AUDIT REPORT For the Fiscal Year Ended June 30, 2010 _part2 potx

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10
MEASUREEBONDBUILDINGFUND
OFBEVERLYHILLSUNIFIEDSCHOOLDISTRICT
NotestoFinancialStatements
June30,2010


NOTE2–CASHANDINVESTMENTS(continued)


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.InvestmentswithintheLosAngelesCountyInvestmentPoolareratedatleast
AbyMoody’s
InvestorsService.

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.


NOTE3–ACCOUNTSRECEIVABLE



Accountsreceivableamountingto$214,516asofJune30,2010
consistsofinterestearnedontheDistrict’s
investmentintheCountyTreasury.


NOTE4–CONSTRUCTIONCOMMITMENTS


TheMeasureEBondBuildingFundhadnoconstructioncommitmentsasofJune30,2010. 


NOTE5–MEASUREEGENERALOBLIGATIONBONDS


AsofJune30,2010,theprincipalbalanceoutstandingontheDistrict’sMeasureEgeneralobligationbonds
isindicatedasfollows:

Amount
Dateof Interest Maturity ofOriginal Outstanding Outstanding
Issue Rate% Date Issue
J
uly1,2009 Additions Deletions
J
une30,2010
Series2009 1/6/2009 2.50%‐5.00% 8/1/2033 72,044,664$ 72,044,664$ ‐$ ‐$ 72,044,664$
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11
MEASUREEBONDBUILDINGFUND

OFBEVERLYHILLSUNIFIEDSCHOOLDISTRICT
NotestoFinancialStatements
June30,2010


NOTE5–MEASUREEGENERALOBLIGATIONBONDS(continued)


Electionof2008,Series2009

OnJanuary6,2009,Series2009bondsoftheMeasureEbondauthorizationwereissued,whichconsisted
ofcurrentinterestandcapitalappreciationbondswithaninitialparamountof$72,044,664,withstated
interestratesof2.50%to5.0%andmaturingthroughAugust1,2033. 

Theannualrequirementstoamortize
allMeasureEgeneralobligationbondspayableoutstandingasof
June30,2010,areasfollows:

YearEnded
June30, Principal* Interest Total
2011 ‐$ 534,463$ 534,463$
2012 ‐ 534,463 534,463
2013 ‐ 534,463 534,463
2014 ‐ 534,463 534,463
2015 350,000 534,463 884,463
2016‐2020 8,535,000 2,236,839 10,771,839

2021‐2025 13,656,334 14,997,416 28,653,750
2026‐2030 24,695,030 50,304,970 75,000,000
2031‐2034 24,808,300 79,191,700 104,000,000
Total 72,044,664$ 149,403,240$ 221,447,904$
*Principalexcludes$1,903,085ofaccretedinterestasof
June30,2010.
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12
MEASUREEBONDBUILDINGFUND

OFBEVERLYHILLSUNIFIEDSCHOOLDISTRICT
NotestoFinancialStatements
June30,2010


NOTE6–INTERFUNDACTIVITIES


Interfundactivityisreportedasloans,servicesprovidedreimbursements,ortransfers.Loansare
reportedasinterfundreceivablesandpayablesasappropriateandaresubjecttoeliminationupon
consolidation.Servicesprovided,deemedtobeatmarketornearmarketrates,are treatedasrevenues
andexpenditures.Reimbursementsarewhenonefund
incursacost,chargestheappropriatebenefiting
fund,andreducesitsrelatedcostasareimbursement.Allotherinterfundtransactionsaretreatedas
transfers.


DueFrom/DueToOtherFunds


As of June 30, 2010, the Measure E Bond Building Fund had a interfund receivable from the District’s
General Fund for $2,000,000. This amount was borrowed for  temporary cash flow purposes, and was
subsequentlyrepaidonAugust25,2010.


NOTE7–MEASUREEEXPENDITURESBYMAJOR OBJECT


Thefollowingtablepresentstheexpenditureamountsbymajorobjectforthefiscalyearended
June30,2010:

ExpendituresbyObject Amount Percent
Classifiedsalaries 22,615$ 0.6%
Employeebenefits 7,134 0.2%
Booksandsupplies 17,581 0.5%
Servicesandotheroperatingexpenditures 1,304,625 34.1%
Capitaloutlay 2,476,379 64.7%
Total 3,828,334$ 100.0%
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13
MEASUREEBONDBUILDINGFUND


OFBEVERLYHILLSUNIFIEDSCHOOLDISTRICT
NotestoFinancialStatements
June30,2010


NOTE8–MEASUREEEXPENDITURESBYPROJECT


ThefollowingtablepresentstheexpenditureamountsbyprojectforthefiscalyearendedJune30,2010:

SchoolSite Amount Percent
BeverlyVistaSchool 137,503$ 3.6%
ElRodeoSchool 455,492 11.9%
HawthorneElementarySchool 420,712 11.0%
HoraceMannSchool 1,077,129 28.1%
BeverlyHillsHighSchool 708,888 18.5%
Facilitiesandplanning 30,724 0.8%
Legalfees 503,304 13.1%
Programadministration 494,582 12.9%
Total 3,828,334$ 100.0%



NOTE9–COMMITMENTSANDCONTINGENCIES

Duringthe2009‐10fiscalyear,the DistrictwasinvolvedinlitigationrelatedtotheMeasureEbond
program.OnAugust28,2009andSeptember 3,2009,theDistrictfiledaComplaintofDamagesagainst
StrategicConcepts,LLC,theMeasure EBondprojectmanagementconsultant,aswellasaNotice
of
RelatedCasesforpurposeofCaliforniaRulesofCourt.TheDistrictisseekingtorecover$4millioninfees

paidtoStrategicConcepts,LLC.StrategicConcepts,LLChasfiledacountersuitagainsttheDistrictto
recoup$16millionrelatedtotheircontractwiththeDistrict.

AsofJune30,
2010,noprovisionhasbeenmadeforthelitigationintheMeasureEBondBuildingFundas
theoutcomeofthelitigationisunknown.The litigationiscurrentlyawaitingtrial.
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14

MEASUREEBONDBUILDINGFUND
OFBEVERLYHILLSUNIFIEDSCHOOLDISTRICT
NotestoFinancialStatements
June30,2010


NOTE10–SUBSEQUENTEVENTS


InterfundBorrowing


TheDistrict’sGeneralFundborrowedanadditional$2,000,000fromtheMeasureEBondBuildingFund
onOctober27,2010tohelpoffsetcashflowdeficits.InaccordancewithEducationCodeSection42603,
thisamountisrequiredtoberepaidbyJune30,2011.



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OtherIndependentAuditor’sReport

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15

GoverningBoardMembersand
MeasureECitizens’OversightCommittee
BeverlyHillsUnifiedSchoolDistrict
BeverlyHills,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GOVERNMENTAUDITINGSTANDARDS


IndependentAuditor’sReport


WehaveauditedthefinancialstatementsoftheMeasureEBondBuildingFundofBeverlyHillsUnified
SchoolDistrict(the“District”)asofandforthefiscalyearendedJune30,2010,andhaveissuedourreport
thereondatedDecember10,2010.
Weconductedourauditinaccordancewithauditingstandards
generallyacceptedintheUnitedStatesofAmericaand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BeverlyHillsUnifiedSchoolDistrict’sinternal
controloverfinancialreportingasabasisfordesigningourauditingproceduresforthepurposeof
expressingouropiniononthefinancialstatements,butnotforthepurposeofexpressinganopinionon
theeffectivenessoftheBe
verlyHillsUnifiedSchoolDistrict’sinternalcontroloverfinancialreporting.
Accordingly,wedonotexpressanopinionontheeffectivenessoftheBeve rlyHillsUnifiedSchool
District’sinternalcontroloverfinancialreporting.

Adeficiencyininternal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de
tectand
correctmisstatementsonatimelybasis.Amaterialweakness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de
finedabove.However,weidentifiedcertaindeficienciesininternalcontrolover
financialreporting,describedintheaccompanyingscheduleofauditfindingsandmanagement’s
responses,as#2010‐1and#2010‐2FinancialAuditFindings,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.
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16

ComplianceandOtherMatters


AspartofobtainingreasonableassuranceaboutwhethertheMeasureEBondBuildingFundofBeverly
HillsUnified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dire ct
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.

BeverlyHillsUnifiedSchoolDistrict’sresponsestothefindingsidentifiedinourauditaredescribedin

theaccompanyingscheduleofauditfindingsandmanagement’sresponses.WedidnotauditBeverly
HillsUnifiedSchoolDistrict’sresponsesand,accordingly,weexpressnoopiniononthem.


ThisreportisintendedsolelyfortheinformationanduseoftheDistrict’sGoverningBoard,theMeasure
ECitizens’OversightCommittee,management,otherswithintheentity,andthetaxpayersofBeverly
HillsUnifiedSchoolDistrict,andisnotintendedtobeandshouldnotbe usedbyanyoneotherthan
these
specifiedparties.



SanDiego,California
December10,2010
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


AuditFindingsand
Management’sResponsesSection
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
17
MEASUREEBONDBUILDINGFUND
OFBEVERLYHILLSUNIFIEDSCHOOLDISTRICT
ScheduleofAuditFindingsandManagement’sResponses

FortheFiscalYearEndedJune30,2010


#2010‐1FinancialAuditFinding:ExpenditureInternalControls


AuditFinding:WeidentifiedthefollowingareasforimprovingtheDistrict’sinternalcontrolsover
MeasureEBondProgramexpenditures:
 11of34expenditurestestedinfiscalyear2009‐10hadapurchaseorderdatedfollowing
theinvoicedate.
 7of34expenditurestestedinfiscalyear2009‐10
hadnopurchaseorderinplace.
 A$118,163.88paymenttoLVHEntertainmentSystemsinAugust2009madefromthe
MeasureEBondBuildingFundin2009‐10forretainagewasforacontractforelectrical
andrelatedworkthathadanoriginalvalueof$663,643andtotalchangeorders
inthe
amountof$517,995.71.Inthiscase,the13individualchangeorderswereindividually
below10%ofthecontractamount,perLosAngelesCountyrequirements,butintotal
exceeded10%ofthecontractamountperPublicContractCodeSection20118.4.
 $2.1millioninprioryear(2008‐09)expenditureswe
testedthatweremadefromthe
MeasureEBondBuildingFundtovendorStrategicConceptshadcontroldeficienciesand
questionableaspects,includinglackofitemizationastohowmonthlyprogramand
projectmanagementcostswerecharged;nousageofpurchaseorders;contractnot
accuratelymonitoredinpaymenthistorysummary;relatively
highleveloffixedcharges
earlyinthebondprogram(includingbillingsforthe threemonthspriortobond
issuance);impropergeneralledgercodingforwebsiterelatedexpenditures;and
relativelyhighlevelsofreimbursableitemssuchasfoodandAT&Twirelessbills.


Recommendation:Werecommendthatpurchaseordersbe
createdpriortoMeasureEexpendituresto
documentauthorizationforexpendituresandtoproperlyencumberfunds.Werecommendthatthe
Districttakestepstolimitconstructioncontractchangeorders,suchasinthecaseofLVHEntertainment
Systems.TheDistrictisadvisedtoundertakeaninvestigationofpaymentsmadetovendor
Strategic
ConceptsfromtheMeasureEbondprogram.AnyamountsrecoveredfromStrategicConceptsshouldbe
reimbursedtotheMeasureEBondBuildingFund.

AlthoughtheDistricthasobtainedalegalopinionstatingthatchargingconstruction‐relatedlegalfeesto
theMeasureEBondBuildingFundispermissible,wewould
cautiontheDistrictthattheamountoflegal
feespaidbecloselymonitoredsothatMeasureEfundscanbe maximizedintheirdirectapplication
towardfacilitiesmodernizationandconstructionpurposes.

Management’sResponse:Theadministrationofthebondprogramhaschangedandstricterinternal
controlsandprocessesarebeingput
intoplace.TheDistrictiscreatingpurchaseordersfortrackingthe
contractforprojectsundertheBondFunds.TheFacilitiesDepartmentisalsousingfacilitysoftwareto
trackthedetailofeachprojectasitrelatestobudget,estimates,andactuals.Theseprojectswillbe
incorporatedintotheDistrict’sfinancial
reportsutilizingpurchaseorders,acknowledgingchangeorders
asalineitemadjustmenttothepurchaseorder,andtrackingcontractsoverfiscalyearsasappropriate.
Thecurrentadministrationisfollowingthemaximumchangeorderamountof10%inconjunctionwith
theLosAngelesCountyOfficeofEducationBulletinonCommercialWarrantsfor
establishedcriteria.
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

18
MEASUREEBONDBUILDINGFUND
OFBEVERLYHILLSUNIFIEDSCHOOLDISTRICT
ScheduleofAuditFindingsandManagement’sResponses
FortheFiscalYearEndedJune30,2010


#2010‐2FinancialAuditFinding:InterfundBorrowingofMeasureEBondProceeds


AuditFinding:WenotedthattheDistrict’sGeneralFundborrowed$4millionofMeasureEbond
proceedsin2009‐10,asofDecember2009,repaying$2millioninFebruary2010andrepayingthe
remaining$2millioninAugust2010.Amountswererepaidwithinterest.TheAugust2010repayment
wasnot
incompliancewithEducationCodeSection42603,whichrequiresthatinterfundborrowingsnot
madeinthefinal120daysofthefiscalyearberepaidwithinthesamefiscalyear.

Weproposed,andtheDistrictmade,areclassificationadjustmenttoproperlyreflecttheAugust2010
repaymentofthe$2million
borrowedbytheGeneralFundfromtheMeasureEBondBuildingFundas
anamountrepaidinthe2010‐11fiscalyearratherthanasarepaymentofthe2009‐10fiscalyear.The
reclassificationadjustmentwasnecessarybecausethe$2millionAugust2010repaymenttransactionwas
recordedduringtheyear
‐endclosingprocess,causingaretroactiveadjustmenttothe2009‐10fiscal
periodbecausethefinancialrecordsfor2009‐10werestillopen.

Anadditional$2millionwasborrowedbytheGeneralFundfromtheMeasure EBondBuildingFundin
October2010,andhasnotyetbeenrepaidas
ofNovember2010.


Recommendation:WerecommendthattheDistricttakestepstocomplywithEducationCodeSection
42603requirementsforinterfundborrowinginthefuture.AmountsborrowedfromtheMeasureEBond
BuildingFundshouldbekepttoaminimum,tofullycomplywithstatutoryandlocalballotlanguage
prohibitions
onusageofbondfundsforadministrativepurposes.

Management’sResponse:StaffprocessedthereimbursementtotheGeneralFundincludinginterestas
partoftheyear‐endprocessing.Procedurestomaketherepaymentsintimehavebeenimplemented.
TheDistrictwillusethepropertytaxpaymentcyclestorepaythetemporary
cashborrowingandremit
interestatthesametime.
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
19
MEASUREEBONDBUILDINGFUND
OFBEVERLYHILLSUNIFIEDSCHOOLDISTRICT
SummaryScheduleofPriorAuditFindings
FortheFiscalYearEndedJune30,2010


Finding#2009‐1:Expenditures


Finding:MeasureEexpenditureshadfivetotaltransactionsdeterminedtobedisallowedforatotalof
$2,769.Thetypesofexpendituresdisallowedincludeconferencecosts,rentalcar,andmealcosts.

CurrentStatus:Implemented.TheGeneralFundreimbursedtheMeasureEBondBuildingfundinfiscal
year2009‐10forthe

$2,769questionedcostsoftheprioryearaudit.
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