BSA Audit Response
Response to Recent Audit of Community Facilities District 94-2 by the California Bureau of State Audits
The Bureau of State Audits (BSA) recently conducted an audit of the San Dieguito Union High School District's (District) Community Facilities District 94-2 (CFD 94-2). The final audit report prepared by BSA was released on June 15, 2010. The District has reviewed the report and is extremely pleased that our staff's work withstood the scrutiny of the BSA which is a watchdog for the taxpayers. This audit validated the business practices utilized by our district.
Over the years, serious charges have been made against the District regarding CFD 94-2. For instance, a representative of small group of community members made claims before the Joint Legislative Audit Committee and in other public forums and that the District spent several million dollars to build schools 26 miles away from CFD 94-2 and millions of dollars on projects not allowable under the mitigation agreement which formed CFD 94-2. The District is pleased that the BSA found no evidence to support these wild accusations.
The BSA establishes quite clearly that the District has met its obligations to the homeowners paying the special taxes in CFD 94-2. What is particularly gratifying is the finding that the expenditures were not only appropriate, but CFD 94-2 has actually benefitted by receiving more funds for construction projects at schools serving that community than are provided for in the bond covenant.
Specifically, the report affirms that while the District has allocated $29.1 million in bond proceeds toward schools listed in the CFD formation documents, it has spent a total of $30.7 million on those facilities. The report also correctly states that of the $30.7 million spent, $27.9 million came from proceeds associated with CFD 94-2. The remaining balance of bond funds dedicated toward CFD 94-2 facilities is currently committed toward construction of the San Dieguito Academy Performing Arts Center.
The report also confirms that the District has adequate internal controls over CFD 94-2 expenditures. This refutes the allegations made by the community group and the requestor of the audit that the District has mismanaged CFD funds.
Finally, the report correctly concludes that the District took no action to declare the La Costa Valley site as surplus.
The District has responded to the recommendations contained in the report as follows:
The Bureau of State Audits (BSA) recently conducted an audit of the San Dieguito Union High School District's (District) Community Facilities District 94-2 (CFD 94-2). The final audit report prepared by BSA was released on June 15, 2010. The District has reviewed the report and is extremely pleased that our staff's work withstood the scrutiny of the BSA which is a watchdog for the taxpayers. This audit validated the business practices utilized by our district.
Over the years, serious charges have been made against the District regarding CFD 94-2. For instance, a representative of small group of community members made claims before the Joint Legislative Audit Committee and in other public forums and that the District spent several million dollars to build schools 26 miles away from CFD 94-2 and millions of dollars on projects not allowable under the mitigation agreement which formed CFD 94-2. The District is pleased that the BSA found no evidence to support these wild accusations.
The BSA establishes quite clearly that the District has met its obligations to the homeowners paying the special taxes in CFD 94-2. What is particularly gratifying is the finding that the expenditures were not only appropriate, but CFD 94-2 has actually benefitted by receiving more funds for construction projects at schools serving that community than are provided for in the bond covenant.
Specifically, the report affirms that while the District has allocated $29.1 million in bond proceeds toward schools listed in the CFD formation documents, it has spent a total of $30.7 million on those facilities. The report also correctly states that of the $30.7 million spent, $27.9 million came from proceeds associated with CFD 94-2. The remaining balance of bond funds dedicated toward CFD 94-2 facilities is currently committed toward construction of the San Dieguito Academy Performing Arts Center.
The report also confirms that the District has adequate internal controls over CFD 94-2 expenditures. This refutes the allegations made by the community group and the requestor of the audit that the District has mismanaged CFD funds.
Finally, the report correctly concludes that the District took no action to declare the La Costa Valley site as surplus.
The District has responded to the recommendations contained in the report as follows:
Recommendation 1:
Recommendation 1:![]()
To ensure that CFD 94-2 funds are used only for appropriate purposes,
the school district should reimburse the facilities district $451,000
for erroneous payments for administrative facilities and demographic
studies or otherwise adjust the charges to this facilities district so
that they only reflect appropriate expenditures.
District Response:
The BSA has confirmed that the District expended, or is committed to expend, more bond proceeds on 94-2 qualified facilities than is required under the bond covenant. As a result, the District has reclassified the expenses related to the relocatable buildings at Sunset High School and the demographics reports as non-qualified CFD 94-2 expenditures without compromising the bond covenant.
District Response:
The BSA has confirmed that the District expended, or is committed to expend, more bond proceeds on 94-2 qualified facilities than is required under the bond covenant. As a result, the District has reclassified the expenses related to the relocatable buildings at Sunset High School and the demographics reports as non-qualified CFD 94-2 expenditures without compromising the bond covenant.
Recommendation 2:
Recommendation 2:![]()
To provide the public with information it can use to participate in the
school district's decision making process and to hold the school board
and other school district officials accountable, the school district
should:
Ensure that descriptions for school board meeting agenda items and minutes contain sufficient information to accurately convey the substance of the items, and post to the school district's web site all relevant documents and presentations related to the agenda items
Ensure that it follows all relevant standards for financial reporting. To assist in this effort, the school district should consider a checklist such as the School District Preparer Checklist of the Government Finance Officials Association, which is designed to assist in the preparation of comprehensive annual financial reports of school districts.
The District acknowledges that the descriptions contained in the Board agenda and minutes referencing the status and remarketing of the 2006 series bonds, while meeting the standards of the Ralph M. Brown Act, could have provided more detail for the public to fully understand the scope of the complex discussion during the public meeting. The District is absolutely committed to conducting the people's business in public. As noted in the report, the actions taken by the Board of Trustees relating to the restructuring of the bonds as respects CFD 94-2 were appropriate under the terms of the formation documents.
The District has a practice of briefly stating agenda items and minutes at the recommendation of the California School Boards Association. Unprecedented volatility in the bond market and the sudden collapse of the bond insurer during the spring of 2008 was such that conditions were changing rapidly. All discussions relating to the conversion of the bonds which required Board action were discussed in open session.
The Board of Trustees annually contracts with an independent auditing firm which the State Controller's Office deems as qualified to conduct audits of school districts. The audits are conducted in accordance with standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States and also the state's audit guide, Standards and Procedures for Audits of California K-12 Local Education Agencies published by the Education Audit Appeals Panel. The 2006-07 audit was performed by Wilkinson, Hadley & Co, LLP. All of the District's financial information was fully disclosed to Wilkinson & Hadley, who represented to the Board of Trustees that the financial statements contained in their audit report presented the financial position of the District fairly in all material aspects in each major fund and were in conformity with generally accepted accounting principles. When the District converted its bonds to auction rate securities, it relied upon the advice of Wilkinson & Hadley to prepare all relevant financial statements and disclosures. The only section of the 2006-07 audit report prepared by the District is the Management Discussion & Analysis section, which does include discussion of the bond remarketing and entering into the derivative agreement. The District understands that the notes to the financial statements prepared by Wilkinson & Hadley should have included further disclosures regarding the conversion of the 2004 series bonds to auction rate securities and on the swap agreement as well. This matter is no longer an issue as the 2006 series bonds were converted to fixed rate securities in 2008 as noted in the BSA audit report.
District Response:
The District will review its practices for appropriately publicizing agenda items and preparation of meeting minutes. Supplemental materials made available at meetings of the Board of Trustees will be included in the minutes.
The District appreciates the Bureau's recommendation and will consider using a checklist in preparation for the external audit performed each year. The District will research available tools from organizations familiar with California school district audit procedures and determine which would be most beneficial to use. The District will also seek proposals from qualified audit firms at the end of the current contract for the 2009-10 audit to ensure the best qualified firm is preparing the District's annual audit report.
Ensure that descriptions for school board meeting agenda items and minutes contain sufficient information to accurately convey the substance of the items, and post to the school district's web site all relevant documents and presentations related to the agenda items
Ensure that it follows all relevant standards for financial reporting. To assist in this effort, the school district should consider a checklist such as the School District Preparer Checklist of the Government Finance Officials Association, which is designed to assist in the preparation of comprehensive annual financial reports of school districts.
The District acknowledges that the descriptions contained in the Board agenda and minutes referencing the status and remarketing of the 2006 series bonds, while meeting the standards of the Ralph M. Brown Act, could have provided more detail for the public to fully understand the scope of the complex discussion during the public meeting. The District is absolutely committed to conducting the people's business in public. As noted in the report, the actions taken by the Board of Trustees relating to the restructuring of the bonds as respects CFD 94-2 were appropriate under the terms of the formation documents.
The District has a practice of briefly stating agenda items and minutes at the recommendation of the California School Boards Association. Unprecedented volatility in the bond market and the sudden collapse of the bond insurer during the spring of 2008 was such that conditions were changing rapidly. All discussions relating to the conversion of the bonds which required Board action were discussed in open session.
The Board of Trustees annually contracts with an independent auditing firm which the State Controller's Office deems as qualified to conduct audits of school districts. The audits are conducted in accordance with standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States and also the state's audit guide, Standards and Procedures for Audits of California K-12 Local Education Agencies published by the Education Audit Appeals Panel. The 2006-07 audit was performed by Wilkinson, Hadley & Co, LLP. All of the District's financial information was fully disclosed to Wilkinson & Hadley, who represented to the Board of Trustees that the financial statements contained in their audit report presented the financial position of the District fairly in all material aspects in each major fund and were in conformity with generally accepted accounting principles. When the District converted its bonds to auction rate securities, it relied upon the advice of Wilkinson & Hadley to prepare all relevant financial statements and disclosures. The only section of the 2006-07 audit report prepared by the District is the Management Discussion & Analysis section, which does include discussion of the bond remarketing and entering into the derivative agreement. The District understands that the notes to the financial statements prepared by Wilkinson & Hadley should have included further disclosures regarding the conversion of the 2004 series bonds to auction rate securities and on the swap agreement as well. This matter is no longer an issue as the 2006 series bonds were converted to fixed rate securities in 2008 as noted in the BSA audit report.
District Response:
The District will review its practices for appropriately publicizing agenda items and preparation of meeting minutes. Supplemental materials made available at meetings of the Board of Trustees will be included in the minutes.
The District appreciates the Bureau's recommendation and will consider using a checklist in preparation for the external audit performed each year. The District will research available tools from organizations familiar with California school district audit procedures and determine which would be most beneficial to use. The District will also seek proposals from qualified audit firms at the end of the current contract for the 2009-10 audit to ensure the best qualified firm is preparing the District's annual audit report.
Recommendation 3:
Recommendation 3:![]()
To enable the school district to demonstrate its responsiveness to
record act requests, it should maintain a record of documents it makes
available to requestors.
The audit report correctly states that it is the District's usual practice to maintain copies of records requested under the California Public Records Act. It was cost-prohibitive and impractical to make such copies of the thousands of documents requested by Concerned Citizens Protecting La Costa Valley / Friends of North County.
District Response:
While there is no requirement under the California Public Records Act to do so, the District will maintain a record of documents made available to persons under the act. Depending on the scope of the request, the District will either continue its practice of making a back-up copy of records provided under the act or, in the case of a voluminous request, a general description of records provided will be documented.
The entire audit report can be viewed on the Bureau of State Audits' web site by clicking the following link: http://www.bsa.ca.gov/pdfs/reports/2009-116.pdf
The audit report correctly states that it is the District's usual practice to maintain copies of records requested under the California Public Records Act. It was cost-prohibitive and impractical to make such copies of the thousands of documents requested by Concerned Citizens Protecting La Costa Valley / Friends of North County.
District Response:
While there is no requirement under the California Public Records Act to do so, the District will maintain a record of documents made available to persons under the act. Depending on the scope of the request, the District will either continue its practice of making a back-up copy of records provided under the act or, in the case of a voluminous request, a general description of records provided will be documented.
The entire audit report can be viewed on the Bureau of State Audits' web site by clicking the following link: http://www.bsa.ca.gov/pdfs/reports/2009-116.pdf
