk Management Program Review," dated September, 1993. At its meeting on September 21, 1993, the Los Angeles County Board of Supervisors considered the EEC and McGladrey studies and directed county staff to take various actions based upon recommendations in the reports.
ARM Tech was engaged by the EEC for the purpose of performing a follow-up study to review departmental actions. In addition, the Commission desired that this review consider possible revisions to the recommendations or modifications to the implementation plan.
The information necessary to complete this follow-up study was assembled by the staff of EEC and consisted of written reports from various County departments addressing specific recommendations and actions taken, or to be taken. Reports used in preparing this report were submitted by the following county departments or agencies:
A complete listing of the reports submitted to EEC and reviewed by the consultant is included in Appendix A. The findings, conclusions and recommendations contained in this report are the result of a review of these documents.
Los Angeles County staff has demonstrated effort and diligence in responding to the Board's directions and the recommendations contained in the initial reports. The importance of risk management, liability loss reduction and cost control activities has been re-emphasized. Progress has been made in addressing many of the key areas needing improvement, indicating a collaborative effort to achieve the common goal of liability cost reduction.
The major areas of the McGladrey and EEC reports in which recommendations were made and which are the focus of subsequent County activities include:
Many of the specific recommendations of the EEC and McGladrey reports are addressed in this plan.
Progress has been made on items (a), (b), (c) and (d) above. The County engaged the services of an independent claims auditing firm, Warren, McVeigh and Griffin. The Auditor-Controller's Office, County Counsel, to a limited extent, and CAO have recommended increases in settlement authority. County Counsel has taken steps to monitor CWC for the purposes of controlling legal costs. Responsibility for general oversight of the claims administration program, including contract renewal and subrogation activities, has been transferred to CAO/RMO."
In her March 15, 1994 memo, "Risk Management Program Review", the Chief Administrative Officer discussed the organizational philosophy to be used in responding to the recommendations that were made by the McGladrey and Commission reports. In addition, positions and funding have been transferred from the County Counsel to the CAO to implement this approach. Although the concept of consolidation of functions is reasonable given the arguments presented, consideration should be given to improvements in efficiency and potential generation of cost savings. It is unclear from the action plans submitted if there will be a restructuring of staff assignments. Additional clarification of this area is needed to establish the extent to which this remains an issue.
The Countywide Plan for Uniform Administration of Risk Management (Countywide Plan) submitted to the Board proposes that the liability cost allocation plan be administered by the CAO. The cost allocation plan will apply to auto, general, medical malpractice and law enforcement liability for the following:
The plan will allocate the costs for liability settlements and judgments, legal defense fees and expenses, claims administration costs and special liability-related projects to the involved departments.
The Chief Administrative office, through RMO, established a risk management information task force comprised of representatives from CAO, County Counsel, Internal Services Department - Information Technology Services (ISD-ITS), Internal Services administration, Public Works, Auditor-Controller, Health Services, and Sheriff departments. The task force, with technical support from ISD-ITS was charged with the responsibility of exploring alternatives in the development of a consolidated risk management information system. The group focused on three major options budgeted for program implementation during FY 1994/95. An "Automated System Implementation Plan" has been developed and is in process of being implemented.
The Auditor-Controller's office conducted a detailed audit of the County Counsel's monitoring of outside defense counsel. This audit report indicated County Counsel "has established adequate procedures for monitoring and oversight of outside defense firms/attorneys." This report also contains recommendations which have been considered and acted upon by County Counsel.
Substantial progress has been made toward the implementation of a comprehensive liability cost reduction program involving several key County departments. In any organization as large and complex as the County, significant changes require time and resources. Major projects, such as the development and implementation of a centralized risk management information system and the liability cost allocation program are expected to take more time to complete. A summary of the recommendations made in this report as a result of this Follow-up Review is presented in Exhibit 1. A summary of the progress the County has made in complying with the EEC report recommendations is shown on Exhibit 2.
A more detailed discussion of the recommendations and these findings are contained in the remainder of this report.
One of the major recommendations in the McGladrey report is that the County consolidate its liability risk management into a single liability program unit. The purpose of this unit would be to create a more centralized approach to liability cost control, placing the
|1.||The Chief Administrative Office should periodically review the staffing for its Risk Management Operations Unit to insure that the issues covered in the Risk Management Program Review are being adequately addressed.|
|2.||The County should continue the practice of engaging the services of a qualified, independent claims auditor. Audits of the County's third party claims administration firms should be performed at least once every two years.|
|3.||The liability claims settlement authority should be increased in accordance with the recommendations of the County Counsel and Auditor-Controller. The Claims Board authority should be increased to $150,000.|
|4.||Although the County has made progress in developing an effective liability cost allocation plan, that the plan requires some refinement.|
|5.||The CAO/RMO and ISD/ITS should continue their efforts to establish the countywide integrated liability database as described in the McGladrey and EEC reports.|
|6.||The County Counsel should be encouraged to continue his efforts to manage and reduce outside legal defense cost.|
|7.||The Board should monitor the overall County performance in legal cost containment on a semi-annual basis.|
|8.||The County Counsel and the CAO should study the potential cost benefits of retaining more legal defense activities in-house.|
|9.||The County Counsel should provide an accounting of the number of cases and billing amounts referred to the firms on the defense panel (1) in the ownership categories indicated above; and (2) for fiscal years 1991-92, 1992-93, and 1993-94.|
|10.||The County Counsel and the CAO/RMO should explore the possibility of engaging a firm to provide training on legal defense cost control techniques to County Counsel, Auditor-Controller, contract adjusting firms, and CAO/RMO staff.|
|11.||The CAO/RMO should continue its efforts to promote and deliver liability loss control assistance and guidance to County departments. Consideration should be given to designating on full-time, professional-level position to liability loss control.|
|12.||The CAO/RMO and the Auditor-Controller should consider the development of a system to provide financial incentives for liability loss control and cost reduction.|
|13.||Consideration should be given to the Sheriff Department's request for more active participation in claims investigation, defense counsel selection, defense counsel monitoring, and development of overall cost control increases, particularly loss control training.|
|1. Report on how best to implement arbitration, dispute resolution, and mediation.||County Counsel & Legislative Advocate continue to support legislation to increase thresholds for alternative dispute resolution methods.||In Progress|
|2. Strongly advocate tort reform legislation and support legislative changes.||County Counsel and Legislative Advocate continue to introduce and support legislation increasing immunities for liabilities arising out of natural condition of unimproved property (AB 2972)||In Progress|
|3. Change the Risk Management Program and report on instituting capabilities.||CAO/RMO has re-organized and reassigned risk management function.||Completed|
|4. Identify organizational savings and reduce budgets.||No organization savings have yet been complied and submitted to EEC for review. There have been minor savings because function and funding were transferred.||Completed|
|5. Departmental review of personnel assignments.||Reorganization of CAO/RMO and County Counsel staff responsibilities.||Completed|
|6. Report on opportunities withing Risk Management Program for contracting out.||CAO/RMO continue to contract for claims adjusting services. Have also contracted with Corporate Systems to assist in implementation of centralized liability management information system. Contracted for liability claims audit.||Completed|
|7. Identify savings resulting from the implementation of contracting out.||Savings from contracting for services is contained in a letter from Office of County Counsel to CAO dated March 1, 1993.||Completed|
|8. Review and report on current schedules of settlement authority.||Both Auditor-Controller and County Counsel's office have reviewed and recommended selected changes to current settlement authority.||Completed|
|9. Report on implementing alternative risk management strategies.||County Counsel is in the process of examining various arrangements to reduce legal defense costs.||In Progress|
|10. Identify savings resulting from alternative risk management strategies.||No evidence of saving submitted for review by EEC.||Incomplete|
|11. Review and report on most effective means to manage contracted claims.||Management of contract claims administration firms has been assigned to CAO/RMO.||Completed|
|12. Report on costs and benefits of independent claims audits.||Auditor -Controller and CAO/RMO performed a cost-benefit analysis though and independent claims audit firm, Warren, McVeigh, and Griffin.||Completed|
|13. Review and report on defense panel composition.||County Counsel has analyzed the current defense panel and recommends no change.||Completed|
|14. Report on the assignment cases to defense counsel.||County Counsel has analyzed the current defense panel and recommends no change.||Completed|
|15. Study and make recommendations on contracting out of subrogation actions.||CAO/RMO will be preparing and distributing an RFP for subrogation services.||In Progress|
|16. Identify savings resulting from contracting out subrogation cases.||Savings to be determined from RFP as noted in #15 above.||In Progress|
|17. Review and report on cost system to monitor, control, and report risk and liability costs.||CAO/RMO has implemented cost allocation plan development for FY 1995/96 Judgement Damages/Insurance Budget.||Completed|
|18. Develop cost system to identify and act on comparative efficiencies.||The IRMIS has been developed to perform and implement this analysis.||In Progress|
|19. Develop and coordinate a Strategic Risk Information Systems Plan||CAO/RMO, with assistance from ISD/ITS has developed the "Automated System Implementation Plan." Technical assistance is provided to the Count y by Corporate Systems, a qualified, nationally-know management information systems service provider.||Completed|
|20. Report on saving to be achieved from Strategic Risk Information Systems Plan.||Amount budgeted for development of plan in FY 1994-95 was $75,000. Cost saving to be identified.||In Progress|
It was proposed that the new unit be staffed with six full-time equivalent employees (FTEs) as follows:
The proposed staffing levels, salaries and changes from the RMO and County Counsel staff assignments were presented in Figure 11 of the McGladrey report. A net reduction of 3.75 FTEs was proposed, with a slight reduction in salaries and benefits (the salaries and benefits saving netted only $36,500 due to up-grades in several of the liability unit positions). Although the CAO has indicated5 that "Program funding will be reallocated in 1994-95 from County Counsel to CAO." The CAO has reported[5} that $373,000 was reallocated in 1994-95 from County Counsel to the CAO. Of this amount, approximately $360,838 will be expended to administer the Liability Claims program. The CAO reports that this action will result in an annual program cost reduction (due to reduced salaries and employee benefits) of approximately $12,162. The following Chart, provided by the CAO, illustrates how this cost reduction has been calculated.
|Funding transfer from County Counsel:||Gross Approximate|
2 Program Specialist III, CAO|
1 Accounting Officer II
1 Program Aid II
1 Program Specialist IV
Salary Savings (2%)
Employee Benefits @ 38%
|Total Salaries & Employee Benefits||$355,000|
|Services & Supplies||18,000|
|Total Funding Transfer||373,000|
2 Program Specialist III, CAO|
1 Program Specialist IV
Salary Savings (2%)
Employee Benefits@ 38%
|Total Salaries & Employee Benefits||$222,938|
|Services & Supplies|
Executive Office - Accounting Service Contract
|Services & Supplies||17,900|
Ms. Sally Reed, Chief Administrative Officer, submitted to the Board a detailed plan entitled "Countywide Plan for the Uniform Administration of Risk Management (Auto, General, and Medical Malpractice Claims Administration)." The CAO proposed an amendment (Section 2.08.085) to the Los Angeles Administrative Code clarifying and strengthening the CAO's authority to administer and set policy direction for County wide risk management programs.
"It shall be responsibility of the Chief Administrative Officer to administer and set policy direction for a program of risk management, designed to control or reduce third-party liability claims and lawsuits against the County and its Officers and Employees acting within the course and scope of their employment, and thereby reducing the resulting costs.
This responsibility shall include: financial administration of claims and lawsuits (including Contract Cities Trust Fund, Special Districts Trust Fund administration) concerning third-party auto, general liability, and medical malpractice incidents; centralized integration of risk management information; coordination of efforts to prevent future liabilities."
The Countywide Plan specifies that the CAO will have primary responsibility for:
Under County Code, department heads are responsible for developing and maintaining liability loss prevention programs. The Countywide Plan reemphasizes the role of the CAO is assisting departments in the program development and maintenance. This support includes presentation of risk management seminars emphasizing various aspects of the claims administration and liability loss prevention process, such as Motor Vehicle Fleet Safety and Contract Review.
The Plan also contains program descriptions for:
Progress has been made by the County in the development of both general and specific guidelines for the centralization of responsibility and control of the County's liability risk management program. Adoption by the Board of the proposed ordinance would place clear authority and accountability with the CAO to develop and administer a strong liability risk management program.
As mentioned previously, the Plan does address staffing and budgetary issues in general terms. The McGladrey report recommended various changes in staff assignments within RMO and County Counsel's Office in order to centralize and maximize the use of existing resources. Neither the CAO's Countywide Plan, nor other material submitted to EEC, addressed specific staffing levels and assignments under the new Risk Management Operations Unit of the CAO's office.
Subsequent to the review of the submitted program documents, the CAO provided the Commission with an Organization Chart (Chart II) of the newly centralized RMO Organization. This Chart illustrated the staffing levels and responsibilities to be undertaken.
The EEC report recommends that the County engage an independent, qualified liability claims auditor to perform an audit of the County's two contract claims administration firms--CWC and PRM. Such audits are customary and accepted practice of self-insured entities. Most public entities have audits performed of their third party claims administrators at least once every two years.
An claims audit should involve an in-depth review of a representative sample of open and closed claims handled by each claims administrative firm. Normally, a sample of between 10-20% of the claims is sufficient for the auditor to determine the quality of service provided. The scope of the audit normally includes:
The McGladrey report recommended that an independent audit, conducted either annually or bi-annually, replacing the County's practice of sending County Counsel staff on-site to the claims administrators' offices to conduct file reviews (prior to July 1, 1993 the site audits were performed by RIMA staff). It was the opinion of EEC's consultants that the County Counsel's staff assigned to the file reviews did not have sufficient experience and technical knowledge of liability claims adjusting to perform meaningful audits.
Effective July 1, 1994, CAO/RMO has been reassigned the responsibility of monitoring the performance of the County's contract claims administration firms (CWC and PRM). The CAO, Auditor-Controller and County Counsel concur with the E.E.C. recommendation of an independent claims audit. On September 21, 1994, the Board of Supervisors directed the Auditor-Controller to contract for an independent claims review. A request for proposals was issued by the County and the firm Warren, McVeigh and Griffin was selected. The audit has been completed.
The County has satisfied the recommendation for an independent claims audit of its contract claims administration firms.
Board of Supervisors Directive No.7 instructed staff to review and recommend changes in the schedule of settlement authority for liability claims. The EEC report recommends that the existing levels of settlement authority be increased to promote more timely and less expensive resolution of small dollar value claims in which liability the County's liability is clear. Both of the County's contract claims administration firms indicated that an increase in settlement authority would be beneficial and would promote a more expeditious resolution of low value claims. The County's settlement authority level for its claims administrators ($3000) had not been increased since 1975 and for County Counsel ($20,000) since 1984.
It continues to be the opinion of consultants that these levels and the Claims Board settlement authority (currently $100,000), should be increased to allow the County's contractors and staff to perform settlement activities without unnecessary delay.
Both the County Counsel and Auditor-Controller's offices have studied the issue of settlement authority and recommend changes to the existing levels. These recommendations are:
Contract Administration Firm
Contract Administration Firm
It appears that the evaluations of settlement authority by Auditor-Controller and County Counsel's offices were sufficient to support their respective recommendations.
These recommended levels reflect the current dollar value of claims adjusted for increases in the consumer price index since the last changes to the settlement authority. The levels are consistent with the original stated objective of expediting resolution of claims against the County.
The Board of Supervisors, of course, would retain authority for settlements in excess of $150,000. Further consideration should be given to increasing the authority of County Counsel to $50,000, as requested by County Counsel.
The EEC and McGladrey report recommendations, and the corresponding Board of Supervisors directive, was for the CAO and Auditor-Controller to establish a liability cost allocation plan supportive of an effective risk management program. The McGladrey study found that the liability cost allocation plan in effect during FY1992-93 and FY 1993-94:
Consequently, the previously established County policy to hold departments more financially accountable for tort liability costs was never properly implemented.
It was, and remains, the objective of the EEC to emphasize the importance of a properly developed and administered cost allocation plan which elicits department support for management's objectives.
The County created a task force comprised of representatives from the Auditor-Controller, County Counsel, and CAO. The task force identified the following key activities, which were to:
The CAO's report further states:
"A copy of the Cost Allocation Policy will be included in the 1994-95 Budget Instructions to be distributed to departments. This policy provides for program costs to be centrally paid from the Judgment and Damages/Insurance Budget. Departments and districts will be billed the full amount to reimburse the Judgment and Damages/Insurance Budget for such costs in the same year that payments are paid on their behalf. Departments will be billed only for costs that are attributed to their operations."
The CAO's Countywide Plan includes a detailed "Cost Allocation Policy". This policy sets forth which funds are affected by the policy, which charges will be made against departmental budgets, and how the charges will be made. The policy was effective July 1, 1994. Each department, or district, is charged the actual liability costs attributable to its operations. If actual charges exceed budgeted amounts, the department "must absorb costs above their budgeted amounts for both the Judgment and Damages and Insurance budgets". In such cases, the CAO policy states:
"If a department indicates absorption of costs above their J&D budget is not realistically possible, use of the J&D central reserve may be requested by CAO staff. Expenditures from the J&D central reserve require the Chief Administrative Officer's or the Assistant Chief Administrative Officer's (or designee) approval. . .The J&D central reserve may be used to cover one time costs and or departmental expenditures above the budgeted amount for judgments/settlements and associated litigation costs. Requests will be reviewed by the Chief Administrative Officer on a case by case basis."
The County has developed and documented a cost allocation plan generally consistent with the stated objectives of the Board and the EEC report. It appears that a policy is in place and has been communicated via the FY1994-95 and the 1995-96 budget to the various departments and districts.
The structure of the new plan, however, appears to have several defects:
It has been recommended by the Sheriff's Department that all or a portion of the savings be retained by the department generating such savings to the County. The CAO has reported that it supports the concept of savings reduction as a department incentive to improve liability loss reduction. They have stated that they will review this issue in the next year and develop a recommendation for consideration by the Board.
Regardless of how the final plan is developed, it should be:
The County should consider retaining the services of a consulting firm with expertise in risk management cost allocation plans for public entities.
The execution of this plan is to be performed through the automated risk management information system currently being developed by CAO/RMO and ISD/ITS.
During the course of the original work on this issue, it was determined that multiple tort liability information databases exist within the County -- most are incompatible in terms of design and data definition. These separate databases exist in:
The existence of the multiple, independent databases make it extremely difficult for the Board, County management, and staff responsible for liability program management to produce a timely report which provides complete and consistent liability program cost information. As a result, departments are not provided with complete information concerning liability costs which are to be charged to their budgets. Complete statistics on all types and causes of liability losses are not available to direct loss control activities. Neither the Board, nor county management receive a report concerning the overall program cost of the tort liabilities of the County.
As a result of this deficiency it was recommended and the Board directed staff to establish an automated tort liability management information data base and reporting system for the purpose of collecting, compiling, and generating more accurate, complete and timely information. The uses of the integrated data would be:
Included in the CAO's Countywide Plan for the Uniform Administration of Risk Management is an outline of a general plan for the County to develop and implement an integrated risk management information system. To accomplish this task, the CAO established a task force comprised of representatives of RMO, County Counsel, ISD-Information Technology Services, Auditor-Controller, and key County Departments (Sheriff, Health, and Public Works). The objectives of the task force were to:
Based upon the CAO's March 15, 1994 Risk Management Program Review, the Task Force agreed on the following system objectives and requirements:
This document further states, "The proposed system will establish a centralized electronic database which will provide access to the database of Corporate Systems, Professional Risk Management, Inc., and County Counsel. The system will be capable of producing comprehensive statistical and financial information and risk management reports for distribution to the Board, department heads and program managers."
Based upon information contained in the "Information Sheet" (undated), ISD-ITS and RMO identified three alternative courses of action that could result in a viable solution to consolidating the Countywide risk management data, so that comprehensive information can be quickly and easily obtained to meet the Board's requirement, and the information needs of the CAO, County Counsel and departments." The three courses of action are:
Option II was selected by the CAO and the FY 1994-95 budget contained a $75,000 appropriation for its development. Corporate Systems was engaged as a risk management information systems consultant and service provider. An "Automated System Implementation Plan" has been developed with input from all major department users.
The County has made reasonable progress towards the development of an integrated liability risk management database. A working task force has been formed and is operational, a general plan of action has been developed, and estimated costs are identified. Based upon the assignment of responsibilities by CAO in the Countywide Plan, the ISD/ITS will be responsible for:
As stated in the previous chapter, a major concern of the EEC and its consultants is the significant cost increases experienced by the County for outside legal defense services during the past five to seven years. Costs to defend general and automobile liability claims increased from FY 1984/85 to FY 1991-92, as did medical malpractice claims during the same period.
Legal defense costs have become a significant factor for public and private self-insured entities throughout the United States. As a result many such organizations have developed and adopted aggressive legal cost containment measures. The EEC and its consultants recommended, and the Board concurred, that the County evaluate and adopt appropriate measures to contain future cost increases. Such measures could include:
Other cost containment measures were identified, but have been addressed in previous sections of this report.
The County Counsel has responded to the Board's directive and the E.E.C. recommendations in a memorandum dated January 7, 1994. This correspondence addressed the first two of the four items listed in Section (A) above.
"We have independently identified the need for closer monitoring of the fees, litigation plans and cost of outside legal defense firms and on July 1 began an aggressive monitoring program to cut both fees and costs. Our goal is to cut billings on the litigation panels by 10% and to establish uniform fixed reimbursable rates for controlling costs.
Early projections confirm that the billings for this fiscal year will be at least 10% less than those for the last and that costs are being billed at our established uniform rates.
We are constantly exploring the possibility of creative arrangements with outside defense firms, such a flat fees, annual retainers, bulk case deals, compensation based upon speed of case resolution and outcome, and incentives for reduced discovery costs."
In separate memoranda to the Board, County Counsel indicated support for, and use when appropriate, of mediation as a technique for dispute resolution (usually contractual disputes) (memorandum dated September 27, 1993) and arbitration (memorandum dated December 17, 1993). In this memorandum, County Counsel indicates, "Based upon our experience, we believe that the County can be best served by: (1) supporting pending legislation (AB 2300) to increase the cap for mandatory arbitration of civil litigation from the current $50,000 per claimant to $100,000 per claimant;"
As further evidence of the efforts to contain legal defense costs, County Counsel indicates that the County has been successful a keeping the hourly billing rates of defense panel firms at very low levels ($78 to $119 per hour).
County Counsel has elevated legal defense cost containment as a major priority and has explored various techniques to accomplish the stated objective of a 10% reduction in legal defense costs. Such control measures were successful, resulting in savings.
Areas not addressed in material reviewed by the EEC and its consultants are: (1) an evaluation of the potential cost benefits of expanding County Counsel staff to handle more defense in-house instead of contracting for such services; and (2) an analysis of the potential benefits of greater reliance upon in-house claims unit staff to perform accident investigations and various discovery activities in support of defense attorneys.
Less emphasis should be placed upon restricting hourly billing rates to low levels. If rates are held to unreasonably low levels for the quality of work being required, the likely consequences are that the County will only attract less qualified firms, or individuals within qualified firms which do not have the experience or background to handle major cases, or hours will be padded.
The McGladrey report identified legal defense costs as a major contributing factor to the County's increasing overall tort liability costs. In certain areas, defense costs have risen significantly over a five year period. In FY 1991-92 there were 49 outside defense firms with annual billings to the County of approximately $24 million.
As a result of the cost escalation, it was recommended by the EEC and its consultants that the County engage a firm to conduct an audit of the outside defense firms with the largest billings to the County (firms with annual billings in excess of $3 million). The purpose of an audit would be (1) to identify any billing practices which may result in excessive, inaccurate, or unnecessary charges to the County, and (2) to review the quality of legal defense services provided to the County.
Additional areas of concern identified by EEC and its consultants were the size of the approved defense panel (46 firms in 1992-93) and the method of case assignment to outside counsel. EEC recommended that the County Counsel be directed to review and report to the Board the maximum number of firms on the approved defense panel that can be monitored effectively.
In December 1993 the County issued a request for proposals for a combined legal defense and claims audit. The responses to the RFP were at cost levels unacceptable to the County and as a result no firm was engaged.
The Auditor-Controller, however, conducted its own audit of the legal defense activities of the County Counsel's Office. This audit, dated May 3, 1994, that concluded that County Counsel had established adequate procedures for monitoring and oversight of outside defense firms/attorneys, also contained four major and thirteen specific recommendations. The major recommendations were:
County Counsel's office responded to the issue of the number of defense firms on the approved panel. It supports the current number of firms on the basis that the large panel allows the County to include women and minority-owned firms. The panel of 46 firms, as of November 1993, includes firms with majority-ownership as follows:
County Counsel further notes that:
"The County's procedures, based as they are on a case-by-case accounting, give us a good basis for evaluating a law firm's effectiveness in handling County cases - both as to results and defense costs..... The larger panel permits us to use smaller firms, increases competition, assures us of representation by senior attorneys, and permits us to use minority and women-owned firms. We believe that changing the structure of the panel is not advisable."
It appears that the County has taken reasonable steps to evaluate and justify the composition of the current defense panel. The Auditor-Controller's office conducted a thorough review of practices within the County Counsel's office. We concur with the County's decision to not proceed with an outside audit of the legal defense firm(s) with the largest billing to the county.
The preceding sections of this report deal primarily with cost control measures for incidents which have occurred and County liability may exist. Of equal and perhaps greater importance, are measures which can be taken by the County to prevent liability-generating events. These measures are commonly referred to as safety or loss prevention programs.
The McGladrey report identifies a lack of County resources devoted to liability loss control. At the time of the report only five of RMO's 98.5 budgeted positions were assigned to the Property/Casualty Divisions. Of the five positions, none were dedicated solely to liability loss prevention. County Counsel's office had no personnel devoted to "pre-loss" activities. With countywide liability costs approaching $100 million a year, EEC's consultants conclude that additional resources should be allocated to liability loss prevention.
The McGladrey report recommended the following for consideration by the County:
"To partially address this service and funding deficiency (liability loss control), it is recommended that the County designate at least one new position within the proposed Liability Program Unit to oversee Countywide safety activities for the prevention of liability claims and lawsuits. The position would be responsible for providing technical assistance and training to County departments. County departments, particularly Sheriff and Public Works, should be encouraged to develop their own specialized loss control and risk management programs."
The Sheriff, Public Works and Health departments have the largest share of liability loss costs. Due to the shear size and complexity of these three departments, it was recognized that specialized loss control programs would be needed and would most likely be better developed and implemented by departmental staff. The success of such departmental program development, of course, is dependent upon sufficient staff size, financial and technical resources.
To identify County departmental liability loss control programs, needs and resources, CAO/RMO surveyed all departments for information and input. The Sheriff and Health departments responded with descriptions of their current and proposed risk management and loss control activities.
The CAO/RMO Countywide Plan for the Uniform Administration of Risk Management included a detailed breakdown of responsibilities and tasks (Chart B in the Plan). In addition, specific guidelines were provided in the Plan:
Progress has been made by CAO/RMO, Sheriff, and Health departments in identifying the importance of liability loss control and establishing a structure within which effective loss prevention programs can be developed. The many recommendations contained in the Sheriff's report are well-reasoned and intended to reduce the cost of liabilities arising out of the County's law enforcement activities.
The Risk Management Plan states that the CAO/RMO role is program oversight, leadership, and to establish standards/criteria in loss prevention. Departments have primary responsibility for loss prevention, including the development of a department loss prevention plan. It was noted that ISD, Sheriff, Health Services, and Public Works have developed loss prevention plans and have assigned staff to loss prevention activities.
The three major departments, (Sheriff, Health, and Public Works) should be encouraged to exercise their authority in this area and given the resources to develop their own specific loss control programs.
The CAO has reported that departmental loss prevention efforts vary in mission, and in the size and qualifications of loss prevention staff. The departments of Public Works, Internal Services, Sheriff, Health Services, Beaches and Harbors, and the Coroner are in the process or have developed various loss prevention programs for their specific operations. The CAO reports that it provides technical support and guidance to all departments through risk management seminars and loss experience reports.
| "Review of Outside Legal Defense Counsel"|
Alan Sasaki, Auditor-Controller
May 3, 1994
|"Risk Management Program Review"|
Michael Henry, Assistant Administrative Officer
November 30, 1993
|"Risk Management Program Review"|
Sally Reed, CAO
March 15, 1994
|"Countywide Plan for the Uniform Administration of Risk
Sally Reed, CAO
|"CAO: Risk Management Operations Organization Chart"|
|"Report on Current Schedule of Settlement Authority"|
Sally Reed, CAO, and DeWitt Clinton, County Counsel
October 29, 1993
|"Report on Number of Firms on Defense Panel"|
DeWitt Clinton, County Counsel
November 19, 1993
|"Evaluation of Personnel Involved in Risk Management"|
DeWitt Clinton, County Counsel
November 19, 1993
|"Report on Assignment of Cases to Defense Counsel"|
DeWitt Clinton, County Counsel
December 14, 1993
|"Review and Report on the Most Effective Means of Managing
DeWitt Clinton, County Counsel
December 17, 1993
|"Report on How Best to Implement Mandatory Arbitration
Alternative Dispute Resolution and Mediation|
DeWitt Clinton, County Counsel
December 17, 1993
|"Report on Legal Defense Cost Containment Program"|
DeWitt Clinton, County Counsel
January 7, 1994
|"Board Ordered Follow-up of Audit Recommendations - Grand
Jury Final Reports and Outside Legal Defense Counsel."|
Jeff Thomas, County Counsel
August 1, 1994
|"Mr. Clinton's 93/94 Performance Agreement Area of Focus
No. 2: Reducing Panel Law Firm Billings -- Final|
Jeff Thomas, County Counsel September 14, 1994
|"Review and Evaluation of Risk Management Efforts"|
Robert Gates, Director, Health Services
January 10, 1994
|"Sheriff's Department Recommendations Concerning the Los
Angeles County Risk Management Program Review"|
Sherman Block, Sheriff
October 1, 1993
|"Report on Risk Management"|
Sherman Block, Sheriff
January 14, 1994
|"Sheriff Response to Risk Management Report:|
|"Integrated Risk Management Information System" - -
Automated System Implementation Plan|
Mike Medd, Corporate Systems
September 30, 1994
Warren McVeigh & Griffin
October 10, 1994
information is currently not available. . . please check back
1 The Chief Administrative Office - Risk Management Operations units (CAO/RMO) was created as a result of the restructuring of the former Risk and Insurance Management Agency (RIMA). This unit has been organized to oversee commercial insurance management and liability claims administration.
2 "Countywide plan for the Uniform Administration of Risk Management", Sally R. Reed, Chief Administrative Officer, November 1994.
3 "Review of Outside Legal Defense Counsel", Alan T. Sasaki, Auditor-Controller, May 3, 1994.
4 "Report on Risk Management", Sheriff Sherman Block, January 14, 1994.
5 "Risk Management Program Review", Sally Reed, Chief Administrative Officer, March 15, 1994. Pg 3.
6 Development of this policy was directed by a Board of Supervisors motion on October 22, 1991 and resulted in a detailed plan prepared by then CAO, Richard Dixon, in a memorandum to the Board dated January 7, 1992.
7 This policy is included as Attachment D of the CAO's November 16, 1994, "Risk Management Program Review".
8 "Automated System Implementation Plan", Corporate Systems, September 30, 1994.
9 This legislation was introduced but did not pass.