SEP 1 52009 Foothill-de Anza Davidh. YAM Community College District Chief executive 0tfI Superior Court ofCACou lara

R1

9/2/2009 Honorable Jamie Jacobs-May Page2of 7 Trustees should review and be knowledgeable of Education Code §35168 for K-12 and Education Code §81600 for community colleges to ensure complete implementation. Response 1: The district disagrees with Finding #1. FHDAhasacomprehensive set of Board Policies that govern inventory, inventory control and capitalization and appropriate means of disposal of equipment that isnot required for school purposes Through Board policy 3140, the Board delegates to one or more officers or employees of the District the authority to purchase supplies, materials, apparatus, equipment and services, subject to any restrictions and requirements of Education Code section 81656. These delegation resolutions are presented to the Board annually for adoption. Inventory Control isgoverned by Board Policy 3142 which ensures that appropriate records of capital outlay items are maintained asrequired bythe California Community Colleges Budget and Accounting Manual. Capitalization of District Property occurs for any real or personal property acquired by gift or purchase with an estimated useful life greater than one fiscal year and isgoverned by Board Policy 3210. This policy isimplemented through Administrative Procedure 3210 which includes acapitalization threshold based on asset types. Personal property belonging to the District that isfound to be unsatisfactory or unsuitable for school use may bedisposed of following the requirements of Board Policy 3211. Inthe event a need arises to utilize district owned equipment in an off-campus capacity such activity isgoverned by Board Policy 3212 and generally prohibits such useabsent express approval by chancellor or designee.

R2

All Santa Clara County school board trustees and superintendents/chancellors should be required to review and understand Education Code §35168 and §81600 and BAM 9/2/2009 Honorable Jamie Jacobs-May Page3of 7 requirements for inventory control. For community colleges, the CCBoard should investigate additional training in the area of inventory control offered through organizations such asthe American Association of Community Colleges and the Community College League of California. Response 2: The district disagrees with Finding #2. FHDAhasacomprehensive set of Board Policies that govern inventory, inventory control and capitalization and appropriate means of disposal of equipment that is not required for school purposes.

R3

All Boards of Trustees should require a presentation on the results of their districts' biennial inventory, including total value, variances resulting from reconciliation between past and current inventories and a proposed plan to resolve discrepancies. Response 3: The District disagrees in part with Finding #3. The district is in the midst of implementing a new Financial Operating System and this system will include a Fixed Asset Module that isscheduled to go on-line bythe end of the 2009-10 fiscal year. With this system in place we will beable to implement a biennial inventory process and report this to the board.

R9

The Board of Trustees for Foothill/De Anza, Gavilan, and West Valley/Mission College Districts should ensure compliance with the CSAM410 procedures and BAM guidelines 9/2/2009 Honorable Jamie Jacobs-May Page4 of 7 bytracking inventory items greater than $1000. These districts should provide training for staff responsible for inventory. Response 9: The district disagrees with Finding #9. Inventory tracking at FHDAisgoverned by several sources. We are using the BAM Section 5.12 asaguide for our asset tracking policy for Economic Development equipment with apurchase price of $1000 or more for each individual item. For assets purchased with federal funds we used EDGAR(Education Department General Administrative Regulations) 34CFR80.32 to help usestablish procedures to value and track capital assets purchased with federal grants. Our policy includes identifying and valuing assets at $5000 or more per individual item, tagging the asset, maintaining alist of assets, performing an inventory every two years, and disposing of the assets. The requirements of the California Community Colleges Budget and Accounting Manual (BAM) are from time to time modified through certain Accounting Advisories. Accounting Advisory No. 2001-01, dated June 18, 2001, isexcerpted below and notes the following: "Based on federal guidelines, the State of California hasadopted a$5,000 capitalization threshold for capital assets (formerly tailed fixed assets). The FiscalStandards and Accountability Committee unanimously recommended raising the threshold for community colleges to the same level. Districts retain authority to inventory assets at alower level if there is local need to do so, but the $5,000 level isthe uniform system level for capitalization and depreciation. The committee also unanimously recommended tying the capitalization threshold for community colleges to the federal guidelines." "In further support of this position, the committee noted that raising the threshold will usually eliminate about 80% of the inventory line items, while retaining about 80% of the total value of the inventory. " "This Accounting Advisory supersedes the Budget and Accounting Manual, pages 2.47, 2.48, 4.64, 4.65, and 5.12 asit relates to inventory, capitalization, and depreciation." The content of these pages issummarized below: Pages2.47 and 2.48, noted the General Fixed Assets Account Group should account for all assets associated with the Governmental Fund Group having cost which exceed the minimum threshold for maintaining atrace inventory system ($1,000) and have auseful life of one year or longer. Pages4.64 and 4.65, required Districts to maintain an historical inventory, audit trace inventory system, or any other acceptable inventory system that contains the description, name, identification numbers, original cost, date of acquisition, location, and time and mode of disposal for all items of equipment that cost or had a market value at time of acquisition in excess of one thousand dollars ($1,000). Items of 9/2/2009 Honorable Jamie Jacobs-May Page5 of 7 equipment in the inventory system, aswell asany additions, should be accounted for in the General FixedAssets Account Group. Lastly, .12 defined equipment ashaving apurchase price of $200 or more and a useful life of one year or longer. The threshold for maintaining equipment in atrace inventory system and for recording the asset in the General FixedAssets Account Group is$1,000 and a useful life of one year or longer. Research indicates the following procurement patterns for FHDAequipment purchases with avaluation between $1000 and $4999 during the past two years: FiscalYear 2008-09 Atotal of 1629 items were purchased at acost of $2,744,999. Ofthe total acquisition amount, approximately 79.4% of the items were technology or computer related. FiscalYear 2007-08 Atotal of 1621_items were purchased at acost of $2,844,889. Ofthe total acquisition amount, approximately 75.6% %ofthe items were technology or computer related. Asnoted above, most of the equipment procured with avalue between $1,000 and $5,000 istechnology related. Our Educational Technology Services Division (ETS)usesthe following established procedure for tracking and tagging such equipment: All district purchased desktop and laptop computers are received through District Receiving. Then Plant Services delivers the equipment to the corresponding ETSTechnical Services team for each Campus. Once received byTech Services, the equipment isinventoried and compared to the Purchase Order to ensure all items and the correct items have been received. The equipment istagged, engraved and entered into the inventory database prior to deployment to the classroom or staff / faculty personnel. If equipment moves to adifferent staff person or department, the inventory database isupdated. For equipment that issurplused, the inventory database isupdated as to its disposition prior to being moved to the District holding location. 9/2/2009 Honorable Jamie Jacobs-May Page6of 7 For computer servers under the $5,000 dollar limit, they are inventoried and tagged byTech Services similar to the desktop and laptop computers. Our current practices allow usto track the vast majority of equipment that is purchased within this $1,000 to $5,000 range. The district isin the midst of implementing anew Financial Operating System and this system will include a FixedAsset Module that is scheduled to go on-line bythe end of the 2009-10 fiscal year.

R10

The Boards of Trustees for Foothill/De Anza and Gavilan Joint Community College Districts should ensure inventories are conducted asspecified in CSAM410. Response 10: The District disagrees in part with Finding #10. The district isin the midst of implementing a new Financial Operating System and this system will include a Fixed Asset Module that isscheduled to go on-line bythe,end of the 2009-10 fiscal year. With this system in place we will beable to implement a biennial inventory process and report this to the board.

R11

To strengthen internal controls and ensure fiscal accountability, purchases made by chancellors should be approved bythe Board of Trustees. Inthe event an immediate purchase is required, post-approval bythe Board would ensure no conflicts of interest or abuses occur. Credit card statements and a listing of disbursements should be 9/2/2009 Honorable Jamie Jacobs-May Page7of 7 provided to the Board for approval. Expenditures should be presented separately from the Board's consent calendar to ensure proper scrutiny. Response 11: The district agrees with Finding #11 even though each expense claim hasbeen found to be procedurally correct, the inherent conflict isobvious.