PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT SAN DIEGO COUNTY PERFORMANCE AND FINANCIAL AUDIT REPORT For the Fiscal Year End?d June 30, 2010 PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT AUDIT REPORT For the Fiscal Year Ended June 30, 2010 Table of Contents FINANCIAL STATEMENTS Page Introduction and Citizens' Bond Oversight Committee Member Listing ..1 Independent Auditor's Report .. 2 Balance Sheet .. 4 Statement of Revenues, Expenditures and Changes in Fund Balance .. 5 Notes to Financial Statements .. 6 OTHER SUPPLEMENTARY INFORMATION Budgetary Comparison Schedule Proposition 0 Bond Building Fund .. 13 OTHER INDEPENDENT REPORTS 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 ..14 Independent Auditor's Report on Performance .. 16 FINDINGS AND RECOMMENDATIONS SECTION Schedule of Findings and Recommendations .. 21 PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Introduction and Citizens' Bond Oversight Committee Member Listing June 30, 2010 Sweetwater Union High School District "the District" was established in 1920 and covers approximately 153 square miles. The District provides education for grades 7-12 and is currently operating: eleven middle schools, twelve high schools, one continuation, five adult schools and four alternative education schools. One charter school also operates within the District boundaries. On November 7, 2006, the voters of San Diego County approved by more than 55% Proposition O, authorizing the issuance and sale of $644,000,000 of general obligation bonds. On March 12, 2008, the District issued Series 2008A of the Election of 2006 General Obligation Bonds in the amount of $180,000,000. Proposition is a Proposition 39 bond. The passage of Proposition 39 on November 7, 2000 amended the California Constitution to include accountability measures. Specifically, the District must conduct an annual independent performance audit to ensure that funds have been expended only on the specific projects listed 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 facilities projects. 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 Proposition 39 including formation, composition and purpose of the Citizens' Bond Oversight Committee, and authorization for injunctive relief against the improper expenditure of bond revenues. The Citizens' Bond Oversight Committee was comprised of the following members as of Iune 30, 2010: Name Title Representation Rudy Gonzalez Chairperson Senior Citizen Organization Yolanda Hernandez Vice Chairperson At Large Member Debbie Espe Member Taxpayer Association Robert Garcia Member Parent Organization ]ane McGill Member At Large Member Melcher Member Parent Organization Lourdes Valdez Member Business Community ri st it A PROFESSIONAL ACCOUNTANCY CORPORATION Proposition 0 Citizens' Bond Oversight Committee and Governing Board Members of Sweetwater Union High School District Chula Vista, California INDEPENDENT REPORT We have audited the accompanying balance sheet of the Proposition 0 Bond Building Fund of Sweetwater Union High School District and the related statement of revenues, expenditures and changes in fund balance as of and for the fiscal year ended June 30, 2010. These financial statements are the responsibility of the Sweetwater Union High School District's management. 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 of material misstatement. An audit includes examining, on' a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1A, the financial statements present only the individual Proposition 0 Bond Building Fund and are not intended to present fairly the financial position of the Sweetwater Union High School District in conformity with generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Proposition 0 Bond Building Fund of Sweetwater Union High School District as of June 30, 2010 and for the fiscal year then ended, in conformity with accounting principles generally accepted in the United States of America. 2727 ?1335 Bio Scauth - Suite 219 San Diego, CA 'tel: I 619.280.9085 2 Mcensed by the Cattforma Boarci of Accormtancy In accordance with Government Auditing Standards, We have also issued our report dated Ianuary 12, 2011 on our consideration of Proposition 0 Bond Building Fund of Sweetwater Union High School District's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, 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 the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise Proposition 0 Bond Building Fund of Sweetwater Union High School District' basic financial statements. The other supplementary information listed in the table of contents is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements taken as a whole. flomwmawmwaa San Diego, California January 12, 2011 Financial Section PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Balance Sheet June 30, 2010 ASSETS Cash 54,523,036 Accounts receivable -- interest 144,302 Due from other funds 42,178,619 Total Assets 96,845,957 LIABILITIES AND FUND BALANCE Liabilities Accounts payable 7,947,901 Due to other funds 26,286 Total Liabilities 7,974,187 Fund Balance Reserved for capital projects 88,871,770 Total Liabilities and Fund Balance 96,845,957 The notes to financial statements are an integral part of this statement. 4 PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Statement of Revenues, Expenditures and Changes in Fund Balance For the Fiscal Year Ended June 30, 2010 REVENUES Earnings on investments 1,562,473 Local revenue 5,902 Total Revenues 1,568,375 EXPENDITURES Plant services 861,802 Facility acquisition and construction 76,993,329 Total Expenditures 77,855,131 Deficiencies of Revenues Under Expenditures (76,286,756) OTHER FINANCING SOURCES (USES) Transfers in 1,241,633 Total Other Financing Sources (Uses) 1,241,633 Net Change in Fund Balance (75,045,123) Fund Balance, July 1, 2009 163,916,893 Fund Balance, June 30, 2010 88,871,770 The notes to financial statements are an integral part of this statement. 5 PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2010 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity Sweetwater Union High School District (the District) was founded in 1920 and is located in San Diego County. The District serves more than 42,000 st1.1dents, grades 7 through 12, on 32 campuses located across 4 different cities. On November 6, 2006 the District voters authorized $644 million in General Obligation Bonds (Proposition O) for the remodeling and renovations of items which improve learning and safety at every Sweetwater Union High School District campus by repairing/earthquake retrofitting classrooms and restrooms by installing upgraded fire safety systems, security fencing, and safety lighting. In addition, funds will be used to upgrade science labs and computer technology, improve handicap accessibility, replace leaky roofs, heating and air conditioning, outdated plumbing, and remove asbestos, mold, and lead paint. An advisory committee to the District's Governing Board and Superintendent, called the Proposition 0 Citizens' Bond Oversight Committee, was established. The Committee's oversight goals include: advising on bond construction priorities, reviewing school bond construction plans, verifying the project plans are in alignment with the budget, and ensuring compliance with the conditions of Proposition O. The statements presented are for the individual Proposition 0 Bond Building Fund 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 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). PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2010 NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (Continued) C. Basis of Accounting 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; both measurable and available. "'Available"' means collected within the current period or within 60 days after year-end. 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. All encumbrances are liquidated as of Iune 30. E. Deposits and Investments In accordance with Education Code Section 41001, the District maintains a substantial portion of its cash in the San Diego 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. Interfund Borrowing The District's policy is to comply with Education Code Section 42603 which permits temporary borrowing between funds so long as the temporary loan is repaid in the same fiscal year; or in the following fiscal year if the transfer took place within the final 120 calendar days of a fiscal year. The borrowing shall occur only when the fund or account receiving the money will earn sufficient income, during the current fiscal year, to repay the amount transferred. In addition, no more than 75 percent of the maximum of moneys held in any fund or account during a current fiscal year may be transferred. I PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2010 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (continued) G. 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. I-I. 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 Districts Governing Board during the year to give consideration to unanticipated income and expenditures. The adopted and final budget are presented for the Proposition Bond Building Fund in the supplementary information section. 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. NOTE 2 -- CASH AND INVESTMENTS Cash and investments as of June 30, 2010 consisted of the following: Cash in county treasury 54,522,234 Cash in bank 802 54,523,036 PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30; 2010 NOTE 2 -- CASH IN COUNTY TREASURY (continued) Policies and Practices 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. 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. 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 Districts Building Fund maintains an investment with the San Diego County Investment Pool with a fair value of approximately $54,843,915 and an amortized book value of $54,522,234. The weighted average maturity for this pool is 425 days as of June 30, 2010. 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. The individual investments within the San Diego County Investment Pool are rated at least A by Standard Poor's Investment Direct. 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. PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2010 NOTE 3 -- ACCOUNTS RECEIVABLE Accounts receivable as of June 30, 2010 amounting to $144,302 consists of interest on Proposition 0 Bond investments held in the county treasury. NOTE 4 PROPOSITION 0 GENERAL OBLIGATION BONDS General Obligation Bonds On March 12, 2008, the District issued Series 2008A of the Election of 2006 Proposition General Obligation Bonds in the amount of $180,000,000 with issuance costs of $3,735,785 and interest rates that range from 3.0% -- At ]une 30, 2010, the principal balance outstanding on these bonds was $172,380,000. The annual requirements to amortize the District's Proposition O, Series 2008A, general obligation bonds outstanding as of Iune 30, 2010, is as follows: Series 2008A Fiscal Year Principal Interest Total 2010-11 1,560,000 9,148,213 10,297,963 2011-12 50,000 9,089,713 9,139,713 2012-13 495,000 9,087,838 9,582,838 2013-14 970,000 9,070,513 10,040,513 2014-15 1,055,000 9,041,413 10,096,413 2015-20 5,290,000 44,575,194 49,865,194 2020-25 225,000 43,815,406 44,040,406 2025-30 - 43,806,406 43,806,406 2030-35 31,475,000 40,812,656 72,287,656 2035-40 40,170,000 32,116,156 72,286,156 2040-45 52,200,000 20,067,188 72,267,188 2045-47 38,890,000 4,455,000 43,345,000 Total EB 172,380,000 275,085,695 447,465,695 10 PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Notes to Financial Statements Iune 30, 2010 NOTE 5 CONSTRUCTION COMMITMENTS As of June 30, 2010, the District had commitments with respect to unfinished capital projects of approximately $67.3 million to be paid from Proposition bond funds. Project Remaining Balance Planning and Operations 122,381 Chula Vista Middle School 2,965,434 Granger Jr. High School 12,231 Montgomery Middle School 1,624,925 National City Middle School Project 1 5,042,616 National City Middle School Project 2 1,568,300 Southwest Middle Project 1 3,786,944 Chula Vista High School Project 1 5,230,184 Hilltop High School Project 1 7,422,436 Mar Vista High School Project 1 2,913,625 Montgomery High School Project 1 8,047,563 Southwest High School Project 1 5,806,456 Sweetwater High School Project 1 22,711,134 Total Outstanding Construction Commitments 67,254,229 PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Notes to Financial Statements June 30, 2010 NOTE 6 -- INTERFUND ACTIVITIES A. Due From/Due To Other Funds Interfund receivable and payable balances as of June 30, 2010 are as follows: 1. The General Fund borrowed $42,178,619 from the Proposition 0 -- Building Fund during fiscal year 2009-10 as a temporary loan to be repaid. 2. The Proposition 0 - Building Fund borrowed $26,286 from the General Fund during fiscal year 2009-10 for PERS Reduction charges as Well as other costs incurred. B. Interfund Transfers Interfund transfers as of June 30, 2010 are as follows: 1. The County School Facilities Fund transferred $558,230 into the Proposition 0 -- Building Fund during fiscal year 2009-10 for Palomar High Project 1. 2. The Building Fund transferred $683,403 into the Proposition 0 Building Fund during fiscal year 2009-10 from the savings from Bonita Vista High School and Granger junior High projects transferring to other projects. 12 Supplementary Information Section PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Budgetary Comparison Schedule -- Proposition 0 Building Fund For the Fiscal Year Ended June 30, 2010 Variance with Budgeted Amounts Actual Final Budget - Original Final (Budgetary Basis) Pos (Neg) Revenues Other local 4,000,000 4,000,000 1,568,375 (2,431,625) Total Revenues 4,000,000 4,000,000 1,568,375 (2,431,625) Expenditures Classified salaries 311,489 362,668 364,596 1,928 Employee benefits 99,976 111,269 115,328 4,059 Books and supplies 27,921 2,845,655 714,306 (2,131,349) Services and other operating expenditures 100 561,622 353,873 (207,749) Capital outlay 75,627,421 163,214,900 76,307,028 (86,907,872) Total Expenditures 76,066,907 167,096,114 77,855,131 (89,240,983) Excess (deficiency) of revenues over (under) expenditures (72,066,907) (163,096,114) (76,286,756) (91,672,608) Other Financing Sources (Uses) Transfers in - - 1,241,633 1,241,633 Total Other Financing Sources (Uses) - - 1,241,633 - Excess (deficiency) of revenues and other financing sources over (under) expenditures and other financing uses (72,066,907) (163,096,114) (75,045,123) (91,672,608) Fund Balances, July 1, 2009 163,916,893 163,916,893 163,916,893 - Fund Balances, June 30, 2010 91,849,986 820,779 88,871,770 (9l,672,608) 13 Other Independent Auditor's Reports ri st . it A PROFESSIONAL ACCOUNTANCY CORPORATION Proposition 0 Citizens' Bond Oversight Committee and Governing Board Members of Sweetwater Union High School District Chula Vista, California REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAIIDITING STANDARDS Independent Auditor's Report We have audited the accompanying balance sheet of the Proposition Bond Building Fund of Sweetwater Union High School District and the related statement of revenues, expenditures and changes in fund balance as of and for the fiscal year ended June 30, 2010. We conducted our audit in accordance With generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Proposition Bond Building Fund of Sweetwater Union High School District's internal control over financial reporting as a basis of designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of Proposition 0 Bond Building Fund of Sweetwater Union High School District's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Proposition 0 Bond Building Fund of Sweetwater Union High School District' 5 internal control over financial reporting. A deficiency in interniil 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 zueiikness 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. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal control over financial reporting, described in the accompanying Schedule of Audit Findings and Questioned Costs as #2010--1 that we consider to be significant deficiencies in internal control over financial reporting. 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. Ckarnirio De? Ftie - Stlite 219 - San Diego, CA 92198 'teal: I "fax: 14 Licermseci by the California State Board of Compliance and Other Matters As part of obtaining reasonable assurance about whether the Proposition 0 Bond Building Fund of Sweetwater Union High School District'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. Sweetwater Union High School District's response to the finding indentified in our audit is described in the accompanying schedule of findings and recommendations. We did not audit Sweetwater Union High School District's response and, accordingly, express no opinion on it. This report is intended solely for the information and use of the District's Governing Board, the Proposition 0 Citizens' Oversight Committee, management, others within the entity, and the taxpayers of Sweetwater Union High School District and is not intended to be and should not be used by anyone other than these specified parties. San Diego, California January 12, 2011 15 A PROFESSIONAL ACCOUNTANCY CORPORATION Proposition 0 Citizens' Bond Oversight Committee and Governing Board Members of Sweetwater Union High School District Chula Vista, California INDEPENDENT REPORT ON PERFORMANCE We have audited the financial statements of the Proposition 0 Bond Building Fund of the Sweetwater Union High School District (the District) as of and for the fiscal year ended June 30, 2010 and have issued our report thereon dated January 12, 2011. Our audit was made in accordance with generally accepted auditing standards in the United States of America and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In connection with our audit, We also performed an audit for compliance as required in the performance requirements for the Proposition 0 General Obligation Bond for the fiscal year ended ]une 30, 2010. The objective of the examination of compliance applicable to the District is to determine with reasonable assurance that: I The proceeds of the sale of the Proposition 0 Bonds were only used for the purposes set forth in the ballot Measure 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 enhance student learning and safety 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 abuse regarding Proposition 0 projects 0 Prevent material misstatements in the financial statements 0 Ensure expenditures are allocated to the proper fund(s) 272? Ca.minc2 Dal f-7-t?o South t3ui'te San Diego, CA 932108 tel: I fax: 619.260.9085 16 Licensed by the) California State of Aocotmtarrcy Internal Control Evaluation (continued) Procedures Performed (continued): Construction Management: Through our inquiry, it was determined that the Seville Group, Inc (SCI) and Gilbane Building Company Were chosen as the construction management company responsible for overseeing Proposition projects. SGI/Gilbane Building Company monitors the budget daily to make sure the projects are on track with respect to time and cost. Invoices are approved by the lead construction manager responsible for of each project in which the invoice was associated. After the invoice is approved it is forwarded to others as appropriate, such as, California Design (Architect) or the inspector of the projects. Once invoices are approved by the outside parties involved, it is further processed and sent to the District's business services department. Additionally, SGI/Gilbane assists the District with a competitive bid process for service contracts. SGI/Gilbane Building Company prepares a detailed request for proposal and the District reviews and revises the list as necessary before it is published and sent to competing vendors. Business Services: The Proposition 0 funds are tracked separately in the District general ledger by being coded to Fund 22, which rolls up into Fund 21 for San Diego County Office of Education reporting purposes. The individual goal code in the account string indicates the project to which the money is being coded. All of the purchase requisitions are reviewed by the Director of Purchasing before creating a purchase order. All purchase orders for Proposition 0 funds are given a purchase order number starting with to indicate Proposition 0 and are reviewed by the Facilities Accounting Supervisor for budget approval before being routed to the Senior Buyer in Purchasing. The Director of Facilities approves expenditures to verify that they are appropriate per Proposition ballot language. 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 2009- 10 financial statement balances for the Proposition 0 Bond Fund are not materially misstated. Results of Procedures Performed: The results of audits 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 unqualified opinion was expressed on the financial statements. 17 Facilities Site Walk Procedures Performed: We performed a site walk to verify that Proposition 0 funds expended for the fiscal year ended June 30, 2010 were for valid facilities acquisition and construction purposes. CWA toured three District construction sites where 2009-10 construction work occurred: Sweetwater High, National City Middle, and Mar Vista High. Results of Procedures Performed: Sweetwoter High School: CWA viewed the construction of 2 new buildings of which one will be a theatre and the other an administrative classroom and library. The theatre walls were being built on the date of the field walk. It included cinder block compacted with a rebar structure and filled with cement. The walls are on the fifth lift of eight. The walls are also being grouted as the wall height increases. There was trenching in process for storm drains and sewer systems that will be attached to the theatre building. The exterior frame of the administrative building was already complete at the time of the site walk. Unlike the theatre, the administrative building frame was built from a concrete structure. Sundt Construction was pouring concrete for the columns on the north side and the roof top was being stripped for the preparation of the new roof deck. The next phase of the building will undergo construction once the roof is complete. National City Middle.' CWA viewed the construction of a new science building, cafeteria, and cover lunch patio area for the student's eating area. The steel frame of the new science building was covered with DensGlass sheathing, with some areas covered with a pre-scratch coat of tar-paper to prepare for the stucco finish. The building was built on a concrete slab. The building is equipped with an evaluator pit. Through our evaluation of the interior walk-thru, the contractors installed a full sprinkler system in the building, copper pipes for the water utilities, and electrical conduit from the ground and in the walls. The cafeteria has a completed roof top and the ducting for air ventilation was being installed on the date of the wall<--thru. In addition, there was performance on tying the permanent gas utility lines to the cafeteria. The patio frame and cover was complete, however the flooring to the patio area is incomplete. Mm' Vista High: CWA viewed the modernization of the administrative 100 building, career center building, and the student activities 900 building or the food services area. Outside of the administrative building, a new sprinkler system was installed and the land was graded for the preparation of new landscaping. Also, there was new lighting fixtures installed and a new roof was put on the building. The administrative interior was affixed with new ceilings, doors, and receptionist desk. The restrooms of the building were renovated with new toilets, tile flooring, sinks, and faucets. ln addition, the building was set for new electrical, data rooms, and a phone system. Also, new flooring was installed in the nurse's office, the attendance office and the learning center. The learning center had new operational power and computer outlets. A covered patio was installed in the lunch area. The cafeteria area was furnished with roll--up steel doors. The outside perimeter of the cafeteria was prepped for new stucco and multi-ply roofing. The cafeteria building was installed with a new sprinkler system and air ducts. Furthermore, the facilities were set~up with water utilities and electrical conduit. 18 Tests of Expenditures Procedures Performed: We tested expenditures to determine whether Proposition funds were spent solely on voter and Board approved school facilities projects (as contained in the Facilities Master Plan). The expenditure testing included a sample of 70 payments, totaling $19.5 million, or 25% of total expenditures for the fiscal year 2009~10. Expenditures sampled in our test included payments made to the construction management company, architects, district bond position salaries and other vendors. Results of Procedures Performed: We found the expenditures tested to be in compliance with the terms of the Proposition 0 ballot measure and applicable State laws and regulations without exception. We also determined that no bond expenditures were made for teacher or administrator salaries. We do have a recommendation on the timeliness of interfund borrowing repayment which is described as Finding #2010-1. While the expenditure appears legally permissible, the District did not meet the strict requirements of law for timely repayment of the funds borrowed. Test of Contracts and Bid Procedures Procedures Performed: For the fiscal year ended ]une 30, 2010, CWA performed testing of 5 contracts to determine compliance with District policy and Public Contract Code provisions related to contracting and bidding including: 0 Project: Chula Vista Middle School Phase 1 Original Contract Award Amount: 6,896,007 0 Project: Hilltop High School Project 1 Original Contract Award Amount: 12,657,000 - Project: Mar Vista High School Project 1 Original Contract Award Amount: 4,609,518 I Project: National City Middle School Project 1 Original Contract Award Amount: 6,998,000 I Project: Southwest Middle School SOM Renovation Original Contract Award Amount: 5,800,000 Results of Procedures Performed: We found that contracts tested followed proper bidding procedures, and were awarded in all cases to the lowest responsible bidder. 19 Our audit of compliance made for the purposes set forth in the second paragraph of this report would not necessarily disclose all instances of noncompliance. In our opinion, based on the fieldwork described above, as well as other tests that we conducted, the District adhered to the compliance requirements for the Proposition 0 Bond proceeds as listed and tested above. The District's response to the finding identified in our audit is described in the accompanying schedule of findings and responses. We did not audit the District's response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of the Proposition 0 Citizens' Oversight Committee, the District's Governing Board, management, and the taxpayers of Sweetwater Union High School District and is not intended to be and should not be used by anyone other than these specified parties. San Diego, California January 12, 2011 20 Findings and Recommendations Section PROPOSITION BOND BUILDING FUND OF SWEETWATER UNION HIGH SCHOOL DISTRICT Schedule of Findings and Recommendations For the Fiscal Year Ended June 30, 2010 There was one finding related to the financial and performance audit of the Proposition Bond Building Fund for the year ended june 30, 2010, set forth as follows: Finding #2010-1: Interfund Borrowing (60000) Finding: The District's General Fund has borrowed cash from the Proposition 0 bond building fund for the second fiscal year in a row and at an increased level. The amount borrowed rose from $31.75 million as of June 30, 2010 to $42.1 million as of June 30, 2010. Two issues directly related to the bond program were noted: 1. Compliance with Education Code Section 42603: The law requires that all temporary loans be repaid in the same fiscal year with the exception of loans taken out in the last 120 days of the year. The 2008-09 loan was not repaid in 2009-10. Mechanically the District staff stated an intent (which was not fulfilled) to repay the loan and then immediately re--borrow the money at the end of 2009-10. Booking the repayment even if a new borrowing is then recorded would have met the requirements of law, according to staff. As the repayment was not booked, the District is, in our opinion, out of compliance with the Education Code. 2. Proposition 0 Project Timeline: If the bond funds are not repaid, the building program timelines and projects are at risk of delay. Recommendation: We recommend that the District develop a plan to repay the bond funds that might include, for example, expenditure reductions and an increase in General Fund balance reserves to assist with cash flow needs. District Response: The District acknowledges that an interfund transfer should have occurred at the end of the fiscal year, June 30, 2010. Once the oversight was discovered the interfund transfer was performed. Furthermore, all construction projects are on schedule and will be completed as scheduled. 21