2012 - 2013 Audit Report
MEASURE A – STRONG SCHOOLS BOND OF
PALO ALTO UNIFIED SCHOOL DISTRICT
AUDIT REPORT
FOR THE FISCAL YEAR ENDED
JUNE 30, 2013
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Table of Contents
For the Fiscal Year Ended June 30, 2013
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
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 ................................................................................................................ 17
Independent Auditors’ Report on Performance .......................................................................................... 19
FINDINGS AND RESPONSES SECTION
Schedule of Findings and Responses ............................................................................................................ 24
Summary Schedule of Prior Audit Findings ................................................................................................ 25
1
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Introduction and Citizens’ Oversight Committee Member Listing
June 30, 2013
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. For
Measure A, the District has elected to conform to the requirements of low bid construction delivery, as
opposed to an alternate model such as lease‐leaseback. In doing so, the District has likely increased the
degree of the program’s cost accountability.
2
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Introduction and Citizens’ Oversight Committee Member Listing, continued
June 30, 2013
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, 2013:
Name Title Representation
Todd Collins
Helene Leichter
Arianne Teherani
Bruce Whitson
Walt Hays
Catherine Garber
James Cowie
Chair
Vice Chair
Member
Member
Member
Member
Member
PTA & Taxpayers Organization
Parent
Parent
Parent
Senior Citizens’ Organization
Business Organization
Business Organization & Parent
Christy White, CPA
John Dominguez, CPA, CFE
Heather Daud
Michael Ash, CPA
Tanya M. Rogers, CPA, CFE
Corporate Office:
2727 Camino Del Rio South
Suite 219
San Diego, CA 92108
toll-free: 877.220.7229
tel: 619.270.8222
fax: 619.260.9085
www.christywhite.com
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, 2013, 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, 2013 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 September 22,
2013 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 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 September 22, 2013 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,
2013 should be considered in assessing the results of our financial audit.
San Diego, California
September 22, 2013
FINANCIAL SECTION
The accompanying notes to financial statements are an integral part of this statement.
5
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Balance Sheet
June 30, 2013
ASSETS
Cash in county treasury 68,555,771$
Cash collections awaiting deposit 1,924
Accounts receivable 70,587
Due from other funds 14,768
Total Assets 68,643,050$
LIABILITIES AND FUND BALANCE
Liabilities
Accounts payable 8,932,730$
Total Liabilities 8,932,730
Fund Balance
Restricted for capital projects 59,710,320
Total Liabilities and Fund Balance 68,643,050$
The accompanying notes to financial statements are an integral part of this statement.
6
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, 2013
REVENUES
Interest income 238,627$
Total Revenues 238,627
EXPENDITURES
Facilities acquisition and construction 65,574,246
Total Expenditures 65,574,246
Excess (Deficiency) of Revenues
Over (Under) Expenditures (65,335,619)
OTHER FINANCING SOURCES
Interfund transfer‐in 2,720,829
Proceeds from long‐term debt 70,000,000
Total Other Financing Sources 72,720,829
Net Change in Fund Balance 7,385,210
Fund Balance, July 1, 2012 52,325,110
Fund Balance, June 30, 2013 59,710,320$
7
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2013
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, and Series 2013
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”).
8
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
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 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.
9
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
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.
10
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
NOTE 2 – CASH AND INVESTMENTS
Summary of Cash and Investments
Cash and investments as of June 30, 2013 consist of the following:
Cash in county treasury 68,555,771$
Cash collections awating deposit 1,924
Total cash and investments 68,557,695$
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.
11
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
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 $68,614,043 and an amortized book value of
$68,555,771. The weighted average maturity for this pool as of June 30, 2013 is 374 days.
12
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
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 of $70,587 as of June 30, 2013 consisted of interest earned on the District’s investment
in the County Treasury.
NOTE 4 – INTERFUND TRANSACTIONS
Interfund Receivables/Payables (Due From/Due To)
The individual interfund receivable consisted of $14,768 due from the General Fund to reimburse the
Building Fund for funds that were deposited into the incorrect fund.
Transfers
The individual interfund transfer consisted of $2,720,829 transferred from the County School Facilities
Fund related to a state funds transfer for Palo Alto High School’s Media Arts Project.
13
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
NOTE 5 – CONSTRUCTION COMMITMENTS
The Measure A ‐ Strong Schools Bond had construction commitments of $20,478,435 as of June 30, 2013.
NOTE 6 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS
As of June 30, 2013, the principal balance outstanding on the District’s Measure A – Strong Schools Bond
(“Measure A”) general obligation bonds, including accreted interest to date, was $237,491,156.
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.
14
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
NOTE 6 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
Series 2008 General Obligation Bond
As of June 30, 2013, the principal balance outstanding on the Measure A Series 2008 general obligation
bonds, including accreted interest to date, was $142,491,156. The annual requirements to amortize
Measure A Series 2008 general obligation bonds payable outstanding as of June 30, 2013, are as follows:
Fiscal Year Ended
June 30,
Principal (including
accreted interest to
date) Accreted Interest
Current Interest to
Maturity Total
2014 2,350,000$ ‐$ 148,775$ 2,498,775$
2015 2,805,000 ‐ 84,150 2,889,150
2016 3,155,345 414,656 ‐ 3,570,001
2017 3,461,785 653,215 ‐ 4,115,000
2018 3,903,510 971,490 ‐ 4,875,000
2019‐2023 28,695,572 14,209,429 ‐ 42,905,001
2024‐2028 49,024,354 44,050,647 ‐ 93,075,001
2029‐2033 41,919,530 65,580,470 ‐ 107,500,000
2034 7,176,060 14,648,940 ‐ 21,825,000
Total 142,491,156$ 140,528,847$ 232,925$ 283,252,928$
Series 2010 Qualified School Construction Bonds
As of June 30, 2013, the principal balance outstanding on the Measure A Series 2010 qualified school
construction bond was $25,000,000. These bonds provide a federal subsidy to the District which
significantly decreases overall interest cost. The annual requirements to amortize Measure A Series 2010
general obligation bonds payable outstanding as of June 30, 2013, are as follows:
Fiscal Year Ended
June 30,Principal Interest Federal Subsidy Interest Payment Total
2014 ‐$ 1,418,755$ (1,332,718)$ 86,037$ 172,074$
2015 ‐ 1,418,755 (1,332,718) 86,037 172,074
2016 ‐ 1,418,755 (1,332,718) 86,037 172,074
2017 ‐ 1,418,755 (1,332,718) 86,037 172,074
2018 ‐ 1,418,755 (1,332,718) 86,037 172,074
2019‐2023 3,230,000 6,961,326 (6,531,141) 430,185 4,090,370
2024‐2028 21,770,000 4,625,277 (4,276,510) 348,767 22,467,534
Total 25,000,000$ 18,680,378$ (17,471,241)$ 1,209,137$ 27,418,274$
15
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
NOTE 6 – MEASURE A – STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
Series 2013 General Obligation Bond
As of June 30, 2013, the principal balance outstanding on the Measure A Series 2013 general obligation
bonds was $70,000,000. The annual requirements to amortize Measure A Series 2013 general obligation
bonds payable outstanding as of June 30, 2013, are as follows:
Fiscal Year Ended
June 30,Principal Interest Total
2014 ‐$ 1,677,794$ 1,677,794$
2015 15,450,000 1,994,988 17,444,988
2016 1,500,000 1,817,988 3,317,988
2017 1,810,000 1,759,288 3,569,288
2018 1,700,000 1,697,588 3,397,588
2019‐2023 7,695,000 7,449,138 15,144,138
2024‐2028 ‐ 6,821,438 6,821,438
2029‐2033 9,150,000 6,201,188 15,351,188
2034‐2037 32,695,000 2,620,694 35,315,694
Total 70,000,000$ 32,040,104$ 102,040,104$
NOTE 7 – MEASURE A – STRONG SCHOOLS BOND EXPENDITURES BY PROJECT
The following table presents the expenditure amounts by project for the fiscal year ended June 30, 2013:
Project Amount
Duveneck Elementary School 530,388$
Fairmeadow Elementary School 2,257,802
Ohlone Elementary School 405,137
Jordan Middle School 9,443,713
Terman Middle School 6,076,058
J.L.S. Middle School 9,785,661
Gunn High School 16,552,688
Palo Alto High School 16,325,077
Technology ‐ District Wide 2,264,654
Program Administration ‐ District Wide 1,933,068
Total 65,574,246$
16
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2013
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Litigation
On July 12, 2011, the Board of Education approved a contract with Taisei Construction Corporation in the
amount of $25,150,000 for the construction of a new classroom building and a media arts building on the
Palo Alto High School campus. Completion of construction was anticipated for June 2013, but as of the
date of this report the buildings have not yet been completed. The latest schedule from Taisei calls for a
completion date of January 17, 2014.
On April 25, 2013, Taisei Construction Corporation filed a government code claim in the amount of
$1,653,169. The claim had previously been the subject of mediation with the District. The Board of
Education rejected that claim on May 28, 2013. Taisei Construction Corporation filed a complaint in Santa
Clara County Municipal Court for the claimed amount. This complaint was amended twice and was
served on the District on August 30, 2013.
OTHER INDEPENDENT
AUDITORS’ REPORTS
Christy White, CPA
John Dominguez, CPA, CFE
Heather Daud
Michael Ash, CPA
Tanya M. Rogers, CPA, CFE
Corporate Office:
2727 Camino Del Rio South
Suite 219
San Diego, CA 92108
toll-free: 877.220.7229
tel: 619.270.8222
fax: 619.260.9085
www.christywhite.com
SAN DIEGO
LOS ANGELES
SAN FRANCISCO/BAY AREA
17
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 Auditors’ Report
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, 2013 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 September 22, 2013.
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.
18
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
September 22, 2013
Christy White, CPA
John Dominguez, CPA, CFE
Heather Daud
Michael Ash, CPA
Tanya M. Rogers, CPA, CFE
Corporate Office:
2727 Camino Del Rio South
Suite 219
San Diego, CA 92108
toll-free: 877.220.7229
tel: 619.270.8222
fax: 619.260.9085
www.christywhite.com
SAN DIEGO
LOS ANGELES
SAN FRANCISCO/BAY AREA
19
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, 2013 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.
20
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
In connection with our audit, we also performed an audit for compliance as required in the performance
requirements for the Measure A General Obligation Bonds for the fiscal year ended June 30, 2013. 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 2012‐13 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 unqualified opinion was expressed on the financial statements.
21
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, 2013 were for valid facilities acquisition and construction purposes. We toured seven
District construction sites where 2012‐13 construction work occurred: Gunn High School; Palo Alto High
School; Jordan Middle School; J.L.S. Middle School; Terman Middle School; Duveneck Elementary School
and Fairmeadow Elementary School.
Results of Procedures Performed:
Results of the site walks indicate that the major 2012‐13 Measure A – Strong Schools Bond construction
projects were successfully completed and advanced into 2013‐14 expenditure/construction phases where
applicable.
Test of Expenditures
Procedures Performed:
The following performance tests of expenditures and 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 84 payments, of which 74 were vendor payments and 10 were payroll
payments, totaling $23.2 million, or approximately 35% of total Measure A expenditures for 2012‐
13.
2. We also tested payments made to 7 professional service firms. 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 and hours charged 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. 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.
22
Test of Contracts and Bid Procedures
Procedures Performed:
For the fiscal year ended June 30, 2013, we performed testing of eight contracts to determine compliance
with District policy and Public Contract Code provisions related to contracting and bidding:
Formal Bids
Project: Duveneck Elementary School Modernization and New Construction
Original Contract Award Amount: $6,626,874 (base bid)
Project: JLS Landscape and Site Improvement
Original Contract Award Amount: $776,000
Project: Palo Alto High School Synthetic Track
Original Contract Award Amount: $162,990
Project: Gunn High School Gym Modernization
Original Contract Award Amount: $795,000 (base bid)
Informal Bids
Project: Palo Alto High School Portables (BP#1 Cabinets)
Original Contract Award Amount: $84,000
Project: Palo Alto High School Portables (BP#2 Site and Indoor Plumbing)
Original Contract Award Amount: $42,500
Project: Palo Alto High School Portables (BP#3 General)
Original Contract Award Amount: $39,995
Project: Palo Alto High School Portables (BP#4 Electrical & Data)
Original Contract Award Amount: $24,553
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, except as noted in the accompanying
schedule of findings and responses as finding #2013‐1.
In addition, we tested nine 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: Jane Lanthrop Stanford
Middle School Modernization and New Construction, David Starr Jordan Middle School Modernization
and New Construction, Terman Middle School Modernization and New Construction, Gunn High School
New Gymnasium, Gunn High School New Classroom Buildings A & B, Oholone Elementary School
Modernization and New Construction, Air Conditioning of Existing Classrooms. 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 2012‐13 and that no Measure A projects
have a cumulative change order rate in excess of 10% of contract value.
23
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 taxpayers 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 2012‐13. 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 come from each of the sectors noted above.
Our audit of compliance was made for the purposes set forth in the second and third paragraphs of this
report and would not necessarily disclose all instances of noncompliance.
The District’s responses to the findings identified in our audit are described in the accompanying
schedule of findings and responses. We did not audit the District’s responses and, accordingly, we
express no opinion on them.
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, except as noted in the accompanying schedule of findings and responses as finding
#2013‐1.
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
September 22, 2013
FINDINGS AND RESPONSES SECTION
24
MEASURE A – STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Schedule of Findings and Responses
For the Fiscal Year Ended June 30, 2013
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.
FINDING #2013‐1: INFORMAL BIDDING PROCEDURES
Criteria: The California Uniform Public Cost Accounting Act (Public Contract Code Section 2200)
requires that the District submit one trade journal advertisement to all four of the required trade journals
on an annual basis related to the informal bidding process.
Condition: During our testing of awards of contracts subject to the informal bid procedures in 2012‐13,
we noted that the District could not provide verification that they submitted the trade journal
advertisement to all four required trade journals as required by California Uniform Public Cost
Accounting Act (CUPCAA). The finding affected 4 (100%) of informal bid contracts tested in 2012‐13.
Cause: The District did not maintain supporting documents to provide proof that the advertisement was
submitted to the required trade journals.
Effect: Noncompliance with CUPCAA.
Questioned Costs: None.
Recommendation: The District should ensure that all informal bid advertisements are properly submitted
to the required trade journals in accordance with CUPCAA. In addition, the District should maintain
support such as fax confirmations or email confirmations that the advertisements were submitted.
District Response: The District will ensure proper documentation of the required trade journal
advertisements going forward. This exception is partially compensated for, as the District advertises in
the required trade journals each time that a project is put out to formal bid, in addition to the annual
notice. The advertisements for these projects have been tested and confirmed by our auditors in the Test
of Contract and Bid Procedures section of this report.
25 MEASURE A – STRONG SCHOOLS BOND PALO ALTO UNIFIED SCHOOL DISTRICT Summary Schedule of Prior Audit Findings For the Fiscal Year Ended June 30, 2013 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, 2012