2009 - 2010 Audit ReportMEASURE A - STRONG SCHOOLS BOND OF
PALO ALTO UNIFIED SCHOOL DISTRICT
AUDIT REPORT
For the Fiscal Year Ended
June 30, 2010
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
AUDIT REPORT
For the Fiscal Year Ended June 30, 2010
Table of Contents
Page
Introduction and Citizens' Oversight Committee Member Listing........................................................... I
IndependentAuditor's Report........................................................................................................................2
FINANCIAL SECTION
BalanceSheet..................................................................................................................................................... 4
Statement of Revenues, Expenditures and Changes in Fund Balance ...................................................... 5
Notes to Financial Statements.........................................................................................................................6
OTHER INDEPENDENT AUDITOR'S REPORTS
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................................................................................................................13
Independent Auditor's Report on Performance..........................................................................................15
FINDINGS AND RESPONSES SECTION
Schedule of Findings and Responses............................................................................................................20
Summary Schedule of Prior Audit Findings................................................................................................ 21
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Introduction and Citizens' Oversight Committee Member Listing
June 30, 2010
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 Santa Clara County 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. As of June 30, 2010, the principal balance outstanding on
the Measure A Series 2008 bonds, excluding accreted interest to date, was $119,999,249.
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, 2010:
Name
Title
Representation
Jim McFall
Chair
Business Organization
Scott L. Darling
Vice Chair
At -Large Member
Gary W. Hornbeck
Member
Parent & PTA Organization
Deepak Kanungo
Member
Parent
Caroline Maser
Member
Parent
Steve Shevick
Member
Parent
Ray Bacchetti
Member
Senior Citizens' Organization &
Taxpayers' Organization
ChrlstyW H ITE AProfessionalAcconntancyCorporation
Governing Board Members and
Measure A Citizens' Oversight Committee
Palo Alto Unified School District
Palo Alto, California
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of the Measure A — Strong Schools Bond of Palo Alto
Unified School District (the "District") as of June 30, 2010, and the related statement of revenues,
expenditures and changes in fund balance for the fiscal year ended June 30, 2010. These financial
statements are the responsibility of the District's management. 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 of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
As discussed in Note 1A, the financial statements present only the individual Measure A — Strong Schools
Bond ("Measure A"), consisting of the net construction proceeds of Measure A Series 2008 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.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Measure A — Strong Schools Bond of Palo Alto Unified School District as of June
30, 2010, and the results of its operations for the fiscal year ended June 30, 2010, in conformity with
accounting principles generally accepted in the United States of America.
2727 Camino Del Rio South - Suite 219 • San Diego, CA 92108
ph. 619370.8222 • fax: 619.260.9081
www.cwacpa.com
L, . .... ... d ht the Coh'lmmia Hoa, dol aeeountam t
In accordance with Government Auditing Standards, we have also issued our report dated November 2,
2010, on our consideration of Palo Alto Unified School District's internal control over financial reporting
and our tests of its compliance with certain provisions of laws, regulations, contracts, grants agreements
and other matters. The purpose of that report is to describe the scope of our testing of internal controls
over financial reporting and compliance and the results of that testing, and not to provide an opinion on
the internal control over financial reporting or on compliance. That report is an integral part of an audit
performed in accordance with Goveniment Auditing Standards and should be considered in assessing the
results of our audit.
San Diego, California
November 2, 2010
Financial Section
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Balance Sheet
June 30, 2010
ASSETS
Cash in county treasury $ 104,610,177
Accounts receivable 224,707
Total Assets $ 104,834,884
LIABILITIES AND FUND BALANCE
Liabilities
Accounts payable $ 1,426,632
Total Liabilities 1,426,632
Fund Balance
Unreserved 103,408,252
Total Liabilities and Fund Balance $ 104,834,884
The accompanying notes to financial statements are an integral part of this statement.
F1
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Statement of Revenues, Expenditures and Changes in Fund Balance
For the Fiscal Year Ended June 30, 2010
REVENUES
Interest income
Total Revenues
EXPENDITURES
Facilities acquisition and construction
Total Expenditures
Excess (Deficiency) of Revenues
Over (Under) Expenditures
OTHER FINANCING SOURCES
Interfund transfer -in
Total Other Financing Sources
Net Change in Fund Balance
Fund Balance, July 1, 2009
Fund Balance, June 30, 2010
$ 1,169,675
1,169,675
12,188,978
12,188,978
(11,019,303)
2,271,512
2,271,512
(8,747,791)
112,156,043
$ 103,408,252
The accompanying notes to financial statements are an integral part of this statement.
5
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2010
NOTE 1— SIGNIFICANT ACCOUNTING POLICIES
A. Reporting Entity
The Palo Alto Unified School 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 — Strong Schools Bond) 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, called the Measure
A — Strong Schools Bond ("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 expenditure of bond revenues. The COC is required
by state law to actively review and report on the proper expenditure of taxpayers' money for
school construction. The COC provides oversight and advises the public 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 District's 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 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 Education's 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").
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2010
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 collectible within the current period or within 60
days after year-end. 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 District maintains a portion of
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.
MEASURE A - STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2010
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 District's governing board must adopt a budget no
later than July 1. A public hearing must be conducted to receive comments prior to adoption.
The District's governing board satisfied these requirements.
These budgets are revised by the District's 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.
NOTE 2 — CASH AND INVESTMENTS
Summary of Cash and Investments
Cash and investments as of June 30, 2010 are classified in the accompanying financial statements as cash
in county treasury for $104,610,177.
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.
0
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2010
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
some of the investment types permitted in the investment policy:
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 $105,107,075 and an amortized book value of
$104,610,177. The weighted average maturity for this pool as of June 30, 2010 is 326 days.
Maximum
Maximum
Maximum
Authorized
Remaining
Percentage
Investment
Investment Type
Maturity
of Portfolio
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 $105,107,075 and an amortized book value of
$104,610,177. The weighted average maturity for this pool as of June 30, 2010 is 326 days.
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2010
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.
NOTE 3— ACCOUNTS RECEIVABLE
Accounts receivable as of June 30, 2010 consist of interest earned on the District's investment in the
County Treasury.
NOTE 4 — CONSTRUCTION COMMITMENTS
The Measure A - Strong Schools Bond had construction commitments of $3,380,229 as of June 30, 2010.
NOTE 5 — MEASURE A — STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS
As of June 30, 2010, the principal balance outstanding on the District's Measure A — Strong Schools Bond
("Measure A") Series 2008 general obligation bonds, including accreted interest to date, was $128,158,107.
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.
10
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2010
NOTE 5 — MEASURE A — STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
The annual requirements to amortize all Measure A Series 2008 general obligation bonds payable
outstanding as of June 30, 2010, are as follows:
NOTE 6 — MEASURE A — STRONG SCHOOLS BOND EXPENDITURES BY PROTECT
The following table presents the expenditure amounts by project for the fiscal year ended June 30, 2010:
Project
Garland Elementary School
Ohlone Elementary School
Other elementary schools
J.L.S. Middle School
Jordan Middle School
Terman Middle School
Gunn High School
Palo Alto High School
Technology
Program administration - District
Program management services - unallocated
Total
11
Amount
$ 101,870
872,031
203,602
427,771
383,116
200,377
5,686,693
2,047,430
998,241
383,618
884,229
$ 12,188,978
Principal (including
accreted interest to
Current Interest to
Fiscal Year
date)
Accreted Interest
Maturity
Total
2010-11
$ 825,000
$ -
$ 284,525
$ 1,109,525
2011-12
1,780,000
-
263,900
2,043,900
2012-13
2,825,000
-
219,400
3,044,400
2013-14
2,350,000
-
148,775
2,498,775
2014-15
2,805,000
-
84,150
2,889,150
2016-2020
16,598,594
7,721,406
-
24,320,000
2021-2025
35,091,740
32,453,260
-
67,545,000
2026-2030
39,079,000
58,596,000
-
97,675,000
2031-2034
26,803,773
61,521,227
-
88,325,000
Total
$ 128,158,107
$ 160,291,893
$ 1,000,750
$ 289,450,750
NOTE 6 — MEASURE A — STRONG SCHOOLS BOND EXPENDITURES BY PROTECT
The following table presents the expenditure amounts by project for the fiscal year ended June 30, 2010:
Project
Garland Elementary School
Ohlone Elementary School
Other elementary schools
J.L.S. Middle School
Jordan Middle School
Terman Middle School
Gunn High School
Palo Alto High School
Technology
Program administration - District
Program management services - unallocated
Total
11
Amount
$ 101,870
872,031
203,602
427,771
383,116
200,377
5,686,693
2,047,430
998,241
383,618
884,229
$ 12,188,978
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2010
NOTE 7 — INTERFUND ACTIVITY
Interfund activity is reported as loans, services provided, reimbursements, or transfers. Loans are
reported as interfund receivables and payables as appropriate and are subject to elimination upon
consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues
and expenditures. Reimbursements are when one fund incurs a cost, charges the appropriate benefiting
fund, and reduces its related cost as a reimbursement. All other interfund transactions are treated as
transfers.
The County School Facilities Fund transferred $2,271,512 into the Measure A — Strong Schools Bond Fund
during fiscal year 2009-10 for expenditures incurred related to the Gunn Industrial Arts Building, for
which the District received bond apportionments from the State for modernization and equipment costs.
NOTE 8— SUBSEQUENT EVENTS
On July 13, 2010, Qualified School Construction Bonds ("QSCBs") were issued by the District with an
aggregate principal amount of $25,000,000. The QSCBs have stated interest rates of 4.662% to 5.862% and
mature through August 1, 2027. The QSCBs were issued as part of the District's $378,000,000 Measure A
authorization, and accordingly, the proceeds from the QSCBs will be used to finance specific public
school construction, rehabilitation and repair projects, as further described in Note 1A.
12
Other Independent Auditor's Reports
ChristyV V H ITE AProfessionalAeeoantancyCorporation
Governing Board Members and
Measure A Citizens' Oversight Committee
Palo Alto Unified School District
Palo Alto, California
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
Independent Auditor's Report
We have audited the financial statements of the Measure A — Strong Schools Bond of Palo Alto Unified
School District as of and for the fiscal year ended June 30, 2010, and have issued our report thereon dated
November 2, 2010. 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered Palo Alto Unified School District's internal control
over financial reporting as a basis for designing our auditing procedures for the purpose of expressing
our opinion on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the Palo Alto Unified School District's internal control over financial reporting.
Accordingly, we do not express an opinion on the effectiveness of the Palo Alto Unified School District's
internal control over financial reporting.
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 entity's financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose described in
the first paragraph of this section and would not necessarily identify all deficiencies in internal control
that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any
deficiencies in internal control over financial reporting that we consider to be material weaknesses, as
defined above.
2727 Camino Del Rio South • Suite 219 • San Diego, CA 92108
ph. 619.270.8222 • fax: 619.260.9085
www.cwacpaxom
Lu cured he are Cahloenia Board o)Ace'ountartp
13
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Measure A — Strong Schools Bond of Palo
Alto Unified School District's 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.
This report is intended solely for the information and use of the District's Governing Board, the Measure
A — Strong Schools Bond Citizens' Oversight Committee, management, others within the entity, and the
taxpayers of Palo Alto Unified School District and is not intended to be and should not be used by anyone
other than these specified parties.
San Diego, California
November 2, 2010
14
ai rist/W H I T E A Professional Accountancy Corporation
Governing Board Members and
Measure A Citizens' Oversight Committee
Palo Alto Unified School District
Palo Alto, California
INDEPENDENT AUDITOR'S REPORT ON PERFORMANCE
We have audited the financial statements of the Measure A — Strong Schools Bond of the Palo Alto
Unified School District (the "District") as of and for the fiscal year ended June 30, 2010 and have issued
our report thereon dated November 2, 2010. Our audit was made in accordance with generally accepted
auditing standards in the United States of America and, accordingly, included such tests of the accounting
records and such other auditing procedures as we considered necessary in the circumstances.
We conducted this performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based
on our audit objectives.
In connection with our performance audit, we performed an audit for compliance as required in the
performance requirements for the Measure A — Strong Schools Bond ("Measure A") for the fiscal year
ended June 30, 2010. The objective of the audit of compliance applicable to the District is to determine
with reasonable assurance that:
The proceeds from the sale of the Measure A — Strong Schools Bonds were only used for the
purposes set forth in the ballot measure 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.
2727 Canino Del Rio South • Suite 219 • San Diego. CA 92108
ph. 619.270,8222 • fax 619260.9085
www.macpaxonn
L4ensed h the California Bnard of A, countanrr
15
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, waste, or abuse regarding Measure A resources
• Ensure adequate separation of duties exists in the accounting for Measure A funds
• Prevent material misstatements in the Measure A financial statements
• Ensure expenditures are allocated to the proper District fund
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 2009-10 financial statement balances for the Measure A — Strong Schools Bond are not materially
misstated.
Results of Procedures Performed:
The results of our audits 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 unqualified opinion was expressed on the Measure A — Strong Schools Bond
financial statements. Finding #2010-1 in the accompanying schedule of findings and responses presents
our finding that Measure A—Strong Schools Bond financial reporting should include all expenditure
types, including bond issuance costs.
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, 2010 were for valid facilities acquisition and construction purposes. We toured three
District construction sites where 2009-10 construction work occurred: the Gunn High School modular
buildings and completed industrial arts building; the Ohlone Elementary School modular buildings; and
the Palo Alto High School modular buildings and multi -use field.
Results of Procedures Performed:
The Gunn High School modular classroom buildings were moved to the front parking lot area. All of the
modular buildings moved were observed as fully installed and classes were in session. The industrial arts
("IA") building was observed as completed. Student classes are in session. The building has TV
production, robotics, automotive technology, and biotech rooms in operation. Walkway and exterior
landscaping were installed on the south side of the IA building, along with irrigation.
16
Facilities Site Walk (continued)
Results of Procedures Performed: (continued)
Modular classroom buildings were relocated at Ohlone Elementary. The modular buildings are
operational, and classes were observed in session. There is a fenced -in construction area on the
playground grass area where two modular buildings were moved from.
Modular classroom buildings were moved at Palo Alto High School, and two additional rows of modular
buildings were moved from a location on campus to fit a permanent 2 -story building that will be
installed. Asphalt and electrical trenching work was performed to install the modular buildings. All
modular buildings were observed to be in operation (classes in session) during our site walk. A multi -use
field is being installed where a grass field used to be. The multi -use field will have softball and baseball
fields, with multi -use possible for soccer and lacrosse. Earthwork is currently in progress, and frames for
softball and baseball backstops have been installed. A drainage system is in the process of being installed.
Tests of Expenditures
Procedures Performed:
The following performance tests of expenditures 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 63 payments, of which 54 were vendor payments and 9 were payroll
payments, totaling $5.8 million, or approximately 48% of total expenditures for 2009-10.
2. We also tested payments made to Gilbane Building Company and O'Connor Construction
Management, the Measure A — Strong Schools Bond construction management and program
management firms, respectively. We obtained the contracts for these firms and ensured that
position rates per contract were accurately billed to the District. In addition, for program
management, we analyzed the billing rates, hours charged, and ratio of consultants to District
employees as compared to other school districts' program management agreements.
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.
17
Test of Contracts and Bid Procedures
Procedures Performed:
For the fiscal year ended June 30, 2010, we performed testing of 8 contracts to determine compliance with
District policy and Public Contract Code provisions related to contracting and bidding:
Formal Bids
• Project: Palo Alto High School Multi -Use Field
Original Contract Award Amount: $2,693,000
• Project: Ohlone Elementary School Modulars
Original Contract Award Amount: $162,349
• Project: Palo Alto High School Modulars
Original Contract Award Amount: $698,000
• Project: Gunn High School Modulars
Original Contract Award Amount: $805,000
Informal Bids
• Project: Palo Alto High School Utility Trenching
Original Contract Award Amount: $10,800
• Project: Moving Services - Palo Alto High School
Original Contract Award Amount: $9,955
Project: Moving Services - Ohlone Elementary School Modulars
Original Contract Award Amount: $3,829
• Project: Moving Services - Gunn High School Modulars
Original Contract Award Amount: $14,148
Results of Procedures Performed:
We found that the contracts tested followed proper bidding procedures, and were awarded in all cases to
the lowest responsible bidder. We tested change Gunn IA Building change order 99 in the amount of
$40,056, dated January 22, 2010, and determined the change order was executed in accordance with
District internal controls and was in compliance with applicable provisions of the Public Contract Code.
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 2009-10.
Our audit of compliance made for the purposes set forth in the second and third paragraphs of this report
above would not necessarily disclose all instances of noncompliance.
In our opinion, the District complied, in all material respects, with the compliance requirements for the
Measure A — Strong Schools Bond, for the fiscal year ended June 30, 2010, as listed and tested above.
The Districts response to the finding identified in our audit is described in the accompanying schedule of
findings and responses. We did not audit the District's response and, accordingly, we express no opinion
on it.
This report is intended solely for the information and use of the District's Governing Board, the Measure
A — Strong Schools Bond Citizens' Oversight Committee, management, others within the entity, and the
taxpayers of Palo Alto Unified School District and is not intended to be and should not be used by anyone
other than these specified parties.
San Diego, California
November 2, 2010
19
Findings and Responses Section
MEASURE A — STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Schedule of Findings and Responses
For the Fiscal Year Ended June 30, 2010
Finding #2010-1: Financial Data Provided to the Citizens' Oversight Committee
Finding: We tested the April 2010 monthly financial report that was presented to the Citizens' Oversight
Committee ("COC"). The monthly financial report shows cumulative Measure A — Strong Schools Bond
project expenditure data from project inception. However, the monthly report tested excluded
expenditures for 2008-09 bond issuance costs of $1,583,200 because this item was not construction or
capital outlay related. Thus, the financial data that was provided to the COC in April 2010 did not
include all prior year audited expenditures.
Recommendation: We recommend that financial reporting for the Measure A — Strong Schools Bond
Program reflect all historical expenditure types, including bond issuance costs.
District Response: The COC reports were limited to include only expenditures for construction and
other capital outlay. The bond issuance costs and other information are available to the public on the
District financial reports. We are comfortable with this recommendation and will also include the bond
issuance costs on future COC reports.
� O
Wo o
N
w
� M
o�
� N
oWa,
cd
v j
V^ca
� y
Iw
v
x
o
cn
614
r.
N
v
b
�
d
G
�
G
CCEi
U
W y
,� O •O O
.Jf
L y O
Sd a G a3
0.'d
N y G
G
N m v
aY. u,
01
0 0 � a. •n
°
� °�' o
I> •� ° v
.G O
G E u
y
y 0.b y ym,
> u
R •C 'O
3m o
T
G
°
y
.G y0
m° c.°d•o v
v � °
� g ya.5 a
�
� °°�$ � �.;
y G
�
.$ •O
m�
•� Q y G
.� �R"G
8 G m
N
O G n a G
E
4
U
7 N O
Q u
5 y o G m U
R.
'�cc •J G G W
v b
G o
i6
O C] Q
3G' %° U
m
U y
A g o g
y
G y
U G O G y
�y
V Q G
�z
y
ooyg..
o
W Q f-0 Q
W C W C c W
p4
r.
N
N
N
v
v
v
v
C
�
u
s
� m
m
5
a 3 3 v
0
O
U
'�O G�
Ki
d V°
o O G.d G
�
G N
p
v u G Gu
w v v
E
v v °
C
v
u
C .fl N
m O U 0.1 c�ll
tS O
lUil u 7
N us c V ti
E .] •d
-I u
.a
>
w O
v
ui x n.
bo
r
Wu
o
w
•L3
17
obb9%_b
vb
�s a
o
•
,�
.�CC A
u u u
C
WA
S%
3�
Q�
0 0 0 0 0
v
m
e 2t
O!
•00 G
# � U i
�
C
c%
W
w
z 2s
wCCU�
N
N