Coast Community College District Proposition 39 General Obligation Bonds Measure C and Measure M Bond Program Performance Audit For the Year Ended

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1 Measure C and Measure M Bond Program Performance Audit For the Year Ended June 30, 2013 with Report of Independent Auditors

2 Table of Contents PAGE REPORT OF INDEPENDENT AUDITORS 1 Background Information 3 Objectives 4 Scope of the Audit 4 Procedures Performed 5 Results of Procedures 6 Conclusion 8 Schedules of Findings and Responses 9 Schedule of Prior Year Findings and Responses 10 SUPPLEMENTARY INFORMATION (UNAUDITED) Notes to Supplementary Information 11 Completed Projects Cumulative Costs by Expenditure Type 12 Breakdown of Cumulative Soft Costs by Category 13 Cumulative Soft Cost Categories as a Percent of Total Construction Costs 14

3 Report of Independent Auditors The Board of Trustees The Measure C and Measure M Citizens Oversight Committee Coast Community College District We have conducted a performance audit of the Coast Community College District's (the "District") Measure C and Measure M General Obligation Bond funds for the year ended June 30, We conducted this performance audit in accordance with the generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Auditors Responsibility Our audit was limited to the objectives listed on page 3 of this report which includes determining the Coast Community College District's compliance with the performance requirements for the Proposition 39 Measure C and Measure M General Obligation Bonds under the applicable provisions of Section 1(b)(3)(C) of Article XlIlA of the California Constitution and Proposition 39 as they apply to the Bonds and the net proceeds thereof. Management is responsible for the Coast Community College District's compliance with those requirements. Our audit does not provide a legal determination of the Coast Community College District's compliance with those requirements. Management s Responsibility Management of the Coast Community College District is responsible for establishing and maintaining effective internal control. Solely to assist us in planning and performing our performance audit, we obtained an understanding of the internal control of Coast Community College District to determine if internal controls were adequate to help ensure the District's compliance with the requirements of Proposition 39, as specified by Section 1(b)(3)(C) of Article XIIIA of the California Constitution, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance with the performance requirements of Proposition 39. Accordingly, we do not express any assurance on the internal control. Auditor s Opinion The results of our tests indicated that, in all material respects, Coast Community College District expended Measure C and Measure M General Obligation Bond funds for the year ended June 30, 2013 only for the specific projects developed by the District's Board of Trustees and approved by the voters, in accordance with the requirements of Proposition 39, as specified by Section 1(b)(3)(C) of Article XIIIA of the California Constitution.

4 Other Information Our audit was conducted for the purpose of forming opinions on the District s compliance with the performance requirements for the Proposition 39 Measure C General Obligation Bonds under the applicable provisions of Section 1(b)(3)(C) of Article XlIlA of the California Constitution and Proposition 39 as they apply to the Bonds and the net proceeds thereof. The supplementary information listed in the table of contents are presented for purposes of additional analysis and are not required parts of this report. Such supplementary information have not been audited and, accordingly, we do not express an opinion or provide any assurance on them. Los Angeles, California December 9, 2013

5 Measure C and Measure M Bond Programs Performance Audit Year ended June 30, 2013 BACKGROUND INFORMATION Measure C In November 2000, the voters of the State of California approved Proposition 39 authorizing the issuance of General Obligation Bonds by California public school districts and community colleges under certain circumstances and subject to certain conditions. On November 5, 2002, a general obligation bond proposition (Measure C) of the Coast Community College District (District) was approved by the voters of the District. Measure C authorized the District to issue $370 million of General Obligation Bonds to finance various capital projects and related costs, as specified in the bond measure provisions. The District has issued all of the $370 million of bonds. On April 17, 2003, the District issued its Series 2003A for $110,000,000 of current interest bonds. The proceeds were used to finance the construction, acquisition, and modernization of certain property and District facilities. On March 10, 2005, The District issued 2005 General Obligation Refunding Bonds (the Refunding Bonds) for $74,893,867. The proceeds were used to advance refund and defease the District's Series A bonds. On June 28, 2006, the District issued its Series B and C for $149,859,831 and $110,140,169, respectively. The proceeds were used to construct and modernize educational facilities at the District's colleges, to fund an escrow account to prepay the District's outstanding 1997 Certificates of Participation, to fund an escrow account to reimburse the District loan payments with respect to the District's loan agreement with the State Energy and Water Efficiency Revenue Bond Project, and to pay all necessary legal, financial and contingent costs in connection with the issuance of the bonds. Measure M On November 6, 2012, the District voters approved and authorized the issuance and sale of $698 million principal amount of Measure M general obligation bonds of the District. In May 2013, $315.7 million of Measure M Bonds were issued with a total bond premium of $35.8 million. Of the total bond proceeds of $351.5 million, $182 million was deposited to the Capital Projects Fund to be used to finance the construction, acquisition, and modernization of certain property and District facilities, $159.2 million was used to provide funds needed to refund a portion of the Measure C General Obligation Bonds and certain other obligations of the District, $14.5 million was deposited to the Capitalized Interest Fund and $1.7 million was used to pay bond issuance costs. As of June 30, 2013, approximately $182 million in capital project funds were unspent. This included $6 million in the Measure C Bond Fund that was transferred to the Measure M Capital Projects Fund. 3

6 Measure C and Measure M Bond Programs Performance Audit Year ended June 30, 2013 Requirements Pursuant to the requirements of Proposition 39, and related State legislation, the Board of Trustees of the District established a Citizens' Bond Oversight Committee and appointed its members. The principal purpose of the Citizens' Bond Oversight Committee, as set out in State law, is to inform the public as to the expenditures of the proceeds of the bonds issued pursuant to the Measure C and Measure M bond authorization. The Citizens' Bond Oversight Committee is required to issue at least one report annually as to its activities and findings. Section 1(b)(3)(C) of Article XIIIA of the California Constitution requires the District to conduct an annual independent performance audit to provide assurance that the proceeds of the bonds deposited into the Revenue Bond Construction Fund - Measure C and Measure M Bond Programs have been expended only for the authorized bond projects. OBJECTIVES The objectives of our Performance Audit were to: Document the expenditures charged to the Coast Community College District Bond Construction Fund - Measure C and Measure M Bond Programs. Test expenditures charged to the Bond Construction Funds - Measure C and Measure M Bond Programs during the fiscal year ended June 30, 2013 to determine whether such expenditures have been made in accordance with the bond project lists approved by the voters through the approval of Measure C in November 2002 and Measure M in November Report any identified system weaknesses and provide recommendations for improvement. Provide the District Board and the Measure C and Measure M Citizens' Bond Oversight Committee with a performance audit report as required under the provisions of the California Constitution and Proposition 39. SCOPE OF THE AUDIT The scope of our performance audit covered the period of July 1, 2012 to June 30, The expenditures tested included all object and project codes associated with the bond projects. The propriety of expenditures for capital projects and maintenance projects funded through other State or local funding sources, other than the proceeds of the bonds, was not included within the scope of our audit. Expenditures incurred subsequent to June 30, 2013 were not reviewed or included within the scope of our audit or in this report. 4

7 Measure C and Measure M Bond Programs Performance Audit Year ended June 30, 2013 PROCEDURES PERFORMED We obtained the general ledger and the project expenditure summary reports and details prepared by the District for the period of July 1, 2012 to June 30, 2013 for the Revenue Bond Construction Fund - Measure C and Measure M Bond Programs. Within the period covered by the audit, we obtained the actual invoices and other supporting documentation for a sample of expenditures to ensure compliance with the requirements of Proposition 39, Measure C and Measure M Programs as to the bond projects. We performed the following procedures: We reviewed the projects listed to be funded with general obligation bond proceeds as set out in the Measure C and Measure M election documents. We interviewed District staff and documented the internal controls and procedures established for the administration of Measure C and Measure M bond funds and related expenditures. We selected a sample of expenditures for the period under audit and reviewed supporting documentation to ensure that such funds were properly expended on the authorized bond projects. We obtained and scanned the bond detailed expenditures report for the period from July 1, 2012 to June 30, 2013 and verified that funds from the Revenue Bond Construction Fund - Measure C and Measure M Bond Programs were generally expended for the construction, reconstruction, acquisition, furnishing and equipping of District facilities constituting the authorized bond projects, and we verified that funds held in the Revenue Bond Construction Fund - Measure C and Measure M were not used for salaries of District administrators or other operating expenses of the District. 5

8 Measure C and Measure M Bond Programs Performance Audit Year ended June 30, 2013 RESULTS OF PROCEDURES Measure C The District has incurred cumulative total approved project costs of $408,779,807 through June 30, 2013 of which $14,030,049 were expended during the fiscal year ended June 30, The Boardapproved projects and expenditures of Measure C bond proceeds for the fiscal year ended June 30, 2013 are outlined below: Project Expenditures: District Facilities District-wide Administration Accounts $ 7,781 Orange Coast College Upgrade Auditorium Music Complex Phs 2 $ 1,966,485 CHS and Lab Sciences 82,596 Landscape Project 95,606 Upgrade Baseball Field (237,706) * Classroom Refurbishment 500 Energy Management 1,274,074 Temporary Modular Buildings 145,412 Planetarium 161,093 Telecommunications 514,078 Classroom Technology 2,999,159 Upgrade Lecture Halls 175,102 Upgrade Photo Lab/Relocation 185,791 Campuswide Signage 6,500 Interdisciplinary Building 98,387 Sailing Base Docks 20,715 Student Technology Support 117,949 Upgrade Gymnasium Acoustics 8,595 Upgrade Student Services Watson Hall 31,398 Miscellaneous Planning 5,637 Total Expenditures for Orange Coast College 7,651,370 Golden West College Administration Facility Planning $ 39,439 Learning Resource Center (206,991) ** Total Expenditures for Golden West College (167,552) Coastline College Newport Beach Learning Center 538,449 Total Project Expenditures for the Period from July 1, 2012 through June 30, ,030,049 Measure C Fund Release 6,000,000 *** Total Fund Expenditures $ 14,030,049 * Portion of the project cost incurred in prior years was reimbursed from local funds. ** Reversal of retention payable set up for the project which was not paid to the contractor. *** This pertains to the remaining balance in the Measure C Bond Project Fund that, together with the proceeds of 2013 Series A GO Refunding Bonds, was deposited to the new Measure M Project Fund. 6

9 Measure C and Measure M Bond Programs Performance Audit Year ended June 30, 2013 The following projects were started using Measure C Bond proceeds and will be completed using Measure M bond proceeds effective July 1, 2013: Orange Coast College: Upgrade Auditorium Music Complex Phase 2 Classroom Technology Upgrades Planetarium Upgrade Forum Classroom Refurbishment Project Photo Lab Upgrade/Relocation New Interdisciplinary Building Energy Management Technology Mechanical Controls Fire & Safety Upgrades Measure M The Measure M general obligation bonds were issued in May As of June 30, 2013, Measure M unspent bond proceeds were as follows: General Obligation Bond Series 2013A Project Fund $ 171,525,276 General Obligation Bond Series 2013B Project Endowment Fund 10,000,172 For the year ended June 30, 2013, the District has incurred cumulative total approved project costs of $1,004,539. The Board-approved projects and expenditures of Measure M bond proceeds for the fiscal year ended June 30, 2013 are outlined below: Project Expenditures: Orange Coast College Business, Math, Computing Building $ 2,231 Music Modernization 212,022 Classroom Technology Upgrades 222,296 BMS System Upgrades 567,990 Total Measure M project expenditures $ 1,004,539 7

10 Measure C and Measure M Bond Programs Performance Audit Year ended June 30, 2013 CONCLUSION The results of our tests indicated that, in all material respects, the Coast Community College District has properly accounted for the expenditures of the funds held in the Revenue Bond Construction Fund - Measure C and Measure M Bond Building Fund and that those expenditures were made on authorized bond projects. Further, it was noted that the funds held in the Bond Construction Fund - Measure C and Measure M Bond Program and expended by the District were not expended for salaries of school administrators or other operating expenditures. 8

11 Measure C Bond Program Performance Audit Schedule of Findings and Responses June 30, 2013 There were no findings and responses for the fiscal year ended June 30,

12 Measure C Bond Program Performance Audit Schedule of Prior Year Findings and Responses June 30, 2013 There were no findings and responses for the fiscal year ended June 30,

13 SUPPLEMENTARY INFORMATION

14 Measure C Bond Program Notes to Supplementary Information (Unaudited) June 30, 2013 COMPLETED PROJECT SOFT COST ANALYSIS At the District's request we have included a compilation and comparison of project soft costs for projects that have been completed by the District during fiscal year and for which full costs had been reflected as of June 30, Soft costs consist of items that are not considered direct construction costs, and include architectural, engineering, financing, legal fees, and other pre- and post-construction expenses. The following projects were completed during the fiscal year : OCC Information Technology Upgrade Phase I GWC Learning Center Phase I CCC Newport Beach Learning Center The three sets of charts and tables included reflect the following: Chart 1- "Completed Projects - Cumulative Costs by Expenditure Type" illustrates the total cumulative project cost including construction and soft costs for the projects identified above. Chart 2- "Breakdown of Cumulative Soft Costs by Category" groups total cumulative soft costs for the project by Inspection and Testing, Architect and Engineering, and Construction Management. Chart 3- "Cumulative Soft Cost Categories as a Percent of Construction Costs" illustrates total cumulative soft cost by each of the categories as a percent of construction costs and then "Total" soft costs as a percent of construction costs. This is intended to give a sense of the proportion of the soft cost elements within the project. Construction cost was used as the base because this is generally the most important driver of soft costs. 11

15 Completed Projects Cumulative Costs by Expenditure Type (Unaudited) Cumulative as of June 30, 2013 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 Soft Costs Construction & Services $10,000,000 $5,000,000 $ OCC Info. Tech. Upgrade Phase I GWC Learning Center Phase I CCC Newport Beach Learning Center Soft Costs $57,680 6,162,055 4,057,101 Construction & Services $6,234,647 24,999,313 24,547,402 See accompanying report of independent auditors. 12

16 Breakdown of Cumulative Soft Costs by Category (Unaudited) Cumulative as of June 30, ,000,000 6,000,000 5,000,000 Construction Management Achitect and Engineering Inspection and Testing 4,000,000 3,000,000 2,000,000 1,000,000 OCC Info. Tech. Upgrade Phase I GWC Learning Center Phase I CCC Newport Beach Learning Center Construction Management $ $2,842,160 $1,302,128 Achitect and Engineering 42,870 2,397,686 2,277,809 Inspection and Testing 14, , ,164 See accompanying report of independent auditors. 13

17 Cumulative Soft Cost Categories as a Percent of Total Construction Costs (Unaudited) Cumulative as of June 30, % 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% Construction Management Achitect and Engineering Inspection and Testing 3.00% 2.00% 1.00% 0.00% OCC Info. Tech. Upgrade GWC Learning Center CCC Newport Beach Phase I Phase I Learning Center Construction Management 0.00% 9.12% 4.55% Achitect and Engineering 0.68% 7.69% 7.96% Inspection and Testing 0.24% 2.96% 1.67% See accompanying report of independent auditors. 14

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