2013 - 2014 Audit ReportASURE A - STRONG SCHOOLS BOND OF
) ALTO UNIFIED SCHOOL DISTRICT
AUDIT REPORT
FOR THE FISCAL YEAR ENDED
JUNE 30, 2014
ch ristyGowhmite
.
A PROFESSIONAL a/�JV,
ACCOUNTANCY CORPORATION
MEASURE A — STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Table of Contents
For the Fiscal Year Ended June 30, 2014
Page
Introduction and Citizens' Oversight Committee Member Listing...........................................................1
IndependentAuditors' Report........................................................................................................................ 3
FINANCIAL SECTION
BalanceSheet..................................................................................................................................................... 5
Statement of Revenues, Expenditures and Changes in Fund Balance ...................................................... 6
Notes to Financial Statements......................................................................................................................... 7
OTHER INDEPENDENT AUDITORS' REPORTS
Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and
Other Matters Based on an Audit of Financial Statements Performed in Accordance with
Government Auditing Standards................................................................................................................18
Independent Auditors' Report on Performance.......................................................................................... 20
FINDINGS AND RESPONSES SECTION
Schedule of Findings and Responses............................................................................................................ 25
Summary Schedule of Prior Audit Findings................................................................................................ 26
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Introduction and Citizens' Oversight Committee Member Listing
June 30, 2014
The Palo Alto Unified School District (the "District") was founded on March 20, 1893 under the laws of
the State of California. This District operates under a locally elected five -member Board form of
government and provides educational services to grades K — 12 as mandated by the state and federal
agencies. The District operates twelve elementary, three middle, two high schools, an adult education
program, a Young Fives program and two children's centers.
In June 2008, the voters of the Palo Alto Unified School District approved by more than the required 55%
favorable vote the Measure A — Strong Schools Bond ("Measure A"), authorizing the issuance and sale of
general obligation bonds, not to exceed $378,000,000. The Measure A — Strong Schools Bond is a
Proposition 39 bond. The passage of Proposition 39 in November 2000 amended the California
Constitution to include accountability provisions. Specifically, the District must conduct an annual
independent performance audit to ensure that funds have been expended only on the specific projects
listed in the full text of the Measure A — Strong Schools Bond ballot measure as well as an annual,
independent financial audit of the proceeds from the sale of the bonds until all of the proceeds have been
expended for bond -designated facilities projects.
Measure A bonds were issued by the District, through the County of Santa Clara. On August 27, 2008,
Series 2008 of the Measure A bond authorization was issued, which consisted of current interest and
capital appreciation bonds with an initial par amount of $119,999,249 with stated interest rates of 2.50% to
5.50% and maturing through August 1, 2033. On July 13, 2010, Series 2010 of the Measure A bond
authorization was issued and was designated as qualified school construction bonds under Section 54F of
the Internal Revenue Code of 1986. These bonds provide a federal subsidy to the District which
significantly decreases overall interest cost. The bonds were issued with initial par amount of $25,000,000,
with stated interest rates of 4.662% to 5.862% and maturing through July 1, 2027. The net interest rate of
the issuance is 0.40% after accounting for the federal subsidy. On March 5, 2013, Series 2013 of the
Measure A bond authorization was issued, which consisted of current interest bonds with an initial par
amount of $70,000,000 with stated interest rates of 2.00% to 3.50% and maturing through July 1, 2036.
Series 2014 of the Measure A bond authorization were issued on May 14, 2014, which included current
interest bonds with an initial par amount of $40,000,000, with stated interest rates of 2.00% to 3.25% and
maturing through August 1, 2033.
For Measure A, the District has elected to conform to the requirements of low bid construction delivery.
1
MEASURE A — STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Introduction and Citizens' Oversight Committee Member Listing, continued
June 30, 2014
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, 2014:
Name
Helene Leichter
James Cowie
Todd Collins
Arianne Teheran
Bruce Whitson
Walt Hays
Catherine Garber
Title
Chair
Vice Chair
Member
Member
Representation
Parent
Business Organization, Parent & PTA
Taxpayers Organization, Parent & PTA
Parent
Member
Business Organization
Member
Senior Citizens' Organization
Member
Business Organization
2
christy GJwhite�.
A PROFESSIONAL
ACCOUNTANCY CORPORATION
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, 2014, 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 auditor's
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 entity's 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
entity's 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.
'43
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, 2014 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 2,
2014 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 2, 2014 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,
2014 should be considered in assessing the results of our financial audit.
San Diego, California
September 2, 2014
4
FINANCIAL SECTION
MEASURE A — STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Balance Sheet
June 30, 2014
ASSETS
Cash in county treasury
$
67,408,487
Cash collections awaiting deposit
10
Accounts receivable
41,332
Total Assets
$
67,449,829
LIABILITIES AND FUND BALANCE
Liabilities
Accounts payable
$
2,698,249
Due to other funds
273,208
Total Liabilities
2,971,457
Fund Balance
Restricted for capital projects
64,478,372
Total Liabilities and Fund Balance
$
67,449,829
The accompanying notes to financial statements are an integral part of this statement.
5
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, 2014
REVENUES
Interest income
Total Revenues
EXPENDITURES
Facilities acquisition and construction
Total Expenditures
Excess (Deficiency) of Revenues
Over (Under) Expenditures
OTHER FINANCING SOURCES
Proceeds from long-term debt
Total Other Financing Sources
Net Change in Fund Balance
Fund Balance, July 1, 2013
Fund Balance, June 30, 2014
$ 191,723
191,723
35,423,671
35,423,671
(35,231,948)
40,000,000
40,000,000
4,768,052
59,710,320
$ 64,478,372
The accompanying notes to financial statements are an integral part of this statement.
6
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements
June 30, 2014
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 taxpayers' 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 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, Series 2010, Series 2013, and
Series 2014 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").
7
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
NOTE 1— SIGNIFICANT ACCOUNTING POLICIES (continued)
C. Basis of Accountins
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. Deyosits and Investments
In accordance with Education Code Sections 15357 and 41001, the Measure A bond building fund
maintains its cash in the Santa Clara County Treasury. The county pools these funds with those
of other districts in the county and invests the cash. These pooled funds are carried at cost, which
approximates market value. Interest earned is deposited quarterly into participating funds. Any
investment losses are proportionately shared by all funds in the pool.
F. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenditures during the
reporting period. Actual results could differ from those estimates.
0
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
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.
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.
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
NOTE 2 - CASH AND INVESTMENTS
Summary of Cash and Investments
Cash and investments as of June 30, 2014 consist of the following:
Cash in county treasury
Cash collections awating deposit
Total cash and investments
Policies and Practices
67,408,487
10
$ 67,408,497
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
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
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:
Maximum
Investment
in One Issuer
None
None
None
None
30%
10%
None
None
None
None
10%
10%
None
None
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 $67,483,985 and an amortized book value of
$67,408,487. The weighted average maturity for this pool as of June 30, 2014 is 416 days.
11
Maximum
Maximum
Authorized
Remaining
Percentage
Investment Type
Maturity
of Portfolio
Local Agency Bonds, Notes, Warrants
5 years
None
Registered State Bonds, Notes, Warrants
5 years
None
U.S. Treasury Obligations
5 years
None
U.S. Agency Securities
5 years
None
Banker's Acceptance
180 days
40%
Commercial Paper
270 days
25%
Negotiable Certificates of Deposit
5 years
30%
Repurchase Agreements
1 year
None
Reverse Repurchase Agreements
92 days
20% of base
Medium -Term Corporate Notes
5 years
30%
Mutual Funds
N/A
20%
Money Market Mutual Funds
N/A
20%
Mortgage Pass -Through Securities
5 years
20%
County Pooled Investment Funds
N/A
None
Local Agency Investment Fund (LAIF)
N/A
None
Joint Powers Authority Pools
N/A
None
Maximum
Investment
in One Issuer
None
None
None
None
30%
10%
None
None
None
None
10%
10%
None
None
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 $67,483,985 and an amortized book value of
$67,408,487. The weighted average maturity for this pool as of June 30, 2014 is 416 days.
11
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
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 $41,332 as of June 30, 2014 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 payable consisted of $273,208 due from the Measure A Bond Building Fund to
the General Fund to reimburse for purchase of technology products allowable under Measure A ballot
language.
12
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
NOTE 5 - CONSTRUCTION COMMITMENTS
The Measure A - Strong Schools Bond had construction commitments of $1,853,356 as of June 30, 2014.
NOTE 6 — MEASURE A — STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS
As of June 30, 2014, the principal balance outstanding on the District's Measure A — Strong Schools Bond
("Measure A") general obligation bonds, including accreted interest to date, was $282,442,286.
• On August 27, 2008, Series 2008 bonds of the Measure A bond authorization were issued, which
consisted of current interest and capital appreciation bonds with an initial par amount of
$119,999,249 with stated interest rates of 2.50% to 5.50% and maturing through August 1, 2033.
• On July 13, 2010, Series 2010 of the Measure A bond authorization was issued and was designated
as qualified school construction bonds under Section 54F of the Internal Revenue Code of 1986.
The bonds were issued with initial par amount of $25,000,000, with stated interest rates of 4.662%
to 5.862% and maturing through July 1, 2027.
• On March 5, 2013, Series 2013 of the Measure A bond authorization was issued, which consisted
of current interest bonds with an initial par amount of $70,000,000 with stated interest rates of
2.00% to 3.50% and maturing through July 1, 2036.
• On May 14, 2014, Series 2014 of the Measure A bond authorization was issued, which consisted of
current interest bonds with an initial par amount of $40,000,000 with stated interest rates of 2.00%
to 3.25% and maturing through August 1, 2033.
13
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
NOTE 6 - MEASURE A - STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
Series 2008 General Obligation Bond
As of June 30, 2014, the principal balance outstanding on the Measure A Series 2008 general obligation
bonds, including accreted interest to date, was $147,442,286. The annual requirements to amortize
Measure A Series 2008 general obligation bonds payable outstanding as of June 30, 2014, are as follows:
Total
$ 147,442,286 $ 133,227,716 $ 84,150 $ 280,754,152
Series 2010 Qualified School Construction Bonds
As of June 30, 2014, 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, 2014, are as follows:
Fiscal Year Ended
June 30,
Principal (including
Interest
Federal Subsidy
Fiscal Year Ended
accreted interest to
Current Interest to
$ $
June 30,
date)
Accreted Interest Maturity
Total
2015
$ 2,8051000
$ - $ 84,150 $
2,889,150
2016
3,315,066
254,934 -
3,570,000
2017
3,637,043
477,957 -
4,115,000
2018
4,101,143
773,858 -
4,875,001
2019
4,311,877
1,073,123 -
5,385,000
2020-2024
37,053,030
18,531,970 -
55,585,000
2025-2029
49,942,596
45,567,404 -
95,510,000
2030-2034
42,276,531
66,548,470 -
108,825,001
Total
$ 147,442,286 $ 133,227,716 $ 84,150 $ 280,754,152
Series 2010 Qualified School Construction Bonds
As of June 30, 2014, 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, 2014, are as follows:
Fiscal Year Ended
June 30,
Principal
Interest
Federal Subsidy
Interest Payment
Total
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
-
1,418,755
(1,332,718)
86,037
172,074
2020-2024
4,855,000
6,801,556
(6,371,371)
430,185
5,715,370
2025-2028
20,145,000
3,366,292
(3,103,562)
262,730
20,670,460
Total
$ 25,000,000 $
17,261,623 $
(16,138,523) $
1,123,100 $
27,246,199
14
MEASURE A — STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
NOTE 6 — MEASURE A — STRONG SCHOOLS BOND GENERAL OBLIGATION BONDS (continued)
Series 2013 General Obligation Bond
As of June 30, 2014, 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, 2014, are as follows:
Fiscal Year Ended
June 30,
Principal
Interest
Total
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
1,830,000
1,635,488
3,465,488
2020-2024
5,865,000
7,177,938
13,042,938
2025-2029
1,400,000
6,800,438
8,200,438
2030-2034
10,820,000
5,897,800
16,717,800
2035-2037
29,625,000
1,580,794
31,205,794
Total $
70,000,000 $
30,362,310 $
100,362,310
Series 2014 General Obligation Bond
As of June 30, 2014, the principal balance outstanding on the Measure A Series 2014 general obligation
bonds was $40,000,000. The annual requirements to amortize Measure A Series 2014 general obligation
bonds payable outstanding as of June 30, 2014, are as follows:
Fiscal Year Ended
June 30,
Principal
Interest
Total
2015 $
- $
755,174 $
755,174
2016
20,185,000
844,325
21,029,325
2017
1,840,000
513,950
2,353,950
2018
1,525,000
463,475
1,988,475
2019
1,620,000
424,400
2,044,400
2020-2024
4,985,000
1,663,337
6,648,337
2025-2029
1,275,000
1,481,500
2,756,500
2030-2034
8,570,000
700,238
9,270,238
Total $
40,000,000 $
6,846,399 $
46,846,399
15
MEASURE A — STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
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, 2014:
Project
Amount
Palo Alto High School
$ 9,361,696
Duveneck Elementary School
6,943,160
Gunn High School
6,401,591
J.L.S. Middle School
3,204,773
Jordan Middle School
2,178,414
Program Administration - District Wide
2,442,588
Fairmeadow Elementary School
2,408,804
Terman Middle School
1,682,407
Technology - District Wide
671,889
Planned Maintenance - District Wide
103,767
Ohlone Elementary School
22,112
All Other Elementary
2,470
$ 35,423,671
16
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Notes to Financial Statements, continued
June 30, 2014
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation
In July 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 was not
actually completed until spring 2014.
In April, 2013, Taisei filed a government code claim in the amount of $1,653,000. The claim had previously
been the subject of mediation with the District. The Board of Education rejected that claim in May 2013.
Taisei Construction Corporation subsequently filed a complaint in Santa Clara County Municipal Court
for the claimed amount. This complaint was served on the District in August, 2013.
In June 2014, Taisei issued an updated contract claim in the amount of $3,495,000. The new amount
reflects claims that have arisen since Taisei first filed a year ago. The District is reviewing and evaluating
the Taisei updated claim in detail, as well as any claims PAUSD might have against Taisei.
There have now been three Court case management conferences. The parties have agreed in principle to
participate in mediation, but no date has been agreed upon.
Regarding the buildings themselves, a notice of completion was recorded in May 2014. Both buildings
opened for occupancy in August 2014 and are fully in use at this time.
17
OTHER INDEPENDENT
AUDITORS' REPORTS
christy white.
A PROFESSIONAL
ACCOUNTANCY CORPORATION
INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN
AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS
Governing Board Members and
Measure A Citizens' Oversight Committee
Palo Alto Unified School District
Palo Alto, California
We have audited, in accordance with the auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards issued by the Comptroller General of the United States, the
financial statements of the Measure A - Strong Schools Bond, as of and for the year ended
June 30, 2014 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 2, 2014.
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 entity's 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 Bond'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.
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 entity's internal
control or on compliance. This report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the entity's internal control and compliance. Accordingly,
this communication is not suitable for any other purpose.
r 1
i
San Diego, California
September 2, 2014
19
Christy white.
A PROFESSIONAL
ACCOUNTANCY CORPORATION
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, 2014 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 auditor's
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 entity's 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
entity's 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.
Objectives
In connection with our audit, we also performed an audit of compliance as required in the performance
requirements for the Measure A General Obligation Bonds for the fiscal year ended June 30, 2014. 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 2013-14 financial statement balances for the Measure A - Strong Schools Bond are not materially
misstated.
Results of Procedures Performed:
The result of our audit tests show that internal control procedures appear to be working to meet the
financial and compliance objectives required by generally accepted accounting standards and applicable
laws and regulations. An unmodified opinion was expressed on the financial statements.
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, 2014 were for valid facilities acquisition and construction purposes. We toured four
District construction sites where 2013-14 construction work occurred, including the new classroom
building and media arts center at Palo Alto High School, modernization and parking loop projects at
Gunn High School, new classroom building and library repurposing at Duveneck Elementary School, and
new classroom building at Fairmeadow Elementary School.
Results of Procedures Performed:
Results of the site walks indicate that the major 2013-14 Measure A – Strong Schools Bond construction
projects at Palo Alto High School, Gunn High School, Duveneck Elementary School, and Fairmeadow
Elementary School were successfully completed and closed out, or advanced into 2014-15 construction
phases where applicable.
Test of Expenditures 7-71
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 54 payments, of which 49 were vendor payments and salaries for five
employees paid throughout the fiscal year, totaling $20.72 million, or approximately 59% of total
Measure A expenditures for 2013-14.
2. We also tested ten payments made to various professional service firms contracted by the
Measure A – Strong Schools bond program. We obtained the contracts for these firms and
ensured that position rates per contract were accurately billed to the District.
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, 2014, we performed testing of three contracts to determine compliance
with District policy and Public Contract Code provisions related to contracting and bidding:
Formal Bids
• Project: Gunn High School Concrete Walkway
Original Contract Award Amount: $121,500
• Project: Palo Alto High School Performing Arts Center
Original Contract Award Amount: $21,844,000
• Project: Gunn High School Miranda Parking Drop-off
Original Contract Award Amount: $1,213,800
Informal Bids
• During the course of testing related to bidding procedures, auditors noted that there were no
contracts informally bid during the year ended June 30, 2014.
Results of Procedures Performed:
We found that the contracts tested above for bidding procedures followed proper bidding procedures
and were awarded in all cases to the lowest responsible bidder.
In addition, we tested ten 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
• JLS Middle School Landscape and Site Improvements
• David Starr Jordan Middle School Modernization and New Construction
• Terman Middle School Modernization and New Construction
• Gunn High School Bow Gymnasium Modernization
• Gunn High School New Classroom Buildings A & B
• Duveneck Elementary School Modernization and New Construction
• Fairmeadow Elementary School Modernization and New Construction
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 2013-14 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 2013-14. In addition, the District has
submitted annual audit reports during the life of the Measure A — Strong Schools Bond. In our review of
the composition of the committee, we noted that the District has the proper members in the COC that
fulfill each of the required representations noted above.
Our audit of compliance was made for the purposes set forth in the Objectives section of this report and
would not necessarily disclose all instances of noncompliance.
Opinion
In our opinion, based on the fieldwork described above as well as the other tests that we conducted, the
District complied with the compliance requirements for the Measure A — Strong Schools Bond as listed
and tested above.
The purpose of this report on internal control over compliance is solely to describe the scope of our
testing of internal control over compliance and the results of that testing based on accountability
requirements pursuant to the passage of Proposition 39 and the enactment of AB 1908 (Chapter 44,
Statutes of 2000). Accordingly, this report is not suitable for any other purpose.
W�W'NE��E -111-
San Diego, California
September 2, 2014
24
FINDINGS AND RESPONSES SECTION
MEASURE A - STRONG SCHOOLS BOND
PALO ALTO UNIFIED SCHOOL DISTRICT
Schedule of Findings and Responses
For the Fiscal Year Ended June 30, 2014
This section identifies the deficiencies, significant deficiencies, material weaknesses, and instances of
noncompliance related to the financial statements that are required to be reported in accordance with
Government Auditing Standards.
Our tests resulted in no findings and recommendations related to the financial and performance audit of
the Measure A - Strong Schools Bond for the fiscal year ended June 30, 2014.
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