Appendix A

Scope and Methodology

The Audit Committee directed the California State Auditor to examine the district’s compliance with laws and policies related to its governance, operations, and contracting practices. Specifically, the Audit Committee directed us to review whether board actions adhered to applicable laws and regulations and whether the district’s contracting practices adhered to applicable laws, regulations, and best practices. Table A lists the objectives that the Audit Committee approved and the methods we used to address them.

Table A
Audit Objectives and the Methods Used to Address Them
AUDIT OBJECTIVE		METHOD
1	Review and evaluate the laws, rules, and regulations significant to the audit objectives.	Reviewed relevant laws and regulations applicable to the district’s governance, operations, and contracting practices.
2	Review the board’s actions over the past five years and, for a selection of ten actions each year, perform the following: a. Determine whether the board adhered to applicable laws and regulations, including, but not limited, to the Political Reform Act. b. Determine whether those actions had or could have any negative impact on the financial stability of the district. c. Determine whether those actions had or could have any negative impact on the district’s administrative and programmatic stability or its ability to provide required student educational services.	Judgmentally selected 50 board actions from fiscal years 2013–14 through 2017–18. Based on our review of the actions and issues related to board governance, we selected more actions for review from fiscal years 2016–17 and 2017–18 than from the other three fiscal years. Determined if each of the 50 selected board actions complied with relevant district policy, Political Reform Act requirements, and other relevant state laws. Interviewed district staff and financial advisors regarding the impact of the board’s actions on the district’s financial and operational stability and on services it provides to students. Analyzed whether board actions negatively affected the district's administrative and programmatic stability or its ability to provide required student educational services. We found no significant negative impact in these areas.
3	Determine whether any member of the board has undertaken efforts to interfere in the operations of the district, misappropriate funds, or issue contracts and contract payments in violation of applicable laws.	Interviewed district staff and reviewed the district’s processes for approving and issuing payments. Assessed a selection of 20 payments from fiscal years 2013–14 through 2017–18 to determine if the district followed its processes, obtained appropriate approvals, and maintained evidence that it was appropriate to issue payment. Conducted additional work related to the board’s issuance of contracts as a part of Objective 7. Our review found no evidence that any board member undertook efforts to interfere with the operations of the district by misappropriating funds or issuing payments in violation of applicable laws.
4	For a selection of employment decisions relating to the superintendent and any other district staff reporting directly to the board, determine whether the board’s actions, if any, were consistent with and adhered to applicable employment laws.	Reviewed a selection of eight employment decisions related to the superintendent and other management staff to determine if the board’s actions complied with applicable state law. We found that the board’s actions adhered to applicable employment laws. Reviewed the requirements of the superintendent’s contract related to performance evaluations and assessed the board’s compliance with these requirements. Interviewed the superintendent and the board president to obtain their perspectives.
5	Assess the board’s compliance with the Brown Act with regard to providing notice and conducting regular open meetings and closed-session meetings	Interviewed district staff and reviewed a selection of 20 regular board meetings from fiscal years 2013–14 through 2017–18 for compliance with Brown Act requirements for posting agendas, describing closed-session items, and disclosing in open session the actions taken in closed session.
6	For a selection of financially related actions taken by the board during the last five years, determine whether the conduct of board members, including but not limited to their dealings with municipal finance firms—such as underwriters, financial advisors, bond counsel, or construction contractors—adhered to applicable ethics and bond laws.	Reviewed seven financially related actions as part of the work we describe for Objective 2, where we reviewed 50 board actions. Judgmentally selected and reviewed an additional three financially related actions to determine whether the conduct of board members adhered to applicable ethics and bond laws. In total, we reviewed 53 board actions.
7	For a selection of construction, legal services, and bond program management services contracts, determine whether the solicitation, awarding, and monitoring of the contracts complied with applicable laws, regulations, and best practices relating to conflicts of interest and municipal contracting practices.	Judgmentally selected 10 construction, legal services, and bond program management services contracts to determine whether the solicitation, awarding, and monitoring of the contracts complied with applicable laws, regulations, and best practices. Reviewed Form 700 filings from 2013 through 2017 for all board members and selected district staff to determine whether any of these individuals had conflicts of interest. We identified no disqualifying financial interests for any of these individuals. Interviewed the superintendent and other district staff to obtain their perspectives.
8	Determine whether the board disseminated accurate information to taxpayers regarding the approval of bonds, the sale of bonds, the use of bond funds, or the issuance, sale, or use of Certificates of Participation.	Reviewed all six bond issuances which the district made from fiscal years 2013–14 through 2017–18 to determine whether the board disseminated accurate information to taxpayers. Reviewed the district’s audited financial statements and confirmed with district staff that the district did not issue Certificates of Participation—financing instruments that allow investors to purchase shares of lease revenue from a program—from fiscal years 2013–14 through 2017–18. The district most recently issued these certificates in 2010, which is outside of our audit period.
9	Determine whether the board followed applicable laws, regulations, and policies in making appointments to or otherwise overseeing the implementation and operation of the bond committee.	Reviewed the board’s appointments to the bond committee from fiscal years 2013–14 through 2017–18 to determine whether the board followed applicable laws, regulations, and policies. Reviewed a selection of board minutes and all annual reports from fiscal years 2013–14 through 2017–18 to determine whether the board provided adequate technical support and resources to the bond committee per state law. Interviewed the bond committee’s former chair to obtain perspective on the sufficiency of the board’s assistance to the bond committee.
10	To the extent possible, determine whether the board, individual board members, or board staff interfered with, directed others to interfere with, or took any action intended to retaliate against employees who exercised their rights under applicable whistleblower laws or provided information to aid any investigation or review, including any investigations conducted by the U.S. Securities and Exchange Commission or the Santa Clara County District Attorney.	Interviewed all five board members and obtained their perspectives regarding their communications with district staff, their knowledge of any whistleblower complaints made by staff, and staff cooperation with various investigations and reviews of the district from the county and other entities. Interviewed key district employees to obtain their perspective as to whether they believed they were retaliated against by board members. Reviewed the personnel files for 12 current and former staff members with frequent interactions with the board to determine if any personnel actions appeared retaliatory.
11	Determine whether, during the past three years, the board disagreed with any findings or recommendations of FCMAT, the county office, or the 2017–18 Santa Clara County Civil Grand Jury report and whether this disagreement may have undermined the ability of the district to meet the needs of its students.	Reviewed the board’s responses to the FCMAT audit report, civil grand jury report, and county office budget letters to determine whether the board disagreed with any findings or recommendations from these reports. Assessed the district’s progress in implementing recommendations from the FCMAT audit report. Interviewed staff from the county office as well as the fiscal expert team and fiscal advisor appointed by that office to determine whether board disagreement with any of these findings or recommendations may have undermined the district’s ability to meet the needs of its students.
12	Review and assess any other issues that are significant to the audit.	For a selection of 10 special board meetings from fiscal years 2015–16 through 2017–18, assessed the district’s compliance with Brown Act requirements for providing notice for special board meetings and limiting business discussed at special board meetings to the items noticed on the agenda. For each board meeting the district conducted from fiscal years 2015–16 through 2017–18, determined if the board achieved a quorum and, if it did not, whether the board inappropriately took any actions. Obtained payment records for each board member from fiscal years 2015–16 through 2017–18 and assessed whether the district had appropriately adjusted the board members’ pay based on absences from board meetings.

Source: Analysis of the Audit Committee’s audit request number 2018-131 and information and documentation identified in the table column titled Method.

Assessment of Data Reliability

In performing this audit, we obtained electronic data relating to certain contract documents from the district’s financial system, eFinance Plus by SunGard. The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of any computer‑processed information we use to support our findings, conclusions, or recommendations. We found that the district does not maintain a centralized document repository for the hard copies supporting these contract documents; instead, it stores these documents in one of six possible locations, including offsite with one of its contractors. To evaluate these data, we performed data-set verification procedures and interviewed key staff knowledgeable about the data. Because of the fragmented document storage system described above, we were unable to perform completeness testing of these data, so they are of undetermined reliability for our audit purposes. Nevertheless, we did perform limited accuracy testing to gain some assurance of the accuracy of these data and found no inaccuracies.

We also obtained a list of board meetings from the district’s website for fiscal years 2013–14 through 2017–18. We found that the district does not maintain a complete inventory of board meetings separate from the website that we could use to verify the completeness of this list, precluding us from performing accuracy or completeness testing on this list. Although these limitations may affect the precision of the numbers and information we present, there is sufficient evidence in total to support our findings, conclusions, and recommendations.

Appendix B

Implementation Status of FCMAT's Recommendations

Table B identifies the recommendations that FCMAT presented to the district in an extraordinary audit report that it issued in June 2017. For each recommendation, we reviewed the district’s actions and assessed the extent to which it implemented the recommendation. The district’s actions subsequent to the report, such as terminating its contracts with Del Terra, caused several recommendations to not be applicable at this time. However, as we previously discuss, the district will still need to follow through with addressing these recommendations so that it can ensure that its future program managers and construction managers adhere to the terms of their contracts.

Table B
Summary of Implementation Status of FCMAT Recommendations as of March 2019
NUMBER	DESCRIPTION	IMPLEMENTATION STATUS
1	The district should follow industry best practices by using a request for qualifications or request for proposal (RFQ/RFP) process for procuring program management and construction management services.	Not implemented
2	The district should consider completing a more detailed annual performance audit using a new audit firm selected by an RFQ/RFP process.	Not implemented
3	The district should regularly review and update board policies and administrative regulations to ensure that they remain relevant and reflect the latest statutory requirements and district objectives.	Not implemented
4	The district should establish regular training on the identification and prevention of fraudulent activity for all staff.	Not implemented
5	The district should ensure that any changes to the terms and conditions of contracts, purchase orders, or other documents approving payments are completed in writing with the appropriate notifications to staff and departments.	Not implemented
6	The district should hold an orientation meeting between incoming and outgoing business positions, including but not limited to the assistant superintendent and director of facilities positions, to ensure continuity in the transition.	Not implemented
7	The district has inconsistent accounts payable practices and record-keeping, particularly among transactions requiring formal bidding. Therefore, the district should retain the appropriate records as required by law.	Not implemented
8	The district should develop a process to evaluate consultants or independent contractors and whether they should be required to file Forms 700. The district should obtain Forms 700 from designated consultants or independent contractors within 30 days of their hire date or contract termination and on an annual basis, as applicable.	Not implemented
9	The district should ensure that all new employees, consultants, and elected or appointed board members who are in the designated classifications that require them to complete Forms 700, submit the form within 30 days of taking or leaving office or employment, and on an annual basis as applicable.	Not implemented
10	The district should review existing board policies pertaining to Business and Noninstructional Operations, Facilities, and Board Bylaws for existing references to debt or bonds that might be removed in light of adoption of a single comprehensive policy.	Not implemented
11	The district should develop a process and set of procedures for California Uniform Public Construction Cost Accounting Act (CUPCCAA) compliance and management of the program by staff, implemented by Del Terra, if appropriate. This should include updated status sheets and a discussion between staff and Del Terra on CUPCCAA compliance for current and future years.	Not implemented
	Total FCMAT recommendations not implemented:	11
12	The district should require Del Terra to immediately turn over all project files and documents to the district in an organized fashion. As per the program management contract, Del Terra should also assist the district in organizing the filing system and plan room.	Partially implemented
13	The district should require all documents and records regarding Del Terra’s performance on the CUPCCAA process to be turned over to the district.	Partially implemented
14	The district should develop and implement a new system for numbering and identifying contracts versus purchase orders.	Partially implemented
15	The district should train all accounting, business, and purchasing staff and management on this new multiyear tracking system, with training manuals at all desks.	Partially implemented
16	The district should require Del Terra to forward all documents and plans to the district upon completion of all projects, including past projects.	Partially implemented
17	The district should establish a culture of trust in the district. The tone at the top is essential to fostering a culture of ethical behavior. Governing board members and administrators should demonstrate a high moral and ethical example by gaining a thorough understanding of established policies and operational procedures and adhering strictly to them. The duties and responsibilities of staff members in each department should be segregated, as well as those of supporting employees who are responsible for enforcing established policies.	Partially implemented
18	The district should ensure that employees are aware of board policies and that policies remain accessible for public and staff reference.	Partially implemented
19	The district should consider terminating the construction management services contract with Del Terra and selecting an outside firm that is not associated with the program manager to provide adequate program accountability.	Partially implemented
20	The district should make renewed efforts to obtain full bond committee membership with a minimum of seven people and all required categories filled. Even without full membership, quarterly committee meetings should be held.	Partially implemented
21	The district should ensure that its elected officials, administration, and designated employees complete ethics training regarding the roles and responsibilities of public officials in relation to conflicts of interest and the Political Reform Act.	Partially implemented
	Total FCMAT recommendations partially implemented:	10
22	The district should require Del Terra to provide a dated status spreadsheet of all projects from the beginning of the Division of the State Architect (of the California Department of General Services) closeout services that includes the following information: • The original projects that need to be certified (not all district projects ever completed, which causes confusion). • The status of each project and whether the Del Terra Group obtained the certification and date of certification. • An indication of the project certification work in progress and any significant issues. • A bottom-line total of projects still uncertified.	Fully implemented
23	The district should hold quarterly bond committee meetings and include detailed financial and schedule information.	Fully implemented
24	The district should have the bond committee present an annual report to the board at a regular meeting, with presentations by the committee officers, rather than the program manager.	Fully implemented
25	The district should select a new multiyear tracking system—for service contracts, purchase orders, and fees—from an outside vendor using an RFQ/RFP selection process. Del Terra should not manage this system.	Fully implemented
26	The district should require that all invoices submitted for payment include the project reference or name and job code prior to making payments.	Fully implemented
27	The district should ensure that all purchase orders or contracts are approved in advance of any work that is performed.	Fully implemented
28	The district should complete the project closeout process for the San Antonio Elementary School project with the Office of Public School Construction to ensure that the first three years of debt service payments on the certificates of participation can be made with the state aid received as a reimbursement for this project.	Fully implemented*
29	The district should develop a long-term strategy to budget for debt service payments on the certificates of participation after state aid for the San Antonio Elementary School project is exhausted.	Fully implemented*
30	The district should adopt a comprehensive written debt management policy and administrative regulation that conforms to the requirements of both Senate Bill 1029 and the Government Finance Officers Association’s published best practices.	Fully implemented
	Total FCMAT recommendations fully implemented:	9
31	The district should request and review all information regarding compliance with the California Environmental Quality Act and develop a process for retroactive and proactive compliance.	Not currently applicable^†
32	The district should hire legal counsel to review the three board-approved contracts for the program management and construction management services to provide district administration and staff with recommended changes and corrections in the contracts for future possible renegotiation and/or new contracts. Legal counsel should be familiar with providing school districts with strong and defensible language that provides legal protection and adequate enforcement of requirements for the vendor.	Not currently applicable^†
33	The district should renegotiate all Del Terra contracts to include the following: • A list of projects subject to the contract. • A not-to-exceed amount of the contracts from both Measures J and I. • A change to the fee structure to an hourly basis for actual work performed, with adequate documentation, including timesheets, to accompany each monthly invoice. • A requirement for all changes regarding fee structure, payments, fee extensions, and increases to be in written format and board-approved before the work is performed and the fees paid.	Not currently applicable^†
34	The district should require Del Terra to comply with all contract provisions and immediately provide all deliverables to the district, including a dated status sheet of all projects from the beginning of the Division of the State Architect closeout services.	Not currently applicable^†
35	If a new contract is requested by Del Terra, the district should require Division of the State Architect closeout services to be procured using an RFQ/RFP selection process and exclude Del Terra from consideration because of lack of performance.	Not currently applicable^†
36	The district should require any new program management and construction management contracts to include a not-to-exceed maximum amount and an hourly basis for actual work performed rather than a lump-sum monthly payment.	Not currently applicable^†
37	In its renegotiation of the program management contracts, the district should include new language (in this contract and the subsequent Measure I contract from 2016), that requires Del Terra to provide full copies of all project and program files to the district for all past and current projects, and to assist in setting up an adequate filing system, including training for district staff. This should occur in real time for all current projects.	Not currently applicable^†
38	The district should enforce all aspects of the program management and construction management contracts’ scope of work, including all program and project reports using standard templates for budget and expenditure reports, reporting all program funds, encumbered, expended, and remaining balance.On real‑time project budget and expenditure reports, information should include original budget, revised budget, encumbrance, expenditure, and available balance for each line item of typical construction categories.	Not currently applicable^†
39	The district should enforce or require contract language for any future program management and construction management contracts to provide program and project budget and expenditure reports deliverables to be submitted monthly.	Not currently applicable^†
40	The district should enforce any future program management and construction management contract language that requires submittal and explanation of monthly schedule reports: “Project schedules for each project including an update of actual performance against the approved baseline schedule.”	Not currently applicable^†
41	The district should enforce the contract language requiring Del Terra to “develop and maintain with district staff an overall bond program financial management system in the area of accounting.” This should be a project tracking accounting system appropriate to multiyear, multifund projects.	Not currently applicable^†
42	The district should enforce contract language stating that Del Terra assists with bond committee meetings. This should include submittal and discussion at every meeting of all program-level and project-specific budget and expenditure reports, including an explanation of exception sheets showing the changes since the last meeting.	Not currently applicable^†
43	The district should require Del Terra to provide a retroactive list (back to 2013) as well as a current list of all key personnel and all personnel in program management and construction management contracts. If some personnel perform work in both areas, this should include the percentage of time spent in each. The contract should also include the definition of “key personnel.”	Not currently applicable^†
44	The district should recalculate construction management fees for the four current projects using the hourly basis structure according to the contract. This will require timesheets and adequate backup documentation from Del Terra to verify the work performed and hours to be billed.	Not currently applicable^†
45	For its contruction management contract, the district should reconcile the fees paid to the fees that should have been paid and require correct invoicing.	Not currently applicable^†
46	The district should hire a new legal counsel to review the construction management contracts and recommend changes and corrections, including getting rid of confusing and inconsistent terms and definitions and changing the 6 percent lump sum percentage fee to an hourly fee for actual hours worked with adequate backup with all invoices.	Not currently applicable^†
47	The district should renegotiate the November 2016 Measure J program management and construction contracts to include the approved scope of work that is in the new Measure I contract.	Not currently applicable^†
48	The district should include a not-to-exceed maximum fee in a renegotiated construction management contract.	Not currently applicable^†
49	The district should include a list of projects in its Measure J and Measure I contracts for program and construction management services.	Not currently applicable^†
50	The district should require Del Terra to submit monthly schedule reports according to its contract.	Not currently applicable^†
51	The district should, before any payment of contractors from bond funds, secure all bid documents or contracts that were prepared by the Del Terra Group and ensure that the proper bid documents are on file at the district.	Not currently applicable^†
52	The district should exercise its authority to question designated employees and members of the board regarding outside activities or financial interests included in Government Code sections 1090 and 1126.	No longer applicable^‡
Total FCMAT recommendations not currently or no longer applicable:		22

Source: FCMAT’s extraordinary audit report of the district, the district’s response to the FCMAT report, interviews with district staff, and analysis of the district’s implementation of FCMAT’s recommendations.

Note: We made minor edits to the descriptions of the recommendations for style and clarity.

* The board agreed with all of the recommendations in its formal response to the audit, except for numbers 28 and 29. Nevertheless, the district fully implemented those two recommendations.

^† These recommendations are not currently applicable because they relate to program and construction management contracts that the board has already terminated. However, as our report text indicates, district staff should analyze these recommendations, determine which have ongoing relevance, and implement policies to strengthen the district’s management over these areas in any future contracts.

^‡ This recommendation is no longer applicable because none of the board members or designated employees we examined declared in their Form 700 filings any disqualifying financial interests in an entity under contract with the district.