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California State Auditor Logo COMMITMENT • INTEGRITY • LEADERSHIP

Alum Rock Union Elementary School District
The District and Its Board Must Improve Governance and Operations to Effectively Serve the Community

Report Number: 2018-131

ALUM ROCK UNION ELEMENTARY SCHOOL DISTRICT

May 3, 2019

Sent Via Email


Ms. Elaine Howle
State Auditor
Office of the State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814

Re: Draft Auditor Report/District Response

Dear Ms. Howle:

The District Governance Team which consists of the Board of Trustees and the Superintendent have reviewed your draft report which we have taken very seriously. Attached are our comments and response to the recommendations and findings contained in your draft.

If you have any questions, please contact me.

Sincerely,

ALUM ROCK UNION SCHOOL DISTRICT

__________________________________
Hilaria Bauer, Ph.D.
Superintendent

DISTRICT RESPONSE TO DRAFT STATE AUDIT REPORT

The Alum Rock Union District (District) would like to thank the State Auditors for their detailed and comprehensive analysis of the District and their recommendation for improvements. The District takes the analysis seriously and fully intends to take actions to put in place systems, trainings and practices designed to prevent the types of problems that this Report has found.

1

It is important to note at the outset that the period covered by the State Audit Report was through December, 2018. Since that time, the District has had a significant and substantial change of trustees on its Governing Board. These individuals who give their time and energy to serve on the Governing Board of the Alum Rock Union School District take their fiduciary responsibilities seriously. Some of the recommendations of the State Auditors have already been implemented as will be detailed below. The governance team of the District, consisting of the Governing Board and the Superintendent, are committed to working together to implement recommendations as stated below.

3
2

Preliminarily, the District demonstrated to the Auditors through documentation that contrary to the Staff efforts and recommendations, the previous Board entered into the contracts with Leal & Trejo (as general counsel for the District) and Del Terra Real Estate Services, Inc. (for construction management services and program management services). Due to reports commissioned by Staff and created by Staff (Terri Ryland and June Roño), the concerns regarding the contracts between the District and Del Terra were surfaced. A copy of the Ryland Report is attached as Attachment 1. When Mr. Roño continued to express concerns about the District's contract with Del Terra, his employment contract with the District was not renewed.

4

This Response is intended to address the District's position on the Recommendations contained in the Draft Audit Report. The District was given a short time to review the Draft Report and Respond. The District reserves the right to submit a supplemental response after the issuance of the Final Audit Report.

5

1.  Auditor's general recommendations (pages 5 and 6) are:

    •  District Board:

  1. Follow state law and its own policies to ensure that it selects the most qualified providers of construction services.
  2. Request training in and adhere to state requirements regarding governance and transparency by August 2019.
  3. Assess whether the Superintendent's performance aligns with the Board's expectations, the Board should provide timely annual performance evaluations to the Superintendent.
  4. Work with District staff to evaluate proposals when it contracts for legal services.
  5. •  District:

  6. Develop contract monitoring procedures by November 2019 to ensure that its contractors fulfill their obligations.
  7. Develop and implement a process by November 2019 to assess whether contracted personnel should be subject to the District's policy requirements regarding the disclosure of financial interests.
  8. Reduce payments to Board members who fail to attend meetings in accordance with the law.
  9. Provide Board members with ethics training at least once every two years.

1a.  District's Response:

6

The District notes that on page 3 of the Draft Audit Report, the auditors states “the district does not know whether some of its contracted personnel who filled key roles in the district, such as the assistant superintendent of business services, had a conflict of interest because the district does not have a process for identifying those individuals who should disclose their financial interests in compliance with its conflict-of-interest policy.” The contracted position was that of the Associate Superintendent for Human Resources and not the Assistant Superintendent of business services. The Audit Report was in error on this point. When the District realized that the individual in the contracted position had not filed a conflict of interest disclosure form, it promptly provided one to the individual who completed and filed it. The District does in fact have designated positions in its conflict of interest code that are required to annually disclose their financial interests. The District will develop a process to assure that those responsible for assuring compliance with the District's Board Bylaws and Conflict of Interest Code are knowledgeable about the requirements of District policies and state law.

  1. The Board fully intends to follow statutory requirements and its policies regarding the selection of the most qualified providers of services, including but not limited to, construction services.
  2. The Board fully supports biannual training in ethics for school Board members as well as well as biennial training on the roles and responsibilities of school Board members including but not limited to the need for transparency in their service to the community.
  3. The Board and Superintendent will establish goals for the Superintendent and conduct an annual performance review of the Superintendent's progress towards those goals in a timely manner. The Board will develop goals for the year and then jointly develop goals for the Superintendent that align with the Board's goals.
  4. The Board and Superintendent are currently working together to evaluate proposals for legal services and will be conducting interviews of potential legal counsel at a Board meeting scheduled on May 6, 2019. The Board will consider the adoption of policies that will guide our future actions in both filling vacancies on the Board as well as selecting competent legal counsel for the District.
  5. The District's Business Services Division will develop a contract monitoring procedures to ensure that contractors are fulfilling their obligations to the District.
  6. The District has improved its Conflict of Interest Disclosure process and will be closely monitoring compliance. It has required contracted personnel to comply with its Conflict of Interest Disclosure requirements. The District will develop written procedures to outline the process in its entirety.
  7. The Board has adopted Board Bylaw 9250 which is consistent with the requirements of Education Code section 35120 regarding the compensation of Board Members and the requirement that they attend a meeting as condition of receiving compensation for the meeting. Board Bylaw 9250 is attached as Attachment 2. By August 2019, the Board will in addition adopt a Code of Conduct for Board Members and will review and consider whether BB 9250 should be strengthened.
  8. The Board will establish a policy review committee to undertake a review of all its policies to make sure they are current and determine the need for policies covering new areas.

2.  Auditor's Recommendations (pages 25-27) regarding the District's Operational and Financial Practices.

    •  District Board:

  1. Follow the requirements of state law and Board policies to select the most qualified firm at a fair and reasonable price to perform its contracted architectural services and construction management services;
  2. Enact a policy by August 2019 to prohibit contracting with the same entity for construction management and program management services;
  3. Require staff by August 2019 to prepare monthly summaries that report the total amounts it paid to each of its contractors along with descriptions of the purpose of those payments and include the summaries with the monthly warrant lists provided to the Board.
  4. •  District:

  5. Stop using payment terms for construction management and program management services that base fees on a percentage of construction costs or bonds issued.
  6. Develop contract monitoring procedures with defined staff roles and responsibilities, and retain evidence of monitoring efforts. The District should also train its staff to follow these procedures by November, 2019.
  7. Develop procedures specifying a designated location for staff to retain contracts and related documentation, and identify those staff who are responsible for ensuring that these documents are stored appropriately. The District should also train staff to follow these procedures by November 2019.
  8. Work with the county office to ensure that its new financial system includes unique identifiers for contract payment authorization documents by November 2019.
  9. Develop and implement a process by November 2019 to assess whether contracted personnel should be classified as consultants, who are subject to the District's code for disclosing financial interests.
  10. Immediately follow its conflict-of-interest code to ensure that all required individuals file form 700.

2a.  District Response to Auditor's Recommendations (pages 25-27):

  1. The Board fully intends to follow statutory requirements and its policies regarding the selection of the most qualified providers of services, including but not limited to, architectural and construction management services.
  2. The Board will establish a policy review committee to undertake a review of all its policies to make sure they are current and determine the need for policies covering new areas including prohibiting the same entity from providing both construction management and program management services.
  3. By July 2019, staff will prepare monthly summaries that report the total amounts the District is paying to each of its contractors and vendors.
  4. The District does not currently have any ongoing construction projects. In the event that the District undertakes a construction project in the future, it will not enter into a contract for construction management services or program management services that are based upon a percentage of construction costs or bonds issued.
  5. The District does not currently have any ongoing construction projects. In the event that the District undertakes a construction project in the future, it will assure that staff members have clearly defined roles and responsibilities for monitoring the projects and that they document their monitoring efforts. The District will develop a monitoring system for each future construction project that is project specific.
  6. Once the Santa Clara County Office of Education computerize document storage system is operational, the District will use that system.
  7. The District is in the process of migrating onto the County Office of Educations financial and payroll systems. We will be working with the County Office to set up unique identifiers for contract payment authorization documents.
  8. The application of the District's conflict of interest code (COIC) to “consultants” is determined by our COIC and state law.  We will continue to ensure that it is properly enforced.
  9. The District is following its COIC and has required all designated employees to file a Form 700.

3.  Auditor's Recommendations (pages 33 and 34) regarding Governance and Transparency:

    •  District Board:

  1. The Board should declare publicly whether a quorum of Board members is present before it takes any action.
  2. The Board should request training in and adhere to Brown Act requirements and other state law by August 2019.  It should also ensure that the District's general counsel is sufficiently knowledgeable to properly advise the Board about these requirements.
  3. The Board should ensure that it publicly identifies all parties involved in real estate negotiations prior to entering closed sessions.
  4. District:

  5. The District should adhere to state law and its policies by reducing Board member stipends when members fail to attend Board meetings.
  6. The District should train staff by August 2019 on the timing requirements of the Brown Act pertaining to publicizing Board meeting agendas.

3a.  District Response to Auditor's Recommendations (pages 33 and 34):

  1. The Board takes a roll call of its members present at the beginning of each meeting and verbally states that a quorum is present. The Board understands that at least three members must be present to constitute a quorum for the Board to take action.  The Board is also aware that Board members may participate telephonically at Board meetings provided that (1) the agenda is posted at each location of a Board member participating in the meeting at least 72 hours in advance of regular meetings and 24 hours in advance of special meetings, (2) there are a majority of Board members within the boundaries of the District, (3) the location of each Board member who is participating telephonically is open to the public, (4) the agenda indicates that a member will be participating telephonically and that location is stated on the agenda, and (5) the vote must be taken by roll call.
  2. The current Board has received training on the Brown Act on February 28, 2019.  The Board will repeat that training biennially.
  3. The Board fully intends to comply with all aspects of the Brown Act.
  4. By August 2019, the Board will consider the adoption of a code of conduct.  As mentioned above the Board has a Board Bylaw (BB 9250) that complies with the requirements of Education Code section 35120 regarding compensation for Board Members.  The Board will assure compliance with its policies and will consider modifications that may be necessary in the future.
  5. The District will instruct all personnel with responsibilities related to the Brown Act on its requirements.  The District will establish protocols for Brown Act compliance to assure that as personnel changes occur new employees are aware of legal requirements.

4.  Auditor's Recommendations (pages 48-50) regarding the District's Operational Practices Complying with District Policy and Other Requirements.

    •  District Board:

  1. The Board should work with District staff to evaluate law firm proposals against criteria when it next contracts for general counsel.  Further, the Board should publicly report the results of its evaluation.
  2. The Board should develop a vision and establish goals for the District by November 2019 and regularly monitor progress toward achieving these goals, as District policy requires.
  3. The Board should conduct an annual self-evaluation by November 2019 and publicize the results.
  4. The Board should implement procedures by August 2019 requiring that its members document on their requests for reimbursement how their travel complies with District policies.
  5. The Board should comply with District policy pertaining to other operational practices, including appointing a new Board president only during its annual organizational meeting unless otherwise required to do so by policy, and limiting the extensions of Board meeting ending times to the single instance allowed per meeting.
  6. The Board should provide timely annual performance evaluations of the Superintendent in an appropriate format.  The District's human resources department should maintain copies of these evaluations.
  7. The Board should immediately direct District staff to track and prioritize the implementation of the remaining outstanding recommendations from the FCMAT audit report.  The Board should also direct staff to analyze the recommendations relating to its terminated contracts with Del Terra, identify those recommendations that will continue to be relevant after the appointment of a new construction manager and a new program manager, and implement policies to strengthen the District's monitoring of those contractors.  The Board should then monitor the status of those recommendations to ensure their implementation.
  8. To ensure the bond committee receives the assistance it requests from the District to perform its oversight duties, the Board should create a policy by August 2019 requiring District staff to document the assistance they provide to the bond committee and to regularly report to the Board on the nature and frequency of this assistance.
  9. District:

  10. The District should establish a policy by July 2019 to provide biennial training to Board members on ethics, applicable government transparency, conflict of interest requirements and District policies.
  11. The District should immediately begin to monitor the progress of the audits and prioritize their completion within nine months after the end of each fiscal year.
  12. The District should verify and document representation of the bond oversight committee members that the Board appoints.

4a.  District Response to Auditor's Recommendations (pages 48 - 50):

  1. The Board and District Staff are currently working together to evaluate law firm proposals for general legal counsel against specific criteria.  The Board and District Staff will be publicly interviewing candidate law firms for service as its general counsel.  The Board and Staff have established criteria for evaluating the candidates including requiring specific experience in representing public school Districts.  The Board will consider the adoption of a policy establishing a procedure to assure that the District is selecting competent legal counsel to serve the District.
  2. By November 2019, the Board will establish goals for the District and will at least annually evaluate progress towards those goals.
  3. As stated above, since December 2018, the District has a new Board which will publicly conduct an annual self-evaluation in November 2019.
  4. By August 2019, the Board will establish procedures regarding members being required to document their request for reimbursement and how the expense including travel complies with District policy.
  5. The Board appointed a new Board president at its organizational meeting in December 2018, as is consistent with its policies. The Board has adopted Board Bylaw 9323 which provides that its meeting shall be adjourned at 10:30 p.m. with the possibility of a single extension by a majority vote of the Board. A copy of BB 9323 is attached as Attachment 3.
  6. The Board will provide timely annual evaluations of the Superintendent as previously stated and will assure that the process is consistent with the Superintendent's contract as well as policy.
  7. The Board and Staff have implemented applicable recommendations made by FCMAT.  See the chart attached as Attachment 4.
  8. By August 2019, the Board will assure that the District's bond oversight committee has the required support that it needs to properly conduct its responsibilities and the Board will require periodic reports on the support provided to the committee.
  9. District:

  10. As stated above, the District will provide biennial training to Board members on ethics, the Brown Act, conflict of interest requirements as well as relevant District policies. The recommendation calls for biennial training, not biannual
  11. The District will establish a systematic process to monitor the progress of the recommendations of this audit as well as future audits and prioritize the completion within nine months after the end of the fiscal year.
  12. The District will review the composition of its bond oversight committee to assure that the representation on the committee complies with legal requirements.
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5.  Auditor's Recommendations (page 54) Regarding Other Areas reviewed as Part of the Audit.

  1. The District should create and implement by November 2019 policies and procedures describing the protocol for awarding emergency contracts, including the use of the District's standard contracting forms.
  2. The District should train staff to follow these policies.

5a.  District's Response to Auditor's Recommendations (page 54)

  1. The District will review with staff the legal requirements for awarding emergency contracts and will with the guidance of legal counsel review and revise the District's standard contracting form to assure that the District is protected.

6.  Auditor's Recommendations (page 56) regarding Board Intimidation and Retaliation Against District Employees.

  1. The Board should develop a code of conduct for Board members to follow and adopt it at a public meeting by July 2019.
  2. The Board should review and update this code of conduct each year as needed to reaffirm its commitment to the District's governance standards.

6a.  District's Response to Auditor's Recommendations (page 56)

  1. As stated above, the Board will consider the adoption of a code of conduct for Board members by July 2019.
  2. The Board will review the adopted code of conduct for Board members as may be needed in the future.

ADOPTED BY THE BOARD OF TRUSTEES OF THE ALUM ROCK UNION SCHOOL DISTRICT AT A SPECIAL MEETING HELD ON MAY 2, 2019.


__________________________________
Linda Chavez,
President, Board of Trustees




Comments

CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM ALUM ROCK UNION ELEMENTARY SCHOOL DISTRICT

To provide clarity and perspective, we are commenting on the district's response to our audit. The numbers below correspond to the numbers we have placed in the margin of the district’s response.

1

To clarify, our audit encompassed the period from fiscal years 2013–14 through 2017–18, as stated in the Scope and Methodology. Although our report includes some references to dates after this period, they refer to subsequent events resulting from the district and board activity pertaining to our audit period.

2

The district’s statement that its previous board entered into the contracts with Del Terra contrary to district staff’s efforts and recommendations is not entirely accurate. As we describe here, a former assistant superintendent of business services advocated for awarding a construction management contract in May 2014 to Del Terra based on that firm’s experience and expertise as the district’s program manager. The board subsequently entered into that contract based on that recommendation.

3

The district provided four attachments with its audit response that are not included in our report. These attachments are available for review by contacting our office.

4

As with all auditees, and in compliance with generally accepted government auditing standards, we briefed the district throughout the audit about our conclusions and recommendations, including at a formal exit conference in which district staff were able to review text of the conclusions and recommendations. Further, as with all auditees, we provided the district with five business days to review and comment on the draft report. The district will have subsequent opportunities to inform us of its status in addressing our recommendations when providing us its 60-day, six-month, and one-year responses to the audit recommendations.

5

While preparing our draft audit report for publication, page numbers shifted. Therefore, the page numbers that the district refers to in its response do not correspond to the page numbers in our final report.

6

The district has misread our report’s summary, which serves as a synopsis of the findings we include throughout the report. The current assistant superintendent of business services is a district employee and not one of the district’s contracted personnel. The individuals we refer to were former assistant superintendents of business services. At different times, the position of assistant superintendent of business services has been filled by either district employees or contracted personnel, as we discuss here. We have made a minor wording change to the report summary to ensure that our point is clear.

7

As noted previously, our recommendation calls for the district to establish a policy to provide biennial training to board members, which is defined as every two years.

8

Contrary to the district’s statement that it has required contracted personnel to comply with its conflict-of-interest disclosure requirements, it has not always done so. As we describe elsewhere, the district has not required Forms 700 from some contracted personnel who have served in similar positions to district employees, such as the assistant superintendent of business services.

9

The board bylaw that the district cites is the same one that we used in our review of board member compensation and that the board adopted in July 2013. Therefore, as we recommend in this section, the district needs to enforce this bylaw by reducing board member stipends when members fail to attend board meetings.

10

Although the district asserts that it has required all designated employees to file a Form 700, it did not ensure that its assistant superintendent of human resources disclosed his financial interests in 2017, as we report here. We look forward to receiving the district’s 60-day response to the audit recommendations to learn about the steps it has taken to implement our recommendation to ensure that its employees properly disclose their financial interests.

11

The board bylaw that the district cites is the same one that we used in our review of board actions and that the board adopted in July 2013. Therefore, as we recommend here, the board should limit the extension of board meeting ending times to the single instance allowed per meeting.

12

The district refers to a chart that identifies the implementation status of each recommendation from the FCMAT audit report. The district did not provide us with this chart until it submitted its response to the audit. Although the chart contains information similar to the details we present in Appendix B, the district’s chart appears to include an updated status for some recommendations. We look forward to reviewing the district’s 60-day response to determine the progress it has made to track and prioritize the implementation of the remaining outstanding recommendations.

13

The district did not provide a response to our recommendation pertaining to the presentation of bond issuance costs. We look forward to reviewing the district’s 60-day response to the audit recommendations to assess the district’s progress in implementing this recommendation.





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