2016 - 2017 Audit ReportMEASURE A – STRONG SCHOOLS BOND OF
PALO ALTO UNIFIED SCHOOL DISTRICT
AUDIT REPORT
FOR THE FISCAL YEAR ENDED
JUNE 30, 2017
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Table of Contents
For the Fiscal Year Ended June 30, 2017
Page
Introduction and Citizens’ Oversight Committee Member Listing ........................................................... 1
Independent Auditors’ Report ........................................................................................................................ 3
FINANCIAL SECTION
Balance Sheet ..................................................................................................................................................... 5
Statement of Revenues, Expenditures and Changes in Fund Balance ...................................................... 6
Notes to Financial Statements ......................................................................................................................... 7
OTHER INDEPENDENT AUDITORS’ REPORTS
Independent Auditors’ Report on Internal Control over Financial Reporting and on Compliance and
Other Matters Based on an Audit of Financial Statements Performed in Accordance with
Government Auditing Standards ................................................................................................................ 19
Independent Auditors’ Report on Performance .......................................................................................... 21
FINDINGS AND RESPONSES SECTION
Schedule of Findings and Responses ............................................................................................................ 26
Summary Schedule of Prior Audit Findings ................................................................................................ 27
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Introduction and Citizens’ Oversight Committee Member Listing
June 30, 2017
The Palo Alto Unified School District (the “District”) was founded on March 20, 1893 under the laws of
the State of California. This District operates under a locally elected five‐member Board form of
government and provides educational services to grades K – 12 as mandated by the state and federal
agencies. The District operates twelve elementary, three middle, two high schools, an adult education
program, a Young Fives program and two children’s centers.
In June 2008, the voters of the Palo Alto Unified School District approved by more than the required 55%
favorable vote the Measure A – Strong Schools Bond (“Measure A”), authorizing the issuance and sale of
general obligation bonds, not to exceed $378,000,000. The Measure A – Strong Schools Bond is a
Proposition 39 bond. The passage of Proposition 39 in November 2000 amended the California
Constitution to include accountability provisions. Specifically, the District must conduct an annual
independent performance audit to ensure that funds have been expended only on the specific projects
listed in the full text of the Measure A – Strong Schools Bond ballot measure as well as an annual,
independent financial audit of the proceeds from the sale of the bonds until all of the proceeds have been
expended for bond‐designated facilities projects.
Measure A bonds were issued by the District, through the County of Santa Clara. On August 27, 2008,
Series 2008 of the Measure A bond authorization was issued, which consisted of current interest and
capital appreciation bonds with an initial par amount of $119,999,249 with stated interest rates of 2.50% to
5.50% and maturing through August 1, 2033. On July 13, 2010, Series 2010 of the Measure A bond
authorization was issued and was designated as qualified school construction bonds under Section 54F of
the Internal Revenue Code of 1986. These bonds provide a federal subsidy to the District which
significantly decreases overall interest cost. The bonds were issued with initial par amount of $25,000,000,
with stated interest rates of 4.662% to 5.862% and maturing through July 1, 2027. The net interest rate of
the issuance is 0.40% after accounting for the federal subsidy. On March 5, 2013, Series 2013 of the
Measure A bond authorization was issued, which consisted of current interest bonds with an initial par
amount of $70,000,000 with stated interest rates of 2.00% to 3.50% and maturing through July 1, 2036.
Series 2014 of the Measure A bond authorization were issued on May 14, 2014, which included current
interest bonds with an initial par amount of $40,000,000, with stated interest rates of 2.00% to 3.25% and
maturing through August 1, 2033. Series 2016 of the Measure A bond authorization were issued on May
10, 2016, which included current interest bonds with an initial par amount of $45,000,000, with stated
interest rates of 2.125% to 4.00% and maturing through August 1, 2035.
For Measure A, the District has elected to conform to the requirements of low bid construction delivery.
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Introduction and Citizens’ Oversight Committee Member Listing, continued
June 30, 2017
Upon passage of Proposition 39, an accompanying piece of legislation, AB 1908 (Chapter 44, Statutes of
2000), was also enacted, which amended the Education Code to establish additional procedures which
must be followed if a District seeks approval of a bond measure pursuant to the 55% majority authorized
in Measure A including formation, composition and purpose of the Citizens’ Oversight Committee, and
authorization for injunctive relief against the improper expenditure of bond revenues.
The Citizens’ Oversight Committee was comprised of the following members as of June 30, 2017:
Name Title Representation
James Cowie Chair Business Organization Member, Parent, & PTA
Bruce Whitson Vice Chair Business Organization Member, Senior Citizens
Organization
Daniel Teo Member Parent, PTA, Site Council Member, & Taxpayer
Organization Member
Dana Kismetova Member Business Organization Member & Parent
Kim Gupta Member Business Organization Member, Parent, & PTA
Prerana Vaidya Member Business Organization Member, Parent & PTA
Sukhi Nagesh Member Business Organization Member & Parent
Corporate Oce:
348 Olive Street
San Diego, CA 92103
toll-free: 877.220.7229
tel: 619.270.8222
fax: 619.260.9085
www.christywhite.com
Christy White, CPA
Michael Ash, CPA
Heather Rubio
SAN DIEGO
LOS ANGELES
SAN FRANCISCO/BAY AREA
3
INDEPENDENT AUDITORS’ REPORT
Governing Board Members and
Measure A Citizens’ Oversight Committee
Palo Alto Unified School District
Palo Alto, California
Report on the Financial Statements
We have audited the accompanying financial statements of the Measure A – Strong Schools
Bond of Palo Alto Unified School District (the “District”) as of and for the year ended June
30, 2017, and the related notes to the financial statements, which collectively comprise the
Measure A ‐ Strong Schools Bond’s basic financial statements as listed in the table of
contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditorʹs
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entityʹs preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entityʹs internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
4
Auditor’s Responsibility (continued)
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
As discussed in Note 1A, the financial statements present only the individual Proposition 39 Bond
Building Fund, consisting of the net construction proceeds of the Measure A – Strong Schools Bond
general obligation bonds as issued by the District, through the County of Santa Clara, and are not
intended to present fairly the financial position of the District in conformity with generally accepted
accounting principles.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the Measure A – Strong Schools Bond of Palo Alto Unified School District
as of June 30, 2017 and the respective changes in financial position for the year then ended in accordance
with accounting principles generally accepted in the United States of America.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated November 9,
2017 on our consideration of the Measure A – Strong Schools Bond’s internal control over financial
reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and
grant agreements and other matters. The purpose of that report is solely to describe the scope of our
testing of internal control over financial reporting and compliance and the results of that testing, and not
to provide an opinion on internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards in considering the
Measure A ‐ Strong Schools Bond’s internal control over financial reporting and compliance.
Report on Other Legal and Regulatory Requirements
In accordance with the requirements of Proposition 39, as incorporated in California Constitution Article
13A, we have also issued our performance audit report dated November 9, 2017 on our consideration of
the Measure A – Strong Schools Bond’s compliance with the requirements of Proposition 39. That report
is an integral part of our audit of the Measure A – Strong Schools Bond for the fiscal year ended June 30,
2017 and should be considered in assessing the results of our financial audit.
San Diego, California
November 9, 2017
FINANCIAL SECTION
The accompanying notes to financial statements are an integral part of this statement.
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Balance Sheet
June 30, 2017
ASSETS
Cash in county treasury 50,474,331$
Accounts receivable 171,596
Total Assets 50,645,927$
LIABILITIES AND FUND BALANCE
Liabilities
Accounts payable 2,336,902$
Due to other funds 168,360
Total Liabilities 2,505,262
Fund Balance
Restricted for capital projects 48,140,665
Total Liabilities and Fund Balance 50,645,927$
The accompanying notes to financial statements are an integral part of this statement.
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Statement of Revenues, Expenditures and Changes in Fund Balance
For the Fiscal Year Ended June 30, 2017
REVENUES
Other state revenue 232$
Interest income 556,417
Total Revenues 556,649
EXPENDITURES
Facilities acquisition and construction 10,554,525
Total Expenditures 10,554,525
Excess (Deficiency) of Revenues
Over (Under) Expenditures (9,997,876)
Net Change in Fund Balance (9,997,876)
Fund Balance, July 1, 2016 58,138,541
Fund Balance, June 30, 2017 48,140,665$
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2017
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
A.Reporting Entity
The Palo Alto Unified School District (the “District”) was founded on March 20, 1893 under the
laws of the state of California. This District operates under a locally elected five‐member Board
form of government and provides educational services to grades K – 12 as mandated by the state
and federal agencies. The District operates twelve elementary, three middle, two high schools, an
adult education program, a Young Fives program and two children’s centers.
On June 3, 2008 the District voters authorized $378 million in general obligation bonds (“Measure
A”) to provide safe and modern schools; accommodate enrollment growth; upgrade aging
classrooms, libraries, computer and science labs; repair or replace roofs, plumbing, heating,
ventilation and electrical systems; improve fire alarms and school security; meet current
earthquake standards; provide current technology; and replace old portables with permanent
classrooms.
An advisory committee to the District’s Governing Board and Superintendent, the Measure A
Citizens’ Oversight Committee (“COC”) was established pursuant to the requirements of state
law and the provisions of Measure A. The purpose of the COC is to inform the public concerning
the use of bond proceeds. The COC is required by state law to actively review and report on the
proper expenditure of taxpayersʹ money for school construction. The COC provides oversight
and advises the public as to whether the District is spending the Measure A – Strong Schools
Bond funds for school capital improvements within the scope of projects outlined in the Measure
A – Strong Schools Bond Project List. In fulfilling its duties, the COC reviews, among other
things, the Districtʹs annual performance and financial audits of Measure A activity.
The statements presented are for the individual Measure A – Strong Schools Bond of the District,
consisting of the net construction proceeds of Measure A Series 2008, Series 2010, Series 2013,
Series 2014, and Series 2016 general obligation bonds as issued by the District, through the
County of Santa Clara, and are not intended to be a complete presentation of the District’s
financial position or results of operations.
B.Accounting Policies
The District accounts for its financial transactions in accordance with the policies and procedures
of the California Department of Educationʹs California School Accounting Manual. The accounting
policies of the District conform to generally accepted accounting principles as prescribed by the
Governmental Accounting Standards Board (“GASB”) and the American Institute of Certified
Public Accountants (“AICPA”).
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)
C. Basis of Accounting
Basis of accounting refers to when revenues and expenditures are recognized in the accounts and
reported in the financial statements. Basis of accounting relates to the timing of measurement
made, regardless of the measurement focus applied.
The financial statements are presented on the modified accrual basis of accounting. Under the
modified accrual basis of accounting, revenues are recorded when susceptible to accrual; i.e., both
measurable and available. “Available” means the resources will be collected within the current
fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of
the current fiscal year. Expenditures are generally recognized under the modified accrual basis of
accounting when the related liability is incurred.
D. Encumbrances
Encumbrance accounting is used in all budgeted funds to reserve portions of applicable
appropriations for which commitments have been made. Encumbrances are recorded for
purchase orders, contracts, and other commitments when they are written. Encumbrances are
liquidated when the commitments are paid.
E. Deposits and Investments
In accordance with Education Code Sections 15357 and 41001, the Measure A bond building fund
maintains its cash in the Santa Clara County Treasury. The county pools these funds with those
of other districts in the county and invests the cash. These pooled funds are carried at cost, which
approximates market value. Interest earned is deposited quarterly into participating funds. Any
investment losses are proportionately shared by all funds in the pool.
F. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenditures during the
reporting period. Actual results could differ from those estimates.
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)
G. Budgets and Budgetary Accounting
Annual budgets are adopted on a basis consistent with generally accepted accounting principles
for all government funds. By state law, the Districtʹs Governing Board must adopt a budget no
later than July 1. A public hearing must be conducted to receive comments prior to adoption.
The Districtʹs Governing Board satisfied these requirements.
These budgets are revised by the Districtʹs Governing Board during the year to give consideration
to unanticipated income and expenditures. Formal budgetary integration was employed as a
management control device during the year for all budgeted funds. The District employs budget
control by minor object and by individual appropriation accounts. Expenditures cannot legally
exceed appropriations by major object account.
H. Fund Balance
Under GASB Statement No. 54, fund balance is divided into five classifications based primarily
on the extent to which the District is bound to observe constraints imposed upon the use of the
resources in the governmental funds. The fund balance in Measure A – Strong Schools Bond
fund is considered restricted.
The restricted fund balance classification reflects amounts subject to externally imposed and
legally enforceable constraints. Such constraints may be imposed by creditors, grantors,
contributors, or laws or regulations of other governments, or may be imposed by law through
constitutional provisions or enabling legislation.
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 2 – CASH AND INVESTMENTS
Summary of Cash and Investments
Cash and investments as of June 30, 2017 consist of the following:
Cash in county treasury 50,474,331$
Total cash and investments 50,474,331$
Policies and Practices
The District is authorized under California Government Code to make direct investments in local agency
bonds, notes, or warrants within the State; U.S. Treasury instruments; registered State warrants or
treasury notes; securities of the U.S. Government, or its agencies; bankers acceptances; commercial paper;
certificates of deposit placed with commercial banks and/or savings and loan companies; repurchase or
reverse repurchase agreements; medium term corporate notes; shares of beneficial interest issued by
diversified management companies, certificates of participation, obligations with first priority security;
and collateralized mortgage obligations. Investments of debt proceeds held by trustees are governed by
the provisions of debt agreements rather than the general provisions of the California Government Code.
These provisions allow for the acquisition of investment agreements with maturities up to 30 years.
Cash in County Treasury – The District is considered to be an involuntary participant in an external
investment pool as the District is required to deposit all receipts and collections of monies with their
County Treasurer (Education Code Section 41001). The fair value of the District’s investment in the pool
is reported in the accounting financial statements at amounts based upon the District’s pro‐rata share of
the fair value provided by the County Treasurer for the entire portfolio (in relation to the amortized cost
of that portfolio). The balance available for withdrawal is based on the accounting records maintained by
the County Treasurer, which is recorded on the amortized cost basis.
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 2 – CASH AND INVESTMENTS (continued)
General Authorizations
Except for investments by trustees of debt proceeds, the authority to invest District funds deposited with
the county treasury is delegated to the County Treasurer and Tax Collector. The table below identifies
examples of the investment types permitted in the investment policy:
Authorized
Investment Type
Maximum
Remaining
Maturity
Maximum
Percentage
of Portfolio
Maximum
Investment
in One Issuer
Local Agency Bonds, Notes, Warrants 5 years None None
Registered State Bonds, Notes, Warrants 5 years None None
U.S. Treasury Obligations 5 years None None
U.S. Agency Securities 5 years None None
Banker’s Acceptance 180 days 40% 30%
Commercial Paper 270 days 25% 10%
Negotiable Certificates of Deposit 5 years 30% None
Repurchase Agreements 1 year None None
Reverse Repurchase Agreements 92 days 20% of base None
Medium‐Term Corporate Notes 5 years 30% None
Mutual Funds N/A 20% 10%
Money Market Mutual Funds N/A 20% 10%
Mortgage Pass‐Through Securities 5 years 20% None
County Pooled Investment Funds N/A None None
Local Agency Investment Fund (LAIF) N/A None None
Joint Powers Authority Pools N/A None None
Limitations as they relate to interest rate risk, credit risk, and concentration of credit risk are described
below:
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an
investment. Generally, the longer the maturity of an investment, the greater the sensitivity of its fair
value to changes in market interest rates. The District manages its exposure to interest rate risk by
investing in the County Treasury. The District maintains an investment with the Santa Clara County
Investment Pool with a fair value of approximately $50,359,142 and an amortized book value of
$50,474,331. The weighted average maturity for this pool as of June 30, 2017 is 528 days.
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 2 – CASH AND INVESTMENTS (continued)
Credit Risk
Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the
investment. This is measured by the assignment of a rating by a nationally recognized statistical rating
organization. Per County investment policy, the investments within the Santa Clara County Investment
Pool are rated A or higher by Moody’s Investors Service.
Concentration of Credit Risk
The investment policy of the District contains no limitations on the amount that can be invested in any
one issuer beyond the amount stipulated by the California Government Code. District investments that
are greater than 5 percent of total investments are in either an external investment pool or mutual funds
and are therefore exempt.
Fair Value
The District categorizes the fair value measurements of its investments based on the hierarchy established
by generally accepted accounting principles. The fair value hierarchy is based on the valuation inputs
used to measure an assetʹs fair value. The following provides a summary of the hierarchy used to
measure fair value:
Level 1 ‐ Quoted prices (unadjusted) in active markets for identical assets.
Level 2 ‐ Observable inputs other than Level 1 prices such as quoted prices for similar assets in active
markets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are
observable, either directly or indirectly.
Level 3 ‐ Unobservable inputs should be developed using the best information available under the
circumstances, which might include the Districtʹs own data. The District should adjust that data if
reasonable available information indicates that other market participants would use different data or
certain circumstances specific to the District are not available to other market participants.
Uncategorized ‐ Investments in the Santa Clara County Treasury Investment Pool are not measured using
the input levels above because the Districtʹs transactions are based on a stable net asset value per share.
All contributions and redemptions are transacted at $1.00 net asset value per share.
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MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 2 – CASH AND INVESTMENTS (continued)
Fair Value, continued
The Districtʹs fair value measurements at June 30, 2017 were as follows:
Uncategorized
Investment in county treasury 50,359,142$
Total fair market value of investments 50,359,142$
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 2017 consisted of the following:
Interest earned on investments 171,596$
Total 171,596$
NOTE 4 – INTERFUND TRANSACTIONS
Interfund Receivables/Payables (Due From/Due To)
Individual interfund receivable and payable balances at June 30, 2017 were as follows:
Due from the Measure A – Strong Schools Bond to the General Fund for maintenance costs for
smart boards totaling $168,360.
14
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities of $2,336,902 at June 30, 2017 consisted of construction related liabilities.
NOTE 6 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS
As of June 30, 2017, the principal balance outstanding on the District’s Measure A – Strong Schools Bond
(“Measure A”) general obligation bonds, including accreted interest to date, was $284,187,220.
On August 27, 2008, Series 2008 bonds of the Measure A bond authorization were issued, which
consisted of current interest and capital appreciation bonds with an initial par amount of
$119,999,249 with stated interest rates of 2.50% to 5.50% and maturing through August 1, 2033.
On July 13, 2010, Series 2010 of the Measure A bond authorization was issued and was designated
as qualified school construction bonds under Section 54F of the Internal Revenue Code of 1986.
The bonds were issued with initial par amount of $25,000,000, with stated interest rates of 4.662%
to 5.862% and maturing through July 1, 2027.
On March 5, 2013, Series 2013 of the Measure A bond authorization was issued, which consisted
of current interest bonds with an initial par amount of $70,000,000 with stated interest rates of
2.00% to 3.50% and maturing through July 1, 2036.
On May 14, 2014, Series 2014 of the Measure A bond authorization was issued, which consisted of
current interest bonds with an initial par amount of $40,000,000 with stated interest rates of 2.00%
to 3.25% and maturing through August 1, 2033.
On May 10, 2016, Series 2016 of the Measure A bond authorization were issued, which included
current interest bonds with an initial par amount of $45,000,000, with stated interest rates of
2.125% to 4.00% and maturing through August 1, 2035.
15
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 6 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
Series 2008 General Obligation Bond
As of June 30, 2017, the principal balance outstanding on the Measure A Series 2008 general obligation
bonds, including accreted interest to date, was $137,685,177. The annual requirements to amortize
Measure A Series 2008 general obligation bonds payable outstanding as of June 30, 2017, are as follows:
Fiscal Year Ended
June 30,
Principal (including
accreted interest to
date) Accreted Interest Total
2018 4,101,142$ 773,858$ 4,875,000$
2019 4,311,877 1,073,123 5,385,000
2020 4,858,643 1,516,358 6,375,001
2021 4,628,114 1,791,886 6,420,000
2022 5,205,841 2,389,159 7,595,000
2023‐2027 53,305,848 37,724,152 91,030,000
2028‐2032 45,268,111 58,406,889 103,675,000
2033‐2034 16,005,601 28,819,400 44,825,001
Total 137,685,177$ 132,494,825$ 270,180,002$
Series 2010 Qualified School Construction Bonds
As of June 30, 2017, the principal balance outstanding on the Measure A Series 2010 qualified school
construction bond was $25,000,000. These bonds provide a federal subsidy to the District which
significantly decreases overall interest cost. The annual requirements to amortize Measure A Series 2010
general obligation bonds payable outstanding as of June 30, 2017, are as follows:
Fiscal Year Ended
June 30,Principal Interest Federal Subsidy Interest Payment Total
2018 ‐$ 1,418,755$ (1,332,718)$ 86,037$ 172,074$
2019 ‐ 1,418,755 (1,332,718) 86,037 172,074
2020 ‐ 1,418,755 (1,332,718) 86,037 172,074
2021 870,000 1,418,755 (1,332,718) 86,037 1,042,074
2022 1,045,000 1,378,195 (1,292,159) 86,037 1,217,073
2023‐2027 16,060,000 5,540,337 (5,138,691) 401,645 16,863,291
2028 7,025,000 411,806 (378,648) 33,158 7,091,316
Total 25,000,000$ 13,005,358$ (12,140,370)$ 864,988$ 26,729,976$
16
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 6 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
Series 2013 General Obligation Bond
As of June 30, 2017, the principal balance outstanding on the Measure A Series 2013 general obligation
bonds was $51,240,000. The annual requirements to amortize Measure A Series 2013 general obligation
bonds payable outstanding as of June 30, 2017, are as follows:
Fiscal Year Ended
June 30,Principal Interest Total
2018 1,700,000$ 1,697,588$ 3,397,588$
2019 1,830,000 1,635,488 3,465,488
2020 1,885,000 1,561,188 3,446,188
2021 1,980,000 1,483,888 3,463,888
2022 2,000,000 1,404,287 3,404,287
2023‐2027 ‐ 6,821,437 6,821,437
2028‐2032 6,850,000 6,441,187 13,291,187
2033‐2037 34,995,000 3,744,981 38,739,981
Total 51,240,000$ 24,790,044$ 76,030,044$
Series 2014 General Obligation Bond
As of June 30, 2017, the principal balance outstanding on the Measure A Series 2014 general obligation
bonds was $17,975,000. The annual requirements to amortize Measure A Series 2014 general obligation
bonds payable outstanding as of June 30, 2017, are as follows:
Fiscal Year Ended
June 30,Principal Interest Total
2018 1,525,000$ 463,475$ 1,988,475$
2019 1,620,000 424,400 2,044,400
2020 1,640,000 391,800 2,031,800
2021 1,675,000 354,462 2,029,462
2022 1,670,000 316,825 1,986,825
2023‐2027 ‐ 1,500,625 1,500,625
2028‐2032 6,055,000 1,160,050 7,215,050
2033‐2034 3,790,000 121,313 3,911,313
Total 17,975,000$ 4,732,950$ 22,707,950$
17
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 6 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
Series 2016 General Obligation Bond
As of June 30, 2017, the principal balance outstanding on the Measure A Series 2016 general obligation
bonds was $34,000,000. The annual requirements to amortize Measure A Series 2016 general obligation
bonds payable outstanding as of June 30, 2017, are as follows:
Fiscal Year Ended
June 30,Principal Interest Total
2018 7,250,000$ 911,125$ 8,161,125$
2019 6,250,000 713,625 6,963,625
2020 1,000,000 568,625 1,568,625
2021 1,000,000 528,625 1,528,625
2022 1,000,000 488,625 1,488,625
2026‐2027 ‐ 2,343,125 2,343,125
2028‐2032 4,900,000 2,236,438 7,136,438
2033‐2036 12,600,000 840,750 13,440,750
Total 34,000,000$ 8,630,938$ 42,630,938$
NOTE 7 – MEASURE A – STRONG SCHOOLS BOND EXPENDITURES BY SITE
The following table presents the expenditure amounts by project for the fiscal year ended June 30, 2017:
Project Amount
Gunn High School 1,425,384$
Palo Alto High School 3,806,438
Elementary Muti‐Use Building 68,780
All Other Elementary 381,186
Technology 1,586,653
Program Management 1,544,315
Planned Maintenance Cost 1,741,769
10,554,525$
18
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2017
NOTE 8 – COMMITMENTS AND CONTINGENCIES
A. Litigation
The District is involved in various litigation arising from the normal course of business. In the opinion of
management and legal counsel, the disposition of all litigation pending is not expected to have a material
adverse effect on the overall financial position of the District at June 30, 2017.
B. Construction Commitments
The Measure A ‐ Strong Schools Bond had construction commitments of $28,251,332 as of June 30, 2017
and related to the Paly Gym Project, Gunn Central Building, Paly Library, and others.
OTHER INDEPENDENT
AUDITORS’ REPORTS
Corporate Oce:
348 Olive Street
San Diego, CA 92103
toll-free: 877.220.7229
tel: 619.270.8222
fax: 619.260.9085
www.christywhite.com
Christy White, CPA
Michael Ash, CPA
Heather Rubio
SAN DIEGO
LOS ANGELES
SAN FRANCISCO/BAY AREA
19
INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN
AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS
Governing Board Members and
Measure A Citizens’ Oversight Committee
Palo Alto Unified School District
Palo Alto, California
We have audited, in accordance with the auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards issued by the Comptroller General of the United States, the
financial statements of the Measure A ‐ Strong Schools Bond, as of and for the year ended
June 30, 2017 and the related notes to the financial statements, which collectively comprise
the Measure A ‐ Strong Schools Bond’s basic financial statements, and have issued our report
thereon dated November 9, 2017.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the
Measure A ‐ Strong Schools Bond’s internal control over financial reporting (internal control)
to determine the audit procedures that are appropriate in the circumstances for the purpose
of expressing our opinions on the financial statements, but not for the purpose of expressing
an opinion on the effectiveness of the Measure A ‐ Strong Schools Bond’s internal control.
Accordingly, we do not express an opinion on the effectiveness of the Measure A ‐ Strong
Schools Bond’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct, misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control, such that there is a
reasonable possibility that a material misstatement of the entityʹs financial statements will
not be prevented, or detected and corrected on a timely basis. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control that is less severe than a
material weakness, yet important enough to merit attention by those charged with
governance.
20
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses
may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether Measure A ‐ Strong Schools Bondʹs financial
statements are free of material misstatement, we performed tests of its compliance with certain provisions
of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit, and accordingly, we do not express
such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that
are required to be reported under Government Auditing Standards.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance
and the results of that testing, and not to provide an opinion on the effectiveness of the entityʹs internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entityʹs internal control and compliance. Accordingly,
this communication is not suitable for any other purpose.
San Diego, California
November 9, 2017
Corporate Oce:
348 Olive Street
San Diego, CA 92103
toll-free: 877.220.7229
tel: 619.270.8222
fax: 619.260.9085
www.christywhite.com
Christy White, CPA
Michael Ash, CPA
Heather Rubio
SAN DIEGO
LOS ANGELES
SAN FRANCISCO/BAY AREA
21
INDEPENDENT AUDITORS’ REPORT ON PERFORMANCE
Governing Board Members and
Measure A Citizens’ Oversight Committee
Palo Alto Unified School District
Palo Alto, California
Report on the Financial Statements
We have audited the accompanying financial statements of the Measure A ‐ Strong Schools
Bond, as of and for the year ended June 30, 2017 and the related notes to the financial
statements, which collectively comprise the Measure A ‐ Strong Schools Bond’s basic
financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditorʹs
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entityʹs preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entityʹs internal control. Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
22
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Objectives
In connection with our audit, we also performed an audit of compliance as required in the performance
requirements for the Measure A General Obligation Bonds for the fiscal year ended June 30, 2017. The
objective of the examination of compliance applicable to the District is to determine with reasonable
assurance that:
The proceeds of the sale of the Measure A Bonds were only used for the purposes set forth in the
Measure A ballot language and not for any other purpose, such as teacher and administrative
salaries.
The Governing Board of the District, in establishing the approved projects set forth in the ballot
measure, evaluated the remodeling, new construction and renovations of items which will
improve learning and to accommodate growth in the District, with no funds expended on
administrator salaries.
In performing our audit of compliance, we performed procedures including but not limited to those listed
as follows:
Internal Control Evaluation
Procedures Performed:
Inquiries were made of management regarding internal controls to:
Prevent fraud or waste regarding Measure A projects, including budgetary controls
Ensure adequate separation of duties exists in the fiscal services department for Measure A funds
Prevent material misstatements in the financial statements
Ensure expenditures are allocated to the proper fund(s)
To follow applicable regulations, including regulations related to bidding and contract
management
We then performed substantive tests of financial statement balances to determine whether the controls
designed by management were operating effectively, and to provide reasonable assurance that the fiscal
year 2016‐17 financial statement balances for the Measure A ‐ Strong Schools Bond are not materially
misstated.
Results of Procedures Performed:
The result of our audit tests show that internal control procedures appear to be working to meet the
financial and compliance objectives required by generally accepted accounting standards and applicable
laws and regulations. An unmodified opinion was expressed on the financial statements.
23
Facilities Site Walk
Procedures Performed:
We performed a site walk to verify that Measure A – Strong Schools Bond funds expended for the fiscal
year ended June 30, 2017 were for valid facilities acquisition and construction purposes. We toured two
District construction sites where 2016‐17 construction work occurred. The sites toured were Gunn High
School and Palo Alto High School.
During the site walk of Palo Alto High School, we viewed the newly constructed gym. We toured
throughout the gym viewing both courts, workout areas and classrooms. In addition, we viewed the
completed pool area and in process library construction. During our site walk of Gunn High School, we
viewed the completed painting project that was completed last summer. We also viewed the demoed
building and construction that is currently in process for the central building project at Gunn High
School.
Results of Procedures Performed:
Results of the site walks indicate that the major 2016‐17 Measure A – Strong Schools Bond construction
projects at Gunn High School and Palo Alto High School were successfully completed and closed out, or
advanced into 2017‐18 construction phases where applicable.
Test of Expenditures
Procedures Performed:
The following performance tests of expenditures and interfund transfers were performed:
1. We tested expenditures to determine whether Measure A – Strong Schools Bond funds were
spent solely on voter and Board approved school facilities projects (as set forth in the District’s
Facilities Master Plan and the Measure A ballot measure language). The expenditure test
included a sample of 30 payments, of which 25 were vendor payments and salaries for 5
employees paid throughout the fiscal year, totaling $10.5 million, or approximately 32% of total
Measure A expenditures for 2016‐17.
2. We also tested 3 payments made to various professional service firms contracted by the Measure
A – Strong Schools bond program. We obtained the contracts for these firms and ensured that
position rates per contract were accurately billed to the District.
24
Test of Expenditures
Results of Procedures Performed:
We found all expenditures tested to be in compliance with the terms of the Measure A – Strong Schools
Bond ballot measure and applicable state laws and regulations, without exception. Also, our analysis
indicated that the District is receiving program management services that are reasonable as compared to
other school districts, with regard to billing rates, hours charged, and the ratio of consultants to District
employees. Furthermore, it appeared that the District’s site projects were competitive in price with
similar projects in size and scope to other school construction bond programs included in our
benchmarking.
Test of Contracts and Bid Procedures
Procedures Performed:
For the fiscal year ended June 30, 2017, we performed testing of four contracts to determine compliance
with District policy and Public Contract Code provisions related to contracting and bidding:
Formal Bids
Project: Jordan Painting
Original Contract Award Amount: $106,420
Project: Gunn Painting
Original Contract Award Amount: $250,800
Project: Gunn Central Building
Original Contract Award Amount: $19,663,000
Project: Paly Library and Building 500 Modernization
Original Contract Award Amount: $9,424,800
Results of Procedures Performed:
We found that the contracts tested above for bidding procedures followed proper bidding procedures
and were awarded in all cases to the lowest responsible bidder.
In addition, we tested two change orders and determined the change orders were executed in accordance
with District internal controls and were in compliance with applicable provisions of the Public Contract
Code. Contracts tested with change orders included the following projects:
Palo Alto High School – Athletic Center
Palo Alto High School – Performance Arts Center
Moreover, we noted that the District has been providing the Governing Board with a listing of change
orders to contracts that relate to Measure A – Strong Schools Bond projects in fiscal year 2016‐17 and that
no Measure A projects have a cumulative change order rate in excess of 10% of contract value.
25
Citizens’ Oversight Committee
Procedures Performed:
In accordance with AB 1908 (Assembly Bill) and Ed Code Section 15278, the District is required to
establish a bond oversight committee for Prop 39 bonds including one active member from each of the
following sectors: a business organization, senior citizens’ organization, bona fide taxpayer’s association,
and one parent/guardian of a child enrolled in the District and one parent/guardian of a child enrolled in
the District who is also a member of a parent teacher association. The COC is to meet pursuant to
Education Code Section 15280.
Results of Procedures Performed:
In our review of the minutes of the Citizens’ Oversight Committee for Measure A, we found that there
was adequate documentation of meetings held during fiscal year 2016‐17. In addition, the District has
submitted annual audit reports during the life of the Measure A – Strong Schools Bond. In our review of
the composition of the committee, we noted that the District has the proper members in the COC that
fulfill each of the required representations noted above.
Our audit of compliance was made for the purposes set forth in the Objectives section of this report and
would not necessarily disclose all instances of noncompliance.
Opinion
In our opinion, based on the fieldwork described above as well as the other tests that we conducted, the
District complied with the compliance requirements for the Measure A – Strong Schools Bond as listed
and tested above.
The purpose of this report on internal control over compliance is solely to describe the scope of our
testing of internal control over compliance and the results of that testing based on accountability
requirements pursuant to the passage of Proposition 39 and the enactment of AB 1908 (Chapter 44,
Statutes of 2000). Accordingly, this report is not suitable for any other purpose.
San Diego, California
November 9, 2017
FINDINGS AND RESPONSES SECTION
26
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Schedule of Findings and Responses
For the Fiscal Year Ended June 30, 2017
This section identifies the deficiencies, significant deficiencies, material weaknesses, and instances of
noncompliance related to the financial statements that are required to be reported in accordance with
Government Auditing Standards.
Our tests resulted in no findings and recommendations related to the financial and performance audit of
the Measure A – Strong Schools Bond for the fiscal year ended June 30, 2017.
27 MEASURE A – STRONG SCHOOLS BOND PALO ALTO UNIFIED SCHOOL DISTRICT Summary Schedule of Prior Audit Findings For the Fiscal Year Ended June 30, 2017 Our tests resulted in no findings and recommendations related to the financial and performance audit of the Measure A – Strong Schools Bond for the fiscal year ended June 30, 2016.