Ex-FBI agent: State Bar of Texas response to 2012 embezzlement ‘adequate and proper’

Procedural changes made by State Bar of Texas staff immediately after a 2012 embezzlement case were “adequate and proper” and should be enough to prevent another such theft, according to a member of the financial task force appointed by President-elect Joe K. Longley.

Dallas attorney William D. Brown, a former FBI special agent and a forensic accountant who specializes in fraud and misconduct investigations, analyzed the internal control system at the State Bar before and after the crime. The bar’s current written controls are sufficient to address the issues raised by the embezzlement, Brown said during a State Bar Board of Directors meeting Friday in San Antonio.

“I think the controls and the changes that were made subsequent to the discovery of the theft are adequate and proper, and I think we should probably not have any problems like this in the future,” Brown said, noting that it’s virtually impossible to entirely rule out such a crime. He later added: “The proper corrective actions were taken.”

Brown, who also provided a written report summarizing his findings for Longley’s Financial Responsibility and Fiscal Control Task Force, praised State Bar staff members for aiding his investigation. The staff provided a large volume of audit reports and other documentation and met with him for hours to corroborate accounting policies and procedures, he said, adding that the staff was fully cooperative.

“The type of work that I do is incredibly intrusive,” Brown told the board. “I’m really appreciative of the effort they [the staff] put in.”

Brown’s findings echo past comments by State Bar officials, including Immediate Past President Frank Stevenson and former Executive Director Michelle Hunter, who defended the bar’s handling of the embezzlement when it became an issue in the 2017 president-elect race.

State Bar staff discovered in April 2012 that the bar’s membership director, Kathleen M. “Kathy” Holder, who also worked as a deputy clerk for the Texas Supreme Court, had been embezzling funds for years from a Supreme Court account that was outside the scope of the State Bar’s audit. The State Bar’s chief finance officer, Cheryl Howell, discovered the embezzlement when a monthly bank statement was inadvertently delivered to the accounting department instead of Holder. Holder was quickly fired, charges were filed, a conviction was obtained, and processes were changed to prevent it from happening again, State Bar officials have said.

Brown said Holder had exclusive access to the account in question in her capacity as deputy clerk of the Supreme Court. “The accounting department inside the State Bar really had no responsibility for monitoring this account,” Brown said. “It was just happenstance that they found this [embezzlement].”

The State Bar immediately reported the theft to Austin police and within a week provided detailed financial records to assist in the investigation, which Brown called an “unbelievably quick” response. Through an insurance claim and court-ordered restitution, the State Bar recovered a “vast majority” of the more than $550,000 shown to have been stolen by Holder, he said.

The task force continues to investigate whether to recommend issuing Holder an IRS Form 1099, in an attempt to force her to pay income tax on the amount stolen, Brown said.