What are accountability requirements for proposition 39?

Proposition 39 bond programs are often the largest portion of a K–14 school district’s annual expenditures. With program costs ranging from a few million to several billion dollars, stakeholders want to know where and how funds are spent. High-profile, high-dollar projects — such upgrades to schools and facilities — receive extra scrutiny from the various stakeholders, including taxpayers, given the many requirements and best practices expectations by district and community members. To that end, Proposition 39 created several accountability requirements associated with the lower 55% threshold for approval. Accountability requirements for proposition 39 Present voters with specific project list that indicates how the money would be spent Establish a Citizens Oversight Committee to oversee the spending and reporting of such expenditures to the public Don’t use funds for salaries or operating expenses Conduct annual performance and financial audits that comply with generally accepted government auditing standards (GAGAS)

How does the citizens oversight committee requirement for proposition 39 affect school districts?

Proposition 39 requires school districts that pass bonds to establish and appoint members to an independent Citizens Oversight Committee to support a successful, transparent, and accountable bond program.

What are the core duties of a citizens oversight committee member?

Based on Education Code Sections 15278, the Committee’s three core duties are: Inform the public on the district’s expenditures of bond revenue Actively review and report on the proper expenditures of taxpayer’s money for school districts Produce and present an annual report to summarize the committee’s findings, proceedings, and activities within the prior year

What are membership requirements for the citizens oversight committee?

The Citizens Oversight Committee must consist of at least seven members to serve for a two-year term without compensation and for no more than two consecutive terms. Members are required to meet certain requirements to ensure a well-balanced committee — such as one member needs to be active in a bona fide taxpayers' organization, one member needs to be a parent or guardian of a child enrolled in the district, and more. They should specifically engage in any of the following activities to maximize the benefit to the school district or community college organization and the community they serve: Receive and review the annual independent performance audit and financial audit reports Inspect school facilities and grounds to ensure that bond revenue is expended in compliance with bond requirements Receive and review copies of any deferred maintenance proposal or plans developed by the K–14 school district Review efforts by the school district or community college district to maximize bond revenue by implementing cost-saving measures Cost-saving measures Cost-saving measures include the following: Mechanisms designed to reduce the costs of professional fees, site preparation, and school site design by incorporating efficiencies Recommendations regarding the joint use of core facilities and a cost effective and efficient reusable facility plan

What are annual performance and financial audit requirements for proposition 39?

The performance audit mentioned in the constitutional amendment can provide a tool for the Citizens Oversight Committee to report on the compliance of Bond expenditures. However, there was little legislative guidance on the specific components of such a performance audit other than an audit must determine two things — that funds: Were spent on projects approved by the voters Weren’t spent on operating expenses — such as teacher and administration salaries and other school operating expenses

The Government Accountability Office (GAO) issues the GAGAS, also known as the Yellow Book. It provides performance auditors with standards and an understanding of how to apply them to complete audit objectives.

What is a compliance audit?

It’s important to note that not all performance audit reports result in conclusions that improve efficiency and reduce business risk exposures. Most schools perform the minimum requirement assessing whether expenditures were for List Projects, as defined in the Bond Documents, only. This audit objective may not be broad enough to provide information to an organization that would allow the organization to reduce its risks. Such limited performance audits are termed compliance audits. Compliance performance audits are most often used by school districts and cited as so-called clean audits if there are no exceptions noted.

What are some risks or challenges with performance audit components?

If an auditor doesn’t have the technical background in construction and bond programs, the following performance audit components may be at risk of not being properly addressed: Objectives Criteria Methodology and Scope Objectives The most appropriate objectives to address the various performance aspects of your capital program may not be selected. Your bond program may be experiencing cost overruns, inadequate identification of project scope, gaps in funding availability, or schedule delays. Audit objectives may need to be selected that review project processes, procedures for managing scope, prioritization of projects, quality, schedule, budget, or change-control methodologies and reporting. Criteria The most appropriate criteria to evaluate results, controls, efficiency, and compliance may not be utilized. Setting appropriate criteria is a critical step and may include purposes or goals prescribed by law, regulations, or the audited entity’s officials; policies and procedures; and technically developed standards or norms. Methodology and scope The methodology and scope selected may not result in sufficient and appropriate evidence to support meaningful audit conclusions. Scope and methodology should be designed to obtain sufficient, appropriate evidence that addresses the program’s objectives and provides a reasonable basis to support the report’s conclusions.

What are compliance standards for performance audits?

All performance audits should at a minimum comply with standards outlined under Proposition 39. There are, however, benefits for the school district to provide a more expansive audit that looks at the efficiency and effectiveness of spending. This more expansive audit often results in significant control improvements and cost savings to districts, which often exceed the fees of the expanded audit. The challenge is convincing the school district to go beyond the basic performance audit requirements of reporting on whether funds were spent on authorized projects and not on operating expenses.

Article

An FAQ on California’s proposition 39 and how it affects school districts

Oct. 11, 2021 · Authored by Stephen Bacchetti, Nick Marinovich of California Association of Bond Oversight Committees

Construction bond programs are often the largest expenditure of a district’s capital and operating budget. With bond program costs ranging from millions to several billion dollars, citizens and stakeholders want to know where and how funds are spent.

High-profile, high-dollar projects — such as infrastructure upgrades, upgrades to schools, and athletic facilities — likely receive extra scrutiny from the organization, the media, and the public.

Common program pitfalls might include project charges not specifically addressed in the ballot language and cost overruns resulting from ineffective procurement practices, schedule delays that impact operations, or penalties for noncompliance with state or federal regulations. Expertise in construction programs and the related controls aren’t typically core competencies for school districts and the individual departments within them.

Understanding California Proposition 39, the accountability requirements, and best practices is essential to support a successful bond program. In the following, you’ll find details on the following questions:

What is California proposition 39, also known as the school facilities local vote act of 2000?
What are accountability requirements for proposition 39?
How does the citizens oversight committee requirement for proposition 39 affect school districts?
What are annual performance and financial audit requirements for proposition 39?
Next steps: A proposition 39 checklist and finding an auditor

What is proposition 39?

California voters passed Proposition 39 on Nov. 7, 2000, which amended provisions to the California Constitution and subsequently amended the California Education Code accordingly.

Stephen Bacchetti

Principal

Related sections

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

An FAQ on California’s proposition 39 and how it affects school districts

What is proposition 39?

Stephen Bacchetti

Related sections

Background leading to proposition 39

What are accountability requirements for proposition 39?

Accountability requirements for proposition 39

How does the citizens oversight committee requirement for proposition 39 affect school districts?

What are the core duties of a citizens oversight committee member?

What are membership requirements for the citizens oversight committee?

Cost-saving measures

What are annual performance and financial audit requirements for proposition 39?

What is GAGAS?

What is a compliance audit?

What are some risks or challenges with performance audit components?

Objectives

Criteria

Methodology and scope

What are compliance standards for performance audits?

Next steps: Checklist for oversight committees and performance auditors

Find the right performance auditor to help with proposition 39

CPE requirements

Auditor competence

Peer review

Learn more

Have questions? Baker Tilly can help.