°c Everett School District No.2Exit ConferenceMay 14.. 2012

Meeting AgendaThe purpose of our exit conference is to share the results of ourindependent audit and to provide a forum for open discussion. We arepleased to review our draft reports and discuss other topics as listedbelow with you.

• Accountability audit report

• Financial statement audit report and other required communications

• Federal grant compliance audit report

• Recommendations not included in our audit reports

• Status of prior audit recommendations

• Agreed-upon services

• Report publication

• Your next scheduled audit

• Customer service survey

Preliminary audit results and recommendations were shared in detailwith District management and personnel as they were developedduring the audit. We would like to thank staff for their cooperation andtimely response to our requests during the audit.

We take seriously our responsibility of serving citizens by promotingaccountability, fiscal integrity and openness in state and localgovernment. We believe it is critical to citizens and the mission of theDistrict that we work together as partners in accountability to preventproblems and constructively resolve issues. As such, we encourageyour comments and questions.

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government. We believe it is critical to citizens and the mission of theDistrict that we work together as partners in accountability to preventproblems and constructively resolve issues. As such, we encourageyour comments and questions.

Accountability Audit

ReportOur draft accountability report summarizes the results of our risk-based audit work related tosafeguarding of public resources and legal compliance. The report does not include anyfindings.

Financial Statement Audit

Other Required CommunicationsProfessional auditing standards require us to communicate the following information to theBoard:

• There were no significant difficulties encountered or disagreements with entity managementduring the audit.

• There were no uncorrected misstatements in the audited financial statements.

• We noted one corrected material misstatement:

TypeOpinion Statement I Description

(KnownUnit Schedu le or

Likely)

A sample test of all Capital Project fund expendituresCapital Income indicated the District recorded $5,151,101 in the wrong year.Projects

StatementThese expenditures coded to FY2012 should have been Known

Fund coded to FY2011 . Therefore the Capital Projectexpenditures were understated by this amount.

ReportOur draft financial statement report includes our opinion on the District's financial statements. Italso includes our report on internal control over financial reporting and on noncompliance andother matters as required by Government Auditing Standards.

An unqualified opinion will be issued on the financial statements , which means that we believethey are presented fairly, in all material respects.

The following deficiencies in internal control over financial reporting were identified and reportedas a finding :

• The District should improve its internal controls over accounting and financial statementpreparation to ensure accurate and complete reporting. _ v\o..,J, i~"'"r,,-\ c.of\\-\-ro \

Page \ 2

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No instances of noncompliance were identified that could have a direct and material effect onthe determination of financial statement amounts.

Federal Grant Compliance Audit

ReportOur draft report discloses the results of our audit of compliance and internal controls over federa lgrant programs. We issued an unqua lified opinion on the District's compliance with requirementsapplicable to its major federal programs. We reported no findings that are required to be disclosedunder section 510(a) of OMB Circular A-133.

The following were major programs during the period under audit:

CFDA No.

84.01084.38984.36784.02784.17384.31884.38684.39184.39284.39484.410

Program Title

Title I Part AARRA - Title I Part ATitle II Improving Teacher QualitySpecial Education Cluster - Grants to States (IDEA, Part B)Special Education Cluster - Preschool Grants (IDEA Preschool)"Title II Part DARRA - Title II Part DARRA - Special Education Cluster, IDEA Part B (Recovery Act)ARRA - Special Education Cluster, Preschool Grants (Recovery Act)ARRA - State Fiscal Stabilization Fund - Education State GrantsEducation Jobs Funds

Recommendations not included in the Audit Reports

Management Letter

The management letter communicates issues not significant enough at this time to include as afinding in our report . It is referenced in the report.

• Take home vehicles.

Exit Items

We have provided the following exit recommendations for management's consideration. Theyare not referenced in the audit report .

Title 1 grant - adeguate yearly progressSchools that do not meet Adequate Yearly Progress (AYP) going into FY2011 must send aletter to parents of students which , among other things, states how long the schools have beenso identified as not making AYP in the Title 1 grant (CFDA 84.010/389). We noted thatHawthorne Elementary letters did not state how long the school has not made AYP.

We recommend the District include the number of years which the school has not made AYP onthe lelters sent to parents in order to meet the grant requirements.

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Special Education grant - time and effortFederal guidelines require Districts to ensure monthly time and effort certifications are submittedfor any employee charging time to more than one cost object ive, such as the Special Educationgrant (CFDA 84.027/173/391/392) and another unrelated program . During fiscal year 2011 theDistrict paid two employees $59,000, for work in Special Education. These employees alsoworked in another program , requiring the District to obtain monthly timecertifications . According to federal guidelines, monthly certifications for actual time worked onthe Special Education program must be reconciled quarterly to the budgeted hours actually paidby the grant. We found the District did not receive monthly time certifications from theseemployees or reconcile the actual time to the budgeted time quarteriy for September, October,

November and December until February and March of 2011.

We recommend the District improve internal controls to ensure the monthly timesheets andquarterly reconcil iations are performed timely and documented to comply with federalrequirements (Circular A-8?).

Title 1 grant - allowable costsDuring our review of Title 1 (84.010/389) expenditures, we noted that the District spent$31,352.68 in non-payroll related Title 1 ARRA funds during the 2011 fiscal year. We identifiedone transact ion totaling $36.70 which was for an unallowable purpose (the District gave sciencekits away in a raffle that were purchased with Title 1 funds) .

We recommend the District verify items purchased with federal funds are used for allowablepurposes according to the grant requirements.

Federal reimbursement reviewRequests for reimbursements of Federal funds for the following grants are not reviewed foraccuracy before they are submitted for reimbursement:

• Education Jobs Fund CFDA 84.318/84.386• Special Education Cluster CFDA 84.027/84.173/84.391/84.392• Title I grants.CFDA 84.010 /84.389

If reimbursements are submitted inaccurately the District could be overpaid or underpaid withoutknowing.

We recommend the District include a review of reimbursements by someone other than theperson that prepares them to ensure accuracy.

Apport ionment - transportation ridership reportingDuring our review of the transportation ridership reporting, we noted errors in reporting for fiveroutes. These errors were caused by incorrect calculations of the average ridership in theweek , or by inconsistent reporting of data from the Driver's count logs to OSPI. In addit ion, theDistrict did not maintain adequate support to tie specific students from the Public Transportationridership log sheets to specific State Route numbers.

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We recommend the District improve its internal controls to ensure accurate ridership data issubmit to aSPI and the District retain support to show which students using publictransportation were reported by the State Route.

Status of Prior Audit Recommendations

Prior Exit Items Resolved Unresolved

Segregation of duties (ASB Treasurer) X

Alternative Learning Education X

Restrictively endorse checks (Everett High School) X*

Fundraising for charitable organizations X

*Disbict management has determined it will take responsibility for any possibility of loss in this area. Wesubsequently will discontinue our recommendations about this area.

bJ Exit document

Additional Services

Comprehensive Annual Financial Report (CAFR)

In addition to our audit, we performed procedures at your request related to the additionalinformation included in the District's CAFR. A letter certifying the additional review wasprovided to the District on April 18, 2012.

Concluding Comments

Report Publication

Audit reports are published on our website and distributed via e-mail in an electronic .pdf file.We also offer a subscription service that allows you to be notified by email when audit reportsare released or posted to our website. You can sign up for this convenient service at:www.sao.wa.gov/EN/News/Subscriptions

Your Next Scheduled AuditYour next audit is scheduled to be conducted in Winter 2012-2013 and will cover the followinggeneral areas:

• Accountability for Public Resources• Financial Statement

Your Next Scheduled AuditYour next audit is scheduled to be conducted in Winter 2012-2013 and will cover the followinggeneral areas:

• Accountability for Public Resources

• Financial Statement• Additional Services - CAFR

The estimated cost for the next audit based on the current billing rate is $63,666 plus traverexpenses. This preliminary estimate is provided as a bUdgeting tool and not a guarantee of finalcost.

Customer Service SurveyAn invitation to complete a customer service survey will be emailed to Gina Zeutenhorst,Accounting Manager. Your feedback is important to our commitment to continually develop andimprove our audit process.

Please don't hesitate to contact our Office throughout the year when you have questions. Ourwebsite also offers many resources, including a client HelpDesk for your auditing andaccounting questions.