2010 - 2011 Audit Report
MEASURE A – STRONG SCHOOLS BOND OF
PALO ALTO UNIFIED SCHOOL DISTRICT
AUDIT REPORT
For the Fiscal Year Ended
June 30, 2011
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
AUDIT REPORT
For the Fiscal Year Ended June 30, 2011
Table of Contents
Page
Introduction and Citizens’ Oversight Committee Member Listing ........................................................... 1
Independent Auditors’ Report ........................................................................................................................ 2
FINANCIAL SECTION
Balance Sheet ..................................................................................................................................................... 4
Statement of Revenues, Expenditures and Changes in Fund Balance ...................................................... 5
Notes to Financial Statements ......................................................................................................................... 6
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 ................................................................................................................ 14
Independent Auditors’ Report on Performance .......................................................................................... 16
FINDINGS AND RESPONSES SECTION
Schedule of Findings and Responses ............................................................................................................ 21
Summary Schedule of Prior Audit Findings ................................................................................................ 22
1
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Introduction and Citizens’ Oversight Committee Member Listing
June 30, 2011
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. 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, which
stated interest rates of 4.662% to 5.862% and maturing through July 1, 2027.
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, 2011:
Name Title Representation
Todd Collins
Gary W. Hornbeek
Deepak Kanugo *
Ray Bacchetti
Scott Darling
Catharine Garber
Mary Marth
Chair
Vice Chair
Member
Member
Member
Member
Member
Taxpayers’ Organization
Parent & PTA Organization
Parent
Senior Citizensʹ Organization
At‐Large Member
Business Organization
Parent
* Subsequent to June 30, 2011, Deepak Kanugo resigned due to leaving Palo Alto. Bruce Whitson has been selected to fill the vacancy.
2727 Camino D
SAN DIEG
Del Rio South ●
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Suite 219● San
tel. 619.2
Li
Diego, CA 921
270.8222 ● www
icensed by the Ca
08 | 8686 Have
w.cwacpa.com
lifornia Board of
R
en Avenue ● Su
● fax. 619.260.9
f Accountancy
RANCHO CUC
uite 250● Ranch
9085
CAMONGA
ho Cucamonga, CCA 91730
2
INDEPENDENT AUDITORS’ REPORT
Governing Board Members and
Measure A Citizens’ Oversight Committee
Palo Alto Unified School District
Palo Alto, California
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, 2011, and the related statement of revenues,
expenditures and changes in fund balance for the fiscal year ended June 30, 2011. 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 and Series 2010
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, 2011, and the results of its operations for the fiscal year ended June 30, 2011, in conformity with
accounting principles generally accepted in the United States of America.
3
In accordance with Government Auditing Standards, we have also issued our report dated September 16,
2011, 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 Government Auditing Standards and should be considered in assessing the
results of our audit.
San Diego, California
September 16, 2011
FINANCIAL SECTION
The accompanying notes to financial statements are an integral part of this statement.
4
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Balance Sheet
June 30, 2011
ASSETS
Cash in county treasury 111,228,456$
Accounts receivable 197,483
Prepaid expenditures 15,999
Total Assets 111,441,938$
LIABILITIES AND FUND BALANCE
Liabilities
Accounts payable 1,874,223$
Total Liabilities 1,874,223
Fund Balance
Restricted for capital projects 109,567,715
Total Liabilities and Fund Balance 111,441,938$
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
Statement of Revenues, Expenditures and Changes in Fund Balance
For the Fiscal Year Ended June 30, 2011
REVENUES
Interest income 940,134$
Total Revenues 940,134
EXPENDITURES
Facilities acquisition and construction 19,523,171
Bond issuance costs 257,500
Total Expenditures 19,780,671
Excess (Deficiency) of Revenues
Over (Under) Expenditures (18,840,537)
OTHER FINANCING SOURCES
Proceeds from long‐term debt 25,000,000
Total Other Financing Sources 25,000,000
Net Change in Fund Balance 6,159,463
Fund Balance, July 1, 2010 103,408,252
Fund Balance, June 30, 2011 109,567,715$
6
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2011
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 taxpayersʹ 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 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 and Series 2010 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”).
7
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2011
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. Prepaid Items
Certain payments to vendors reflect costs applicable to future accounting periods and are
recorded as prepaid items.
G. 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.
8
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2011
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES (continued)
H. 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.
I. Fund Balance
Under GASB 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.
9
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2011
NOTE 2 – CASH AND INVESTMENTS
Summary of Cash and Investments
Cash and investments as of June 30, 2011 are classified in the accompanying financial statements as cash
in county treasury for $111,228,456.
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.
10
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2011
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 $111,615,531 and an amortized book value of
$111,228,456. The weighted average maturity for this pool as of June 30, 2011 is 452 days.
11
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2011
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, 2011 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 $3,816,622 as of June 30, 2011.
NOTE 5 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS
As of June 30, 2011, the principal balance outstanding on the District’s Measure A – Strong Schools Bond
(“Measure A”) general obligation bonds, including accreted interest to date, was $158,582,093.
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, which stated interest rates of
4.662% to 5.862% and maturing through July 1, 2027.
12
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2011
NOTE 5 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
Series 2008 General Obligation Bond
As of June 30, 2011, the principal balance outstanding on the Measure A Series 2008 general obligation
bonds, including accreted interest to date, was $133,582,093. The annual requirements to amortize
Measure A Series 2008 general obligation bonds payable outstanding as of June 30, 2011, are as follows:
Fiscal Year
Ended June 30,
Principal (including
accreted interest to
date) Accreted Interest
Current Interest to
Maturity Total
2012 1,780,000$ ‐$ 263,900$ 2,043,900$
2013 2,825,000 ‐ 219,400 3,044,400
2014 2,350,000 ‐ 148,775 2,498,775
2015 2,805,000 ‐ 84,150 2,889,150
2016 2,858,570 711,430 84,150 3,654,150
2017‐2021 18,559,137 8,610,863 ‐ 27,170,000
2022‐2026 41,770,297 37,964,703 ‐ 79,735,000
2027‐2031 39,799,212 60,765,788 ‐ 100,565,000
2032‐2034 20,834,877 45,990,123 ‐ 66,825,000
Total 133,582,093$ 154,042,907$ 800,375$ 288,425,375$
Series 2010 Qualified School Construction Bonds
As of June 30, 2011, the principal balance outstanding on the Measure a Series 2010 qualified school
construction bond was $25,000,000. The annual requirements to amortize Measure A Series 2010 general
obligation bonds payable outstanding as of June 30, 2011, are as follows:
Fiscal Year
Ended June 30, Principal Interest Total
2012 ‐$ 1,332,053$ 1,332,053$
2013 ‐ 1,418,755 1,418,755
2014 ‐ 1,418,755 1,418,755
2015 ‐ 1,418,755 1,418,755
2016 ‐ 1,418,755 1,418,755
2017‐2021 870,000 7,093,775 7,963,775
2022‐2026 11,280,000 6,165,265 17,445,265
2027‐2028 12,850,000 1,165,073 14,015,073
Total 25,000,000$ 21,431,186$ 46,431,186$
13
MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2011
NOTE 6 – MEASURE A – STRONG SCHOOLS BOND EXPENDITURES BY PROJECT
The following table presents the expenditure amounts by project for the fiscal year ended June 30, 2011:
Project Amount
Ohlone Elementary School 4,942,002$
Other elementary schools 3,168,186
J.L.S. Middle School 1,396,037
Jordan Middle School 1,123,559
Terman Middle School 857,378
Gunn High School 2,415,063
Palo Alto High School 4,366,445
Program management services 1,254,501
Series 2010 bond issuance costs 257,500
Total 19,780,671$
OTHER INDEPENDENT
AUDITORS’ REPORTS
2727 Camino D
SAN DIEG
Del Rio South ●
GO
Suite 219● San
tel. 619.2
Li
Diego, CA 921
270.8222 ● www
icensed by the Ca
08 | 8686 Have
w.cwacpa.com
lifornia Board of
R
en Avenue ● Su
● fax. 619.260.9
f Accountancy
RANCHO CUC
uite 250● Ranch
9085
CAMONGA
ho Cucamonga, CCA 91730
14
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 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, 2011, and have issued our report thereon dated
September 16, 2011. 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
Management of Palo Alto Unified School District is responsible for establishing and maintaining
effective 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.
15
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
September 16, 2011
2727 Camino D
SAN DIEG
Del Rio South ●
GO
Suite 219● San
tel. 619.2
Li
Diego, CA 921
270.8222 ● www
icensed by the Ca
08 | 8686 Have
w.cwacpa.com
lifornia Board of
R
en Avenue ● Su
● fax. 619.260.9
f Accountancy
RANCHO CUC
uite 250● Ranch
9085
CAMONGA
ho Cucamonga, CCA 91730
16
INDEPENDENT AUDITORS’ REPORT ON PERFORMANCE
Governing Board Members and
Measure A Citizens’ Oversight Committee
Palo Alto Unified School District
Palo Alto, California
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, 2011 and have issued
our report thereon dated September 16, 2011. 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, 2011. 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.
17
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 2010‐11 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.
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, 2011 were for valid facilities acquisition and construction purposes. We toured five
District construction sites where 2010‐11 construction work occurred: Gunn High School; Palo Alto High
School; Jordan Middle School; J.L.S. Middle School; and Ohlone Elementary School.
Results of Procedures Performed:
We noted during our tour of Gunn High School that 28 modular buildings were relocated from the back
side of the campus known as Titan Village. This area was cleared to make way for a two‐story classroom
building to be constructed with bond proceeds. Also, the tennis courts and basketball courts were
removed for the gymnasium project that is in the planning stage. We observed contractors clearing and
grading the land to prep for the underground utilities and foundation of the two‐story building and
gymnasium project. Moreover, the modular buildings move caused a displacement for bicycle parking.
The District installed new bike racks and bike cages to provide sufficient bicycle parking.
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Facilities Site Walk (continued)
Results of Procedures Performed: (continued)
We noted at Palo Alto High School that 16 modular buildings were relocated from the Village area to the
fringe of the quad area of the campus to create space for the new two‐building which will ultimately have
28 new classrooms. The new media arts project was started with the demolition of concrete walkways
and the removal of old excessive drainage pipes.
Six modular buildings were installed at Jordan Middle School. The modular buildings were installed
with ADA compliant ramps, sinks, fire alarms, new cabinets, and data lines. The PTA modular building
at the school site was demolished and removed from the campus. Also, trees were relocated through‐out
the campus. While at J.L. Middle school, modular buildings were moved to make space for a new
classroom building that will be constructed on the boundary of J.L. Middle School and Fairmeadow
Elementary.
Construction work was being performed on the two‐story classroom building at Ohlone Elementary. The
new building was installed with new sheet‐rock in conjunction with electrical system. The building has a
patio area on the second floor for a planting area. Pavers and bricks were installed to create a walking
path. The existing classrooms were equipped with energy management system (EMS) to help regulate
the room temperature. Also, new hanging lights were installed which is more energy efficient. The
classrooms outfitted with wireless internet, smart boards, and a surround sound system to enhance the
students learning environment.
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 54 payments, of which 46 were vendor payments and 8 were payroll
payments, totaling $8.5 million, or approximately 43% of total expenditures for 2010‐11.
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.
3. We benchmarked the District’s capital projects with other school facilities bond programs of
similar project size and scope listed on the National Clearinghouse for Educational Facilities
(NCEF) website and other resources.
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Tests of Expenditures (continued)
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 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, 2011, we performed testing of nine contracts to determine compliance
with District policy and Public Contract Code provisions related to contracting and bidding:
Formal Bids
Project: Ohlone Two‐Story
Original Contract Award Amount: $7,484,000
Project: Palo Alto HS Media Arts & New Classroom Building
Original Contract Award Amount: $25,150,000
Project: Gunn Air Conditioning
Original Contract Award Amount: $1,754,000
Project: JLS Modular
Original Contract Award Amount: $212,943
Project: Fairmeadow Modular Move
Original Contract Award Amount: $118,470
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Test of Contracts and Bid Procedures (continued)
Procedures Performed: (continued)
Informal Bids
Project: Paly Haymarket Painting
Original Contract Award Amount: $34,500
Project: Building D Electrical Upgrade
Original Contract Award Amount: $41,500
Project: JLS MS Locker
Original Contract Award Amount: $8,061
Project: Carpeting Barron Park
Original Contract Award Amount: $11,687
Results of Procedures Performed:
We found that the contracts tested above followed proper bidding procedures, and were awarded in all
cases to the lowest responsible bidder. In addition, we tested change orders and determined the change
orders were executed in accordance with District internal controls and was in compliance with applicable
provisions of the Public Contract Code. Contracts tested with change orders included the following
projects: Ohlone Two‐Story; Ohlone Elementary School Portable Building Relocations; Palo Alto High
School Baseball / Softball Field Improvements; Gunn Portables Relocation Project; and Palo Alto High
School Portables Relocation Project. 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 2010‐11.
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, 2011, as listed and tested above.
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
September 16, 2011
FINDINGS AND RESPONSES SECTION
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MEASURE A – STRONG SCHOOLS BOND
OF PALO ALTO UNIFIED SCHOOL DISTRICT
Schedule of Findings and Responses
For the Fiscal Year Ended June 30, 2011
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.
We found Palo Alto Unified School District’s accounting systems to be functioning efficiently and
effectively to account for the Measure A – Strong Schools Bond. In addition, 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, 2011.
22 MEASURE A – STRONG SCHOOLS BOND OF PALO ALTO UNIFIED SCHOOL DISTRICT Summary Schedule of Prior Audit Findings For the Fiscal Year Ended June 30, 2011 Original Finding No. Finding Recommendation Current Status Finding #2010‐1: Financial Data Provided to the Citizens’ Oversight Committee 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. We recommend that financial reporting for the Measure A – Strong Schools Bond Program reflect all historical expenditure types, including bond issuance costs. Implemented