Min, ai i Aum Rock 4 UNION ELEMENTARY SCHOOL DISTRICT 2250 Gay Avon, San Jo CA BEAT Phone WSSAESRIO Fax EREEATS ——varndorg June 28, 2017 VIA Email & Overnight Mail Mr. Tom Torlakson State Superintendent of Public Instruction California Department of Education 1430 N Street, Suite 5602 Sacramento, CA. 95814-5901 Subject: Response to Santa Clara County Superintendent of Schools Recommendation/Request to Revoke Fiscal Independence of the Alum Rock Union Elementary School District Dea Superintendent Torlakson: In a letter dated June 21, 2017, the Santa Clara County Superintendent of Schools recommends that the fiscal independence of the Alum Rock Union Elementary District ("Distrit") be revoked effective July 1, 2017 This letter is the District's initial response to that recommendation/request. ‘At the outset, the County Superintendent's request appears to be based entirely on concerns identified in a June 9, 2017, FCMAT Extraordinary Audit Report ("Report") arising from the District's voter-approved facilities bond program. Even though the District's formal response to the Report is not due until late July, as set forth in the Education Code, the District takes those concerns very seriously and many are already being addressed by the District Significantly, the County Superintendent's letter does not indicate any inadequacy in accounting or internal controls related to any other programs or funds in the District, including the District's unrestricted and restricted general fund that directly support educational programs serving Alum Rock students. It isin this context that the District requests that your office not revoke the District's fiscal independence. Below are initial responses to each of the reasons stated in the County Superintendent's June 21" letter that support the District's request not to revoke its fiscal independence and, at minimum, postpone any consideration of the request until after the District has provided its complete response to the Report: 1, Response to COE Requests for Information: The District has, in fact, provided information available to it when requested by County Office of Education ("COE") regarding cash reconciliation reports, cash flow statements, and projects completed with bond funds and other rnon-voter approved debt. The County Superintendent’ letter does not state that the District has failed to respond at all, but rather states the District has not "Fully" responded to those requests. Mr. Gundry’s letter does not provide any specific information about what District responses COE believes were incomplete or insufficient that would support the extraordinary request of revocation of District fiscal independence, The District is currently working with its Construction and Project Manager to improve reporting activities related to bond-funded and other non-voter-funded projects; and progress is being made in that effort. It is both premature and an over-reaction to recommend revocation of Hilaria Bauer, Ph.D., Superintendent Board of Trustees: Khanh Tran, President Andrés Quintero, Vice-President Dolores Marquez-Frausto, Clerk ~ Esau Ruiz Herrera, Member ~Karen Martinez, MemberRe: Mr. Tom Torlakson Page 2 of 3 June 28, 2017 the District's fiscal independence because of concerns that are limited to the Districts facilities bond program and before the District has had an opportunity to formally respond to the Report. 2. Sufficient Internal Controls in the District: Crowe Horwath LLP, an established and well respected internationally certified public accounting firm, has performed the District's annual financial audits in the past three (3) years, including the most recent audit completed in November 2016. In those audits, including the most recent one, Crowe Horwath did ident any audit exceptions or make material audit findings regarding the lack of internal controls within the District. While the District is carefully evaluating the entire Report and its recommendations, the District is particularly concerned about the three core administrative concerns raised by the Report, First, the Report suggests that it is per se improper for any individual or concern to perform both program management and construction management services relating to the same project. We believe that such a combined range of duties is both permissible and commonly employed by school district with success. Second, the Report states that it is impermissible for a construction manager to bill for services prior to the commencement of construction given specific criticisms in the Report. The District believes that pre-construction activities that occur before any "shovels-are-in-the-ground” are not only common but necessary for the successful completion of any construction project. Finally, the Report suggests that the Program Management fee structure and percentage charged the District was inappropriate, excessive and outside of industry standards. Again, while the District is carefully reviewing payments made to date, the District believes that the fee structure and general fee percentage utilized by the District is standard in the industry. ‘The District believes that many of the concerns raised by the Report address what some might consider "best practices" but the absence of such practices do not support revocation of fiscal independence recommended by the County Superintendent. ‘The District anticipates its response will identify areas in which it will improve the Districts bond program to enhance program. effectiveness and accountability. 3. Distriet Auditor/Disbursing Officer: Education Code Section 42647 expressly authorizes ‘warrants to "be issued by a person designated as the district auditor or district disbursing officer " ‘There is no statutory requirement that the District employ a separate person solely for that purpose. The District last had an internal auditor in 2011-12. Starting in the 2012-13, fiscal year the District would annually, or when administrative staff changed, designate District ‘administrators in that role. The Distriet’s most recent designation occurred on March 9, 2017. On that date, the District designated its Superintendent, Chief Business Officer and Fiscal Administrator in that role and, therefore, has met the statutory requirement, We note that this is the first time COE has identified the absence of a District designated auditor or disbursing, officer as a significant issue of non-compliance for fiscal independence. Its important to also note that COE has confirmed positive certifications of the District's budget in each First and Second Interim Report submitted since, August of 2013 (the District self- certify qualified in fiscal years 2011-12 and 2012-13) including the 2016-2017 fiscal year just ending, Hilaria Bauer, Ph.D., Superintendent Board of Trustees: Khanh Tran, President Andrés Quintero, Vice-President Dolores Marquez-Frausto, Clerk ~ Esau Ruiz Herrera, Member Karen Martinez, MemberRe: Mr. Tom Torlakson Page 3 of 3 June 28, 2017 4, Accounting System Tracking of Bond Expenditures: As stated above, the District is already undertaking an effort to improve its systems to more efficiently and effectively produce cost accounting and reconciliation reports of bond fund expenditures. The District has also engaged the law firm of Fagen Friedman & Fulfrost, LLP (F3), and that firm has engaged WSP/Parsons Brinckerhoff, a nationally renowned firm depth construction management expertise, t0 assist the District in evaluating the Report and in advising the District on possible improvements in the District's bond program. In light of the above factors, including the District's effort already underway to address the concerns identified in the Report, the District respectfully requests that you not revoke the District's fiscal independence or, at minimum, postpone any consideration of revocation of fiscal independence until the District has fully responded to the Report and has provided further information to your office. intendent of the Alum Rock Union Elementary School District, as Superintendent's, ce: Hilaria Bauer, PhD, Superintendent of the Alum Rock Union Elementary School District, Board of Trustees of the Alum Rock Union Elementary School District Jon R. Gundry, Superintendent of Schools, Santa Clara County Kolvira Chheng, Alum Rock Union Elementary School District Judy Kershaw, Santa Clara County Office of Education Megan Reilly, Santa Clara County Office of Education Hilaria Bauer, Ph.D. Superintendent ‘Board of Trustees: Khanh Tran, President ~ Andrés Quintero, Vice President Dolores Marquez-Frausto, Clerk * Esau Ruiz Herrera, Member * Karen Martinez, Member