MICHAEL W.

AMMERMON
Certified Public Accountant Certified Fraud Examiner Diplomate of the American Board of Forensic Accounting October 18, 2012 Dr. Xavier De La Torre County Superintendent of Schools Santa Clara County Office of Education 1290 Ridder Park Drive San Jose, CA 95131-2304 Dear: Dr. De La Torre, On October 1, 2012, I entered into an agreement with the Santa Clara County Office of Education (SCCOE) to conduct a review of the Los Gatos Union School Districts (District) contracting practices with particular emphasis on its contracts with HMC Architects. The October 1, 2012 agreement further states that if sufficient evidence exists to suggest fraud, misappropriation of funds or other illegal acts, to communicate such findings to the SCCOE and expand the scope of the review to an audit. The results of my review of the District contracting practices with particular emphasis on its contracts with HMC Architects is that I do not find that fraud, misappropriation of funds or other illegal acts have occurred. However, during the course of my review, I did become aware of District contract internal controls policies and procedures that should be strengthened and have included my recommendations in this report. My engagement was performed in accordance with the consulting standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of the SCCOE and I make no representations regarding the sufficiency of the procedures either for the purpose for which they were requested or for any other purpose. I was not engaged to and have not audited or performed a review of financial information or internal controls of the District in accordance with generally accepted auditing standards and, therefore, I do not express such an opinion. The procedures I used in preparing my findings and recommendations in this report may not identify all material weaknesses in the Districts contracting practices with particular emphasis on its contracts with HMC Architects and my report is specifically limited to only the Districts contracting practices with particular emphasis on its contracts with HMC Architects as I considered necessary in accomplishing my objectives. The attached report contains my recommendations which are limited to the terms of my agreement with SCCOE.
30100 Crown Valley Pkwy Ste. 35E Laguna Niguel, CA 92677 Tel (949) 364-2486; E-mail: mwacpa@me.com

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I appreciate the opportunity to serve the Santa Clara County Office of Education and extend my thanks to the Santa Clara County Office of Education and Los Gatos Union School District staff for all of the assistance they provided. Sincerely, Michael W. Ammermon

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Santa Clara County Office of Education Los Gatos Union School District

Santa Clara County Office of Education Los Gatos Union School District Contracting Practices with Particular Emphasis on its Contracts with HMC Architects
RECOMMENDATIONS: The following recommendations are limited to the sampled District contracts reviewed with particular emphasis on the Districts contracts with HMC Architects. Type of Contract The District uses two types of contracts for Architectural and Engineering services such as with HMC Architects. The two types of contracts the District uses for Architectural and Engineering services is an approximately 27 page detailed contract titled, Agreement for Architectural Services, and a three page contract titled, Independent Contractor Agreement. The Independent Contractor Agreement is the primary contract the District uses for the majority of its contracting services; however, there is no procedure that determines the circumstances under which each contract should be used. Recommendation: The District should consider defining when each type of contract, either the Agreement for Architectural Services or Independent Contractor Agreement, should be used. It is recommended that the Agreement for Architectural Services be used for all Architectural and Engineering professional services and the name of the agreement changed to Agreement for Architectural and Engineering Services. Independent Contractor Agreement The Independent Contractor Agreement (ICA) used by the District contains five District signature and date approval lines and one Contract Term line. The District signature and date approval lines are in the following order: Program Manager, Superintendent, Assistant Superintendent Business Services, and Board of Trustees. These signature and date lines are at the end of the third page of the ICA. ICA Approval Signature and Date Lines The ICA approval signatures and dates are not in the proper authorization order and appear to be signed and dated without any particular order. Recommendation: The District should consider reordering the ICA approval signature lines to identify the proper order of approving an ICA. It is recommended that the District ICA authorization order be as follows: Program Manager, Assistant Superintendent Business Services, Superintendent, and Board of Board of Trustees.

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Santa Clara County Office of Education Los Gatos Union School District ICA Board of Trustees Signature and Date of Approval The ICA Board of Trustees signature and date of approval is not always the date of the board meeting. Recommendation: The District should consider that the ICA Board of Trustee approval signature be obtained on the day of the board meeting. Signing and dating the Districts Board of Trustee ICA approval on the date of the board meeting insures that the Board of Trustee approval is the same as the board meeting approving the ICA. ICA Board of Trustee Signature The ICA Board of Trustees approval signature is not always a member of the Board of Trustees and should not be the Superintendent of the District. Recommendation: The District should consider that since the ICA approval requires a Board of Trustees signature, the Board of Trustees authorization signature should take place at the board meeting on the date that the ICA is approved and be signed by one of the District Board of Trustee members. Alternatively, the District may consider eliminating the ICA Board of Trustee approval signature line since the ICA contract is formally approved at the District board meeting and documented within the District board minutes. ICA Contract Term Effective Dates The District ICA Contract Term effective dates define when work is to begin and end and should not be dated prior to the ICA Board Approval date for services that require advanced board approval. Recommendation: It is recommended that the District ICA Contract Term effective date should only be dated after the ICA Board Approval date and District policy updated to address when a contract term effective date may be prior to District Board of Trustee approval. ICA Contract Presentation to District Board of Trustees The ICA contract presented to the District Board of Trustees is not always the most current contract in the approval process. If a District ICA contract includes at least one approval signature prior to presenting the ICA contract to the District Board of Trustees for approval, the District Board of Trustees board packet should not contain an ICA contract that is not signed. Recommendation: It is recommended that the ICA contract that the District Board of Trustees receives in their board packet be the ICA contract in its most current processed state when the board packet is assembled.

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Santa Clara County Office of Education Los Gatos Union School District District Facilities Board Policy District Bidding Procedures The District Board Policy BP 7140 Facilities discusses contractors for architectural and engineering services and states the following: Examples of professional services that are exempt from competitive bidding include but are not limited to: 1. Private architectural (Government Code 4528) 2. Landscape architectural (Government Code 4528) 3. Engineering (Government Code 4528 and 53060) 4. Environmental (Government Code 4528) Contractors such as HMC Architects and Pacific Crest Engineering, Inc. are characterized by the District as professional services that are exempt from the competitive bidding process. The District has adopted District Resolution #16-09-10, Informal Bidding Procedures Under The Uniform Public Construction Cost Accounting Act (Section 22000 ET.Seq. Of The California Public Contract Code which establishes alternative bidding procedures and certain informal bidding procedures. Under this policy, the District Chief Business Officer is authorized to award informal contracts when the contract dollar threshold is $125,000 or less. The Uniform Public Construction Cost Accounting Act (UPCCAA) has increased the informal bid procedures limit from $125,000 to $175,000 which has not been updated in District policy. Recommendation: The District should determine if it will continue with the previous UPCCAA informal bid limit amount of $125,000 or adopt a policy that states that the District will follow the UPCCAA bid limits as the UPCCAA bid limit amounts and guidelines change. Contract Change Orders The District does not have a policy and procedure available for projects that change or up-scope or down-scope. Project change orders or Amendment to Contract documents are typically a one page authorization document identifying the amount of the change order, adjusted contract total, reason for amendment, and the required District authorized signatures are limited to the Program Manager and Superintendent. Recommendation: The District should require the same authorization process for change orders as with the original contract and identify within the change order that additional documentation is attached or presented that further justifies the amendment.

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Santa Clara County Office of Education Los Gatos Union School District When a project is changed, it should be clear which components of a contract are adding to and dropping off of the contract. For example, if a project is up-scoped, the District should identify that the change order will either document only the actual changes that deviate from the original contract scope items, or, the change order should identify all of the original contract scope items in addition to the changes in the contract. The District should identify clear guidelines establishing dollar thresholds requiring change orders to be approved by the District Board of Trustees. The District should update its current policy which authorizes the District Superintendent and the Superintendents designees the authority to accept bids and/or proposals up to $50,000 and to accept and award contracts up to $50,000 to include or exclude change orders and an approval threshold amounts for change orders.

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