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ARIZONA STATE LEGISLATURE

Fiftieth Legislature – First Regular Session

SENATE EDUCATION AND HOUSE EDUCATION COMMITTEE OF REFERENCE FOR THE SCHOOL DISTRICT PERFORMANCE AUDITS OF:

BALSZ ELEMENTARY SCHOOL DISTRICT

CARTWRIGHT ELEMENTARY SCHOOL DISTRICT

COOLIDGE UNIFIED SCHOOL DISTRICT

CREIGHTON ELEMENTARY SCHOOL DISTRICT

FLORENCE UNIFIED SCHOOL DISTRICT

GILA BEND UNIFIED SCHOOL DISTRICT

Minutes of Interim Meeting

Tuesday, November 15, 2011

Senate Hearing Room 1 -- 9:30 a.m.

CoChairman Crandall called the meeting to order at 9:40 a.m. and attendance was noted by the secretary.

Members Present

Senator Crandall, CoChairman                                   Representative Goodale, CoChairman

Senator Allen                                                              Representative Carter

Senator Barto                                                              Representative Meyer

                                                                                    Representative Pancrazi

Members Absent

Senator Lopez (excused)                                            Representative Yee

Senator Schapira (excused)

CoChairman Crandall noted that the Auditor General’s Office was asked for less comprehensive audits so more school districts can be audited and recommendations can be shared with other school districts.  He is pleased because the number of audits performed in the last two years has significantly increased.

Ross Ehrick, Director, Division of School Audits, Auditor General's Office, provided background information on school performance audits, including the auditing schedule for 2011, 2012 and 2013, common findings and the follow-up process (Attachment 1). 

Balsz Elementary School District

Vicki Hanson, Manager, Division of School Audits, Auditor General’s Office, gave an overview of the performance audit for the Balsz Elementary School District issued in March 2011 and one follow-up review (Attachments 1, 2 and 3).  She noted that in order to address the lower-than-expected student achievement, the school year was extended from the traditional
180 days in FY 2009 to 200 days in FY 2010.

In response to questions, Mr. Ehrick described changes by the Auditor General’s Office relating to the scope of audits, random selection of school district groups rather than individual school districts and factors considered in selecting the groups.

Ms. Hanson responded to questions about the savings realized by the district due to rebidding custodial and grounds services and moving maintenance in-house, and factors considered in assessing and comparing plant operations to other school districts.  She noted that the school district has some older buildings, which was a concern in regard to outsourcing plant operations, but there were other school districts in its peer group with older buildings for comparison.

CoChairman Goodale assumed the Chair.

In response to questions, Mr. Ehrick related that the school districts presently being reported on are not grouped together.

CoChairman Crandall resumed the Chair.

Jeffrey Smith, Superintendent, Balsz Elementary School District, related his background in education, noting that this is his fourth year as superintendent.  He stated that the audit report was analyzed and all of the recommendations were implemented.  In response to questions, he conveyed that the school district is experiencing significant savings now that transportation is in-house.  Maintenance, custodial and grounds services were previously contracted with a single company, but separating and bidding those functions to different companies decreased costs.  There have been difficulties with some of the companies, but he is working through that and glad to be saving money.

He acknowledged that the school district does have older facilities and aging air conditioning systems, etc.  He said it is difficult to retain specialized professionals on staff to keep the facilities updated, but many different processes have been implemented to reduce energy costs. 

CoChairman Crandall stated that one of the areas the auditors began to look at in the last few years is academic achievement.  He asked if the school district has a bond or override in place.  Superintendent Smith responded that a bond was passed a few days ago, which will help with plant operations.  There has been tremendous growth in student achievement.  Since extending the school year, English Language Learner (ELL) classification rates more than doubled.  At the time of the report, two of the schools were underperforming and a third was in danger; now all of the schools are performing, performing plus or highly performing.  Tremendous gains have been realized in math and reading as a result of the extended school year. 

In response to further questions, Dr. Smith indicated that when the report was done, the school year had not yet been extended.  State law allows a school district that extends the school year to 200 days in every school to receive five percent more funding.  It costs the school district seven to eight percent, so approximately three percent must be found in the maintenance and operations (M&O) budget to make it work.

Cartwright Elementary School District

Ann Orrico, Manager, Division of School Audits, Auditor General’s Office, gave an overview of the performance audit for Cartwright Elementary School District issued in December 2010 and one follow-up review (Attachments 1, 4 and 5).  She indicated that the superintendent changed at the end of the audit as the report was being issued. 

Jacob Chavez, Superintendent, Cartwright Elementary School District, stated that the $200,000 in increased costs for transportation was due to the fact that the school district has three configurations: K-5, K-8 and middle school.  The sixth graders are released earlier than the seventh and eighth graders, which has been a challenge.  The configurations will not be changed, but modifications are being made for sixth graders so the buses are at capacity.  He reviewed a handout showing the steps taken by the school district to address the recommendations of the audit team in relation to transportation, information technology and the Classroom Site Fund (CSF) (Attachment 6).  In response to a question, he noted that the school district passed a bond last year for $27.8 million, which is being used to remodel several schools, repair roofs, etc.; unfortunately, technology was not included.

He related that in 2008-2009, 12 schools were underperforming, but now all of the schools are performing and one is excelling, which is Tarver Elementary School District.  Also, Cartwright is the only school district in Arizona that has implemented the professional learning community concept throughout the school district; in fact, he received an email from Rick DuFour two weeks ago about the school district’s glowing reviews for student achievement.

Coolidge Unified School District

Vicki Hanson, Manager, Division of School Audits, Auditor General’s Office, gave an overview of the performance audit for the Coolidge Unified School District issued in May 2011 and one follow-up review (Attachments 1, 7 and 8).  She noted that there is a new superintendent and business manager since the audit. 

Ms. Hanson and Mr. Ehrick responded to questions concerning identification of student and instructional support versus administrative expenses in relation to the CSF.

Senator Allen noted that many school districts struggle with transportation costs and asked what can be done to prevent inaccurate reporting of mileage that results in overfunding of transportation costs.  Ms. Hanson indicated that in school districts in which the mileage is reported correctly, the bus drivers fill out daily logs that are incorporated into spreadsheets to report to the Arizona Department of Education (ADE).  Some school districts use odometer readings, etc., in order to report actual mileage. 

CoChairman Crandall noted that Mr. Ehrick, Joint Legislative Budget Committee (JLBC) staff and others will be meeting on Monday, November 21, 2011, to discuss transportation funding.

Cecilia Johnson, Assistant Superintendent/Curriculum, Coolidge Unified School District, introduced Dr. Kenneth Smith, retired Executive Director of Business and Planning, and
Kristi Freader, Governing Board President.  She thanked the auditing team for its work and for helping the school district become more efficient and effective.  She noted that the audit occurred prior to her tenure so she is in the process of addressing the following issues: 

• The school was overstaffed, particularly in administration, mainly because of anticipated growth that did not occur due to the economy.  In the past three years, 24 positions were cut resulting in a savings of $774,000, and teaching and support staff were reduced.
• Commercial development and transportation improvements are planned in what is now the Sun Corridor, so the school district must be prepared when business, industry and families move into the area.
• Student achievement is a major concern: 
• The graduation rate increased from 50 percent to 68 percent, which she would like to increase further, so a nontraditional program was implemented for students who do not find a comprehensive high school palatable; there are 40 students in the program and a waiting list of 40 more students.
• Expansion of curriculum offerings is being considered, particularly in science, technology, engineering and mathematics, for which some grants were obtained.
• Five Advanced Placement classes were added in a blended learning model where a teacher at one high school teaches students at another high school through technology, which she would like to expand.
• There is a pre-engineering program.
• Fifty-one percent of dollars into the classroom is not enough, so the school district is looking at ways to increase the amount; much of the money from federal grants was going to behavioral counselors, which she redirected to academic and data coaches.
• Regarding the $22,000 that employees were overpaid, the school district continues to seek those funds back and recouped all but $9,000.
• Staff is working diligently to reduce the number of cell phones; some are being converted to radio only, particularly for bus drivers, and a federal program called E-Rate reimburses the school district 83 percent for telecommunications services.

In response to questions, Superintendent Johnson stated that students who do not find a traditional high school palatable are in a blended model with an individualized learning program and tutors to help the students earn one-and-one-half to three credits per semester and obtain a high school diploma.  The plan is to expand the program in 2012 and 2013, which will involve hiring more teachers, tutors and providing more technology.  Class size is limited to 20 students.  Some of the 40 students on the waiting list still attend the traditional high school, while others have disengaged and are hoping to get into the program.  Most of the curriculum is purchased from a private vendor and supplemented with the school district’s curriculum so the students are not totally working on a computer to complete the work.

CoChairman Crandall said he is intrigued with blended learning, noting that several models are being used all over Arizona.  He indicated that the Members will visit the school district.  There are some huge challenges and the school district is unique with the San Tan Foothills
High School in the far north and a lot of empty space between it and Coolidge; it is almost like running two separate school districts.

Creighton Elementary School District

Tara Lennon, Audit Manager, Auditor General’s Office, gave an overview of the performance audit for the Creighton Elementary School District issued in July 2010 and two follow-up reviews (Attachments 1, 9 and 10).  She noted that this audit was issued under a different reporting method so some figures are slightly different than the other audit reports.  In response to a question, she indicated that the overpayment to employees was an oversight where two people in payroll authorized a payment.  At the time, the auditors recommended that the school district seek legal counsel about repayment and some of the money was returned. The overpayment was made to 161 employees.

Charlotte Boyle, Superintendent, Creighton Elementary School District, introduced
Dr. Jim Bogner, Assistant Superintendent, Scott Walmer, Director of Finance, and
Carl Zaragoza, Governing Board Clerk.  She thanked the members of the audit team who provided information that assisted in refining the school district’s systems.  She stated that some changes were already underway as the result of an internal audit conducted several years ago in which two of the major findings were also findings of the audit team:

• In September 2008 the school district changed the practice of purchasing food and water.
• A new transportation director was hired who had a process underway to correct some issues such as excessive overtime; after the audit team arrived, other changes were made such as installation of Fuel Master, continuing upgrade of the software and fuel systems to ensure accuracy, limited hours and limited personnel who use the system.

She related the following information:

• Ninety-five percent of the students are identified as being in poverty according to free and reduced lunch figures; 40 percent of the students are ELL. 
• In the last three years, the M&O budget was decreased by $11.5 million due to declining enrollment because of the economy and immigration.
• Despite the reduction in the M&O budget, student achievement has increased; three years ago, six of the schools were underperforming, but this year, one school is highly performing and eight are performing plus.
• With the new letter labels, the school district received a B grade; Biltmore Preparatory Academy received an A, four schools received Bs and the remaining four received Cs.
• The school district is a recipient of funding from the Ellis Foundation for Educational Excellence, as well as federal Title I funding because it is a poverty district.  The funds have allowed the school district to partner with WestEd, as well as provide instructional coaches at each of the schools, student achievement coaches who work to support data with the professional learning communities and Title I facilitators who support Response to Intervention for all of the students, including ELL and Title I.

Superintendent Boyle said in relation to the overpayments to employees, several years ago, the Legislature awarded each school district additional M&O funding, which the school district decided would go to teachers’ salaries. Someone inadvertently used another list of
Career Ladder teachers thinking it was part of the total list, so those teachers received an extra stipend.  When the school district became aware of the mistake, legal counsel was sought and letters were issued to the employees who were overpaid, who responded accordingly.

In response to a question, Superintendent Boyle related that funding from the Ellis Foundation is in excess of $1 million per year.  As M&O reductions were made in the last three years, the governing board and administration attempted not to make cuts to the classroom.  In the first year, the school district increased the student day for K-2 students by 90 minutes and for grades 3-12 by 30 minutes.  The teachers are teaching more hours, but the school district has not had the resources to give teachers or staff a raise in four years.  Unfortunately, the school district recently lost a 15 percent capital override that would have been used to reward support staff, especially teachers, for their commitment.  The community did support a 10 percent override last year, so the school district will be fine for the next seven years.   

Florence Unified School District

Vicki Hanson, Manager, Division of School District Audits, Auditor General’s Office, gave an overview of the performance audit for the Florence Unified School District issued in October 2010 and one follow-up review (Attachments 1, 11 and 12). 

Gary Nine, Superintendent, Florence Unified School District, related his background in education.  He stated that from 2001 to 2007, the student population increased from 1,400 to 6,700; there are now 8,300 children.  The school district has become a state leader in technology. With 1-to-1 in both high schools, it is the only A-rated high school in Pinal County.  The graduation rate is now 75 percent.  He said the audit team was thorough, professional and pointed out weaknesses and errors.  The recommendations were followed to the letter and the guidance of the audit team is appreciated.

CoChairman Crandall asked how the school district is able to have 1-to-1 at both of the high schools.  Superintendent Nine responded that it was possible because the board is “gutsy” and a capital override was passed.

Gila Bend Unified School District

Ann Orrico, Manager, Division of School Audits, Auditor General’s Office, gave an overview of the performance audit for the Gila Bend Unified School District issued in August 2011 (Attachments 1 and 13).  She indicated that the follow-up will be done in February 2012.  This is another school district in which a new superintendent joined the school district just as the report was issued.  In response to a question, she indicated that the prior superintendent ran the computations on the solar power contract.

Lynnette Michalski, Superintendent, Gila Bend Unified School District, said this is her first year as superintendent.  She introduced Anna-Marie Perry, Business Manager, and thanked
Ms. Orrico for walking her through the process and identifying issues.  She made the following comments: 

• The school district is working to address high plant operations costs by pursuing an investment grade audit, which the project manager is looking into with the improvements that are recommended to see how it will affect the solar power contract.
• Regarding inadequate computer controls:
• The number of people with access to the accounting system has been reduced from four to three.
• Stronger password control was implemented.
• A procedure was created so that an employee who is terminated or resigns is removed from the network.
• The student information system is housed on campus on a district server so no outside entity has access to the information.  The school district is working with the Maricopa County Education Service Agency on a written agreement outlining party responsibilities and consulting other school districts.
• Although the network connection outlets are not physically disabled, a user name and password is needed for access, except Internet access, which is filtered.
• A draft plan is in place for a recovery plan, which she is working on with the information technology director.
• In relation to the transportation funding program, the business manager made the necessary corrections and created a spreadsheet so route mileage is reported accurately.
• The CSF money that was inappropriately spent was repaid using M&O and the 301 plan is being remapped to show more rigor, not only in academic goals, but also professional development.
• Gila Bend was one of the first school districts to initiate a solar contract, which mirrors the language in A.R.S. 15-213.01, specifically Subsections F, J and O:
• The contract requires the seller to perform an annual energy audit for the first three years, but also goes above the statute to conduct an audit once every three years for the duration of the contract.
• The seller guarantees that the energy or operational cost savings will meet or exceed the cost of the solar installation for the next 25 years, or the expected life of the system, whichever is shorter.
• Recent utility bills indicate that the school district is utilizing most of the excess energy produced; last year, the school district was on a four-day school week, but it has moved to a five-day school week, which generates slightly more electricity.
• According to the contract, the seller will reimburse the school district for any shortfall of those guaranteed cost savings.
• A meeting is planned in January 2012 to review the outcome of the first year.

CoChairman Crandall stated that there is a steep learning curve on solar contracts.  He indicated that either a joint or separate Education Committee meetings will be held in January 2012 and asked Superintendent Michalski if she would speak to the Members about the solar power contract, which she agreed to do.

Discussion

CoChairman Crandall thanked Debbie Davenport, Auditor General, for taking the request seriously that was made a few years ago.  He noted that if 60 audits are performed this year and next, there will be 150 school districts that are not audited.  He questioned if there is a way to help those school districts conduct an internal, self-directed performance audit.

Debbie Davenport, Auditor General, responded that the team members got the message loud and clear to increase the number of audits per year, which has been done, with less staff.  The team that has been assembled has a wealth of experience and the desire to make things better for the citizens of the state.  A risk assessment is done of the comparison groups to determine if any of the school districts have a high risk for problems or superior performance and those areas are studied in-depth.  The auditors have accumulated a body of knowledge about best practices that can be shared.  The auditing team will be attending the Arizona School Boards Association conference in February 2012 where the auditors will share problems and best practices from the recent set of reports.  The Auditor General’s Office is also ready to distribute best practices papers on findings; solar energy is one of the areas the auditors learned much about that will be shared with school districts.

CoChairman Crandall commented that the Members appreciate the work and efforts of the Auditor General’s staff.

Mr. Meyer asked if the Auditor General’s Office has some method to “red flag” a school district that appears to be spending a lot in a certain area, and if the school district could be contacted so the matter could be addressed before an audit is performed. 

Mr. Ehrick noted that the school district spending report issued every year is color coded for costs.  If an area is highlighted in red, he hopes the school district would notice that area is costing a lot more than in comparable districts and look into what is going on.

Ms. Davenport added that is the most that is done at this point, but she is willing to see what may be done proactively with current resources.

Mr. Meyer opined that it would be good to develop a proactive system, noting that the same problems seem to occur year after year, but in different school districts. 

CoChairman Goodale stated that it is refreshing when school districts comment about their wonderful relationship with the Auditor General’s staff, who are highly praised for their professionalism and ease in working with school district personnel.

Without objection, the meeting adjourned at 12:00 noon.

                                                                        _______________________________

                                                                        Linda Taylor, Committee Secretary

                                                                        November 23, 2011

(Original minutes, attachments and audio on file in the Chief Clerk’s Office; video archives available at http://www.azleg.gov)

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COR - SENATE AND HOUSE ED

SCHOOL DISTRICT PERFORMANCE AUDITS

                        November 15, 2011

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