The Anaheim Union High School District Measure Z Capital Program: the Tip of the Iceberg

The AUHSD Board of Trustees lacked the training and expertise to properly oversee the entire Measure Z program. The majority of the Trustees had no experience in construction, capital program management, and related financial matters, and when the Measure Z program began to move into the construction phase, the Board became dysfunctional in dealing with the program.

Since the end of 2005, the AUHSD management and staff have generally maintained effective control and oversight of the Measure Z program, although some problems still remain. Most of the recommendations in the Operational Forensic Performance Audit have been either fully or partially implemented. Reporting on program status is more accurate, transparent and timely. 13 2006-2007 ORANGE COUNTY GRAND JURY

Prior to late 2005, AUHSD management and staff oversight was inadequate. There was not sufficient staff with knowledge of managing complex construction projects, or of obtaining matching State funds, and workload in certain key administrative areas at District headquarters effectively doubled with no increase in staffing.

The frequent changes in the AUHSD’s management – three new superintendents in four years, combined with other turnover in key personnel with responsibilities for the Measure Z program – impacted the continuity of top management oversight on the entire program prior to July 2005.

Prior to late 2005, certain processes under Measure Z, such as unit price contracts and the bulk purchasing program, were not sufficiently differentiated from normal AUHSD operating procedures in terms of approvals, workflow, and data collection. As a result, there was confusion in both the handling and logistics of materials as well as cost allocations between Measure Z and the District’s day-to-day operations.

Prior to the Operational Forensic Performance Audit, reporting by District Staff on Measure Z was not transparent. Schedule updates were presented without the prior or original planned schedules for comparison; actual expenditures were presented in overwhelming detail with insufficient summarization; not enough focus was placed on the drop in the construction contingency as the program continued; budget numbers and estimates of available program funds repeatedly changed with little or no explanation or tie-back to prior presentations; and program status and financial reporting was frequently delayed until the information was obsolete.

The OCDE/Superintendent of Schools has no effective computerized system available for tracking and controlling multi-year capital expenditure programs like Measure Z.

Prior to October 2005, the AUHSD, along with other County school districts, lacked the internal expertise to develop a control and tracking system for large-scale multi-site capital programs, or to evaluate the adequacy of systems proposed by outside consultants.

Prior to the appointment of a new set of members in late 2006, the AUHSD Measure Z Citizens’ Oversight Committee was ineffective. Members of the Committee were unclear about the Committee’s purpose and purview, and in general the Committee did not receive, nor did it apparently ask for, information about the Measure Z program beyond what was offered to it in prepared presentations by the AUHSD staff. The Committee also appears not to have submitted some of the annual reports to the AUHSD Board of Trustees that it was chartered to prepare.

The AUHSD did not establish an effective priority classification of the work scope across all campuses, which led to an inequitable allocation of program resources once the program exceeded its budget, and which further contributed to the District not completing work on the Second and Third Wave schools.

Soft cost budgets for Measure Z were not realistic until December 2005. Normal good planning practice is to assume 25-30% soft costs. In the AUHSD’s Measure Z program, the soft cost budget was only 16.63%. This was taken as a sign of low overhead rather than as a warning of insufficient program management capability. 14 2006-2007 ORANGE COUNTY GRAND JURY

Program contingency budgets for Measure Z were not realistic until December 2005. The industry standard for estimating renovation projects is 10%. In the AUHSD’s case the contingency figures were primarily “backed into” by subtracting the estimated construction budgets from available funds. Once the estimated contingency fell below 10%, it should have been a signal that costs were beginning to escalate.

There was no effective external independent project performance auditing through most of Measure Z’s life, until the Operational Forensic Performance Audit in mid-2005. In order to minimize costs, the audits that were performed were limited to checking a sample of paid contractor invoices for adherence to District approval procedures and applicable law.

In-service training of the Board of Trustees on program management practices and on the Measure Z program appears to have been ineffective; training of the Citizens’ Oversight Committee appears to have been nonexistent until late 2006.

The District did not effectively manage the process of securing State matching funds for the Measure Z program from February 2005 to September 2005. As a result, the entire program experienced a cash flow crisis.

Circumstances beyond the AUHSD’s control contributed to cost overruns in the Measure Z program. Unforeseen escalations in materials costs and construction management and architectural fees were being experienced during 2003-2006 by school districts statewide and even nationwide. Overall, construction costs increased 30% during this period.

Some cost overruns in Measure Z resulted from lack of accurate information about the existing conditions at specific construction sites. For example, unanticipated subsurface conditions at two high schools resulted in extensive change orders to remediate. Also, as-built information at some sites appears to have been inaccurate. Responses to Findings F-1 through F-17 are required from the Anaheim Union High School District. Responses to Findings F-6, F-7, F-8, and F-16 are required from the Orange County Superintendent of Schools. RECOMMENDATIONS In accordance with the California Penal Code sections 933 and 933.05, each recommendation will be responded to by the government entity to which it is addressed. The responses are to be submitted to the Presiding Judge of the Superior Court. Based on the findings of this report, the 2006-2007 Orange County Grand Jury makes the following recommendations: