Proposition 39 requires “… an annual independent performance audit to ensure that the funds have been expended only on the specific projects listed.”  (California Constitution Article XIIIA, Section 1(b)(3)(C).)

Appendix A to the California guide for annual audits (Guide for Annual Audits of K-12 Local Education Agencies and State Compliance Reporting, published by the  Education Audit Appeals Panel) prescribes the specific scope for this audit:

1. “Select a representative sample of expenditures charged to the facilities project(s) and review supporting documentation to ensure that such funds were properly expended on specific projects listed in the text of the applicable ballot measure.

2. “Verify that the funds were generally expended for the construction, renovation, furnishing, and equipping of school facilities constituting authorized bond projects.

3. “Verify that the funds used to pay the salaries of district employees were allowable per Opinion 04-110 issued on November 9, 2004 by the State of California Attorney General.

4. “If the school district did not properly account for the expenditures, if such expenditures were made for  unauthorized bond projects, of if salary transactions were used for general administration or operations, include a finding in the audit report.”

The audit required by the Guide is known as a “compliance” audit, performed to help the report recipients decide if the organization has met the applicable requirements.  In addition, to the annual required compliance audit, the best practice is to do an annual ‘Effectiveness and Results’ performance audit.  This audit could determine, for example if bond projects were delivered on-time, within budget and tax dollars spent effectively.

A review of efficiency and effectiveness could include factors and issues such as:

• The development of project scopes and cost estimates.
• Adequacy, completeness of justification of change orders in projects.
• Procedures for avoiding claims in projects.
• Whether project costs are in line with industry standards.
• Procurement processes for project consultants such as architects and engineers.
• Processes and procedures for utilizing best value procurement (e.g., design build)
• Master planning and cost estimations
• Procurement management and controls
• Contract Administration and controls
• Auditing post project completion construction contracts
• Warranty compliance and ongoing maintenance of assets
• District and Professional Services staffing plan
• Design and construction schedules cash flow analysis
• Cost schedule, budgetary management, and reporting controls
• Review of material specifications for competitiveness and completeness
• Contractor billing compliance controls
• Project close out controls

In short, the expanded performance audit is a vehicle for the oversight committee to “report on the proper expenditure of taxpayer dollars” and is also a process improvement document for a district’s bond program.

The Little Hoover Commission is an independent California oversight agency that recommended all school Proposition 39 bond programs have annual ‘Effectiveness and Results’ performance audits be performed in accordance with Government Auditing Standards published United States Government Accountability Office.