Performance audit, Higley Unified School District

              Performance Audit
Higley Unified
School District
Division of School Audits
Debra K. Davenport
Auditor General
May • 2012
Report No. 12-04
A REPORT
TO THE
ARIZONA LEGISLATURE
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators and
five representatives. Her mission is to provide independent and impartial information and specific recommendations to improve the
operations of state and local government entities. To this end, she provides financial audits and accounting services to the State and
political subdivisions, investigates possible misuse of public monies, and conducts performance audits of school districts, state
agencies, and the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
Ross Ehrick, Director
Vicki Hanson, Manager and Contact Person
John Ward, Team Leader
Jennifer Brown
Julia Coulombe
Jay Rasband
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
Representative Carl Seel, Chair
Representative Tom Chabin
Representative Justin Olson
Representative David Stevens
Representative Anna Tovar
Representative Andy Tobin (ex officio)
Senator Rick Murphy, Vice Chair
Senator Andy Biggs
Senator Rich Crandall
Senator Linda Lopez
Senator David Lujan
Senator Steve Pierce (ex officio)
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
MELANIE M. CHESNEY
DEPUTY AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
May 23, 2012
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Governing Board
Higley Unified School District
Dr. Denise Birdwell, Superintendent
Higley Unified School District
Transmitted herewith is a report of the Auditor General, A Performance Audit of the Higley
Unified School District, conducted pursuant to A.R.S. §41-1279.03. I am also transmitting within
this report a copy of the Report Highlights for this audit to provide a quick summary for your
convenience.
As outlined in its response, the District agrees with all of the findings and recommendations.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on May 24, 2012.
Sincerely,
Debbie Davenport
Auditor General
Student achievement similar to peer
districts’ average—In fiscal year 2010,
Higley USD’s student AIMS scores were
similar to the peer districts’ averages and
much higher than state averages.
Additionally, all ten of the District’s schools
met “Adequate Yearly Progress” for the
federal No Child Left Behind Act. The
District’s 87-percent high school
graduation rate was lower than the peer
group average of 92 percent but higher
than the state average of 78 percent.
District operated efficiently overall—In
fiscal year 2010, Higley USD operated
efficiently overall with similar or lower
per-pupil costs than its peer districts in all
areas, including administration, plant
operations, and food service. Although the
District also spent less per pupil on
transportation than its peers, it spent more
per mile and per rider due, in part, to some
inefficiencies in its program. The District
also spent less money in the classroom
than its peers primarily because it received
less funding. In fact, the District’s per-pupil
spending of $6,226 was one of the lowest
per-pupil spending amounts in the State.
District subsidized its transportation
program, which had higher per-mile
and per-rider costs than peer districts—
In fiscal year 2010, Higley USD’s cost per
mile was 32 percent higher than the peer
districts’ average, and its cost per rider
was 6 percent higher. Due to these higher
costs and the District’s receiving the lower
per-mile funding rate from the State, the
District subsidized its transportation
program by more than $1.2 million. More
specifically, in fiscal year 2010, the District
spent over $2.4 million, or twice what it
received in state transportation aid.
District employs various cost-savings
methods, but additional steps may help
control costs—To its credit, the District
uses various methods to help control its
transportation costs such as monitoring
employee time and making use of some
performance measures. However, the
District had low bus capacity on some
regular and shuttle runs, a high number of
special needs route miles, and higher bus
driver salaries than peer districts.
Therefore, some additional steps may
help the District further control its costs
and reduce its subsidy, freeing up monies
that could be used in the classroom.
Additional steps may help lower District’s transportation
program costs
REPORT Similar student achievement and efficient operations
HIGHLIGHTS
PERFORMANCE AUDIT
Our Conclusion
In fiscal year 2010, Higley
Unified School District was
similar to its peers in
student achievement and
compared favorably in
operational efficiencies. The
District operated its
administration, plant
operations, and food
services efficiently with
costs that were similar to or
lower than peer district
averages. These operational
efficiencies were especially
important for Higley USD as
it received considerably less
funding than peer districts
and had one of the lowest
per-pupil spending amounts
in the State. However, the
District’s transportation
program operated less
efficiently than peer districts’
on a per-mile and per-rider
basis, and the District may
be able to make some
improvements in this area.
Additionally, the District
needs to closely monitor its
solar power system
contract as it is unlikely to
meet expectations for
saving energy costs. The
District should also ensure it
spends Classroom Site
Fund monies appropriately.
2012
May • Report No. 12-04
Higley Unified
School District
Per Pupil
Higley
USD
Peer
Group
Average
Administration $647 $627
Plant operations 774 917
Food service 278 308
Transportation 264 326
Expenditures by Function
Fiscal Year 2010
Percentage of Students Who Met or
Exceeded State Standards (AIMS)
Fiscal Year 2010
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Math Reading Writing
Higley USD Peer Group State-wide
special needs services or transportation can be
provided cooperatively.
••Consider reviewing bus driver salaries.
Recommendations—The District should:
••Review its regular, shuttle, and special needs
routes to increase efficiency.
••Contact nearby districts to determine whether
District entered into 25-year solar power system
contract—In August 2010, to help lower its electricity
costs, the District entered into a 25-year contract
with a vendor to install solar power systems at two of
its ten sites. During the contract term, the District is
required to purchase all of the solar-generated
electricity and at the end of the 25 years, the District
can purchase the system at its fair market value. The
systems became operational in July 2011.
Contract has high initial rates, and annual price
escalators further reduce cost savings’
likelihood—The District pays 9.6 cents per kilowatt
hour for solar power at one site and 12 cents per
kilowatt hour at the other site. Both of these rates
are higher than the 5.7 cents per kilowatt hour that
the District was paying for electricity generation
before installing its solar power systems, and the 12
cents per kilowatt hour rate is among the higher
rates of the 19 solar power agreements from other
Arizona school districts we reviewed. In addition,
Higley USD’s rate will increase 2 percent each year
at one site and 3 percent each year at the other site,
reaching 19.51 cents and 19.3 cents, respectively,
in the 25th year. Ten of the 19 other contracts did
not have cost escalators.
Demand and transmission charges result in
unexpected costs— Although at times the solar
power systems will provide more than the District’s
electricity needs, there will still be other times, such
as nights or cloudy days, when the District will need
to purchase electricity from its electric utility. The
demand and transmission costs for these periods
were not accounted for in the District’s initial savings
calculations.
District will likely lose money on the sale of
excess solar power—In addition, the excess solar
power the District has remaining at the end of each
hour will be purchased by the District’s electric utility
at only about 3 cents per kilowatt hour. Because it
currently costs the District 9.6 cents per kilowatt
hour at one site and 12 cents at the other site to
produce this power, the District will lose money on
each excess kilowatt hour sold. For example, from
July 2011 through March 2012, the District sold
back 65 percent of the kilowatt hours of solar power
that it produced, resulting in a loss of over $32,000.
Recommendations—The District should:
••Work with its solar power system vendor to
reduce the amount of excess solar power
generated.
••Monitor its total electricity costs, compare that
to what electricity would have cost without solar
power, and consider modifying its solar power
system contract as necessary.
District’s solar power system contract unlikely to meet expectations
In fiscal year 2010, Higley USD spent nearly
$40,000 to pay stipends to 58 teachers who
reportedly mentored other teachers. However, the
District could not provide support showing that the
Governing Board approved these performance-pay
stipends and could not demonstrate that the
teachers actually provided mentoring. Additionally,
two schools failed to maintain documentation to
show that their teachers fulfilled any of their
performance pay requirements. Finally, the District
awarded performance pay to two ineligible
employees.
Recommendations—The District should:
••Pay Classroom Site Fund monies in accordance
with its Governing Board-approved plan.
••Ensure it retains documentation to demonstrate
that performance pay goals were met.
••Ensure that it pays Classroom Site Fund monies
only to eligible employees.
Some Classroom Site Fund monies spent inappropriately
A copy of the full report is available at:
www.azauditor.gov
Contact person:
Vicki Hanson (602) 553-0333
REPORT
HIGHLIGHTS
PERFORMANCE AUDIT
May 2012
Higley Unified
School District
continued
page i
Office of the Auditor General
TABLE OF CONTENTS
District Overview 1
Student achievement similar to peer districts’ average and higher than state average 1
District operated efficiently overall with most costs lower than peer districts’ 2
Finding 1: Additional steps may help lower District’s
transportation program costs 3
District subsidized its transportation program, which had higher per-mile and per-rider
costs than peer districts 3
District employs various cost-saving methods, but additional steps may help control
costs 4
Recommendations 6
Finding 2: District’s solar power system contract unlikely to meet
expectations for cost savings 7
District has 25-year solar power systems contract for two of ten sites 7
Contract has high initial rates, and annual price escalators further reduce
cost savings’ likelihood 7
District did not take all costs into account when evaluating potential for savings 8
District’s vendor choice unsupported, and cost savings guarantee insufficiently
documented 10
District should monitor electricity costs 11
Recommendations 11
page ii
State of Arizona
TABLE OF CONTENTS
continued
Finding 3: Some Classroom Site Fund monies spent inappropriately 13
District used some performance pay monies for purposes not listed in its plan 13
Two schools failed to maintain documentation demonstrating that their teachers
fulfilled performance pay requirements 13
District awarded performance pay to two ineligible employees 14
Expected performance pay amounts not specified in plan or employee contracts 14
Recommendations 14
Finding 4: Inadequate computer controls increases risk of errors
and fraud 15
Increased risk of unauthorized access to critical systems 15
District’s disaster recovery plan incomplete 16
Recommendations 16
Other Findings 17
Some purchases lacked proper approval 17
Recommendation 17
Appendix
Objectives, Scope, and Methodology a-1
District Response
page iii
Office of the Auditor General
TABLE OF CONTENTS
Tables
1 Comparison of Per-Pupil Expenditures by Function
Fiscal Year 2010
(Unaudited) 2
2 Solar Contract Rate Per Kilowatt Hour, by Site
Contract Years 1 through 25
(Unaudited) 8
3 Calculated Loss Per Excess Solar Kilowatt Hour, by Site
Year 1 of Contract
(Unaudited) 9
Figure
1 Percentage of Students Who Met or Exceeded State Standards (AIMS)
Fiscal Year 2010
(Unaudited) 1
concluded
page iv
State of Arizona
page 1
Office of the Auditor General
DISTRICT OVERVIEW
Higley Unified School District is located in southeast Maricopa County, encompassing parts of
Gilbert, Mesa, and Queen Creek. The District has grown considerably since fiscal year 2001 when it
served 675 students at two schools. In fiscal year 2010, the District served 9,262 pre-school through
12th-grade students at ten schools.
In fiscal year 2010, Higley USD was similar to its peers in student achievement and compared
favorably in operational efficiencies.1 The District operated its administration, plant operations, and
food services efficiently with costs that were similar to or lower than peer district averages. These
operational efficiencies were especially important for Higley USD as it received considerably less
funding than peer districts and had one of the lowest per-pupil spending amounts in the State.
However, the District’s transportation program operated less efficiently than peer districts’ on a
per-mile and per-rider basis, and the District may be able to make some improvements in this area.
Additionally, the District needs to closely monitor its solar power system contract that is unlikely to
meet expectations for saving energy costs, improve computer controls and controls over its
purchasing process, and ensure it spends Classroom Site Fund monies appropriately.
Student achievement similar to peer districts’ average and higher
than state average
In fiscal year 2010, 73 percent of the District’s students
met or exceeded state standards in math, 86 percent in
reading, and 82 percent in writing. As shown in Figure
1, these scores were similar to the peer districts’
averages and much higher than state averages.
Additionally, all ten of the District’s schools met
“Adequate Yearly Progress” for the federal No Child Left
Behind Act. The District’s 87-percent high school
graduation rate in fiscal year 2010 was lower than the
peer group average of 92 percent but higher than the
state average of 78 percent.
1 Auditors developed two peer groups for comparative purposes. See page a-1 of this report’s Appendix for further explanation of the peer
groups.
Figure 1: Percentage of Students Who Met or
Exceeded State Standards (AIMS)
Fiscal Year 2010
(Unaudited)
Source: Auditor General staff analysis of fiscal year 2010 test results
on Arizona’s Instrument to Measure Standards (AIMS).
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Math Reading Writing
Higley USD
Peer Group
State-wide
page 2
State of Arizona
District operated efficiently
overall with most costs lower
than peer districts’
As shown in Table 1, in fiscal year 2010,
Higley USD operated efficiently overall with
similar or lower per-pupil costs than its peer
districts in all areas. Although the District
also spent less per pupil on transportation
than its peers, it spent more per mile and
per rider due, in part, to some inefficiencies
in its program. The District also spent less in
the classroom than its peers primarily
because it received less funding. The
District’s per-pupil spending of $6,226 was
$940 less than peer districts’ and one of the
lowest per-pupil spending amounts in the
State. Higley USD had less money available
primarily because it (1) received less federal monies as a result of its much lower poverty level, (2)
received less student transportation funding because it transported students fewer miles, and (3)
did not receive any desegregation monies, unlike three districts in its peer group.
Similar administrative costs—The District’s per-pupil administrative costs of $647 were
similar to the peer districts’ average of $627. However, the District needs to strengthen
administrative procedures related to its computer system information security and purchasing
process (see Finding 4, page 15, and Other Findings, page 17).
Lower plant operations costs—Compared to peer districts, Higley USD’s plant costs were
16 percent lower per pupil and 21 percent lower per square foot. Higley USD’s lower costs were
primarily due to having fewer security guards and its custodial and maintenance staff’s
maintaining 9 percent more square footage than peer districts’ staff averaged. Additionally, the
District’s buildings are much newer. Higley USD’s average building age is 6 years compared to
23 years for peer districts’. Newer buildings typically have lower purchased services and supply
costs than older buildings, which require more maintenance and tend to be less energy efficient.
Although its plant operations costs are generally lower, the District’s solar power system contract
is unlikely to meet expectations for saving energy costs (see Finding 2, page 7).
Similar food costs—Although the District spent 10 percent less per pupil than peer districts for
food services, its $2.58 cost per meal was similar to the peer districts’ average of $2.52. The
District spent less per pupil primarily because it served fewer meals.
High transportation costs—Although the District spent less per pupil on transportation than
its peers, it spent more per mile and per rider due, in part, to some inefficiencies in its
transportation program. In fiscal year 2010, Higley USD’s $4.37 cost per mile was 32 percent
higher than the peer districts’ $3.32 average. As a result, the District had to subsidize its
transportation program by more than $1.2 million in fiscal year 2010. Some of the high costs
are the result of unique factors such as small geographic size, which increases per-mile costs,
but the District can examine several steps to help control costs (see Finding 1, page 3).
Spending
Higley
USD
Peer
Group
Average
State
Average
Total per pupil $6,226 $7,166 $7,609
Classroom dollars 3,404 4,025 4,253
Nonclassroom
dollars
Administration 647 627 721
Plant operations 774 917 914
Food service 278 308 366
Transportation 264 326 342
Student support 472 539 581
Instructional
support 387 424 432
Table 1: Comparison of Per-Pupil
Expenditures by Function
Fiscal Year 2010
(Unaudited)
Source: Auditor General staff analysis of fiscal year 2010 Arizona
Department of Education student membership data
and district-reported accounting data.
page 3
Office of the Auditor General
Additional steps may help lower District’s transportation
program costs
In fiscal year 2010, Higley USD had to subsidize its transportation program with more than $1.2
million that otherwise potentially could have been spent in the classroom. The District needed to
subsidize its transportation program primarily because it had high per-mile costs and it received the
lower per-mile funding rate from the State in fiscal year 2010. Although the District has taken steps
to help control transportation costs, auditors identified several steps the District may be able to take
to help further control costs.
District subsidized its transportation program, which had higher
per-mile and per-rider costs than peer districts
In fiscal year 2010, Higley USD’s $4.37 cost per mile was 32 percent higher than the peer districts’
$3.32-per-mile average. Additionally, the District’s $1,097 cost per rider was 6 percent higher than
the peer districts’ $1,037-per-rider average. These higher costs resulted in the District’s subsidizing
its transportation program by more than $1.2 million. Specifically, in fiscal year 2010, the District
received approximately $1.2 million in state transportation aid, but spent over $2.4 million on its
transportation program. Factors such as the following contributed to higher costs or the need for the
subsidy:
•• Shorter trips resulted in higher per-mile costs—A key reason for the District’s higher per-mile
costs is that the District transported its riders considerably fewer miles than the peer districts,
on average, because Higley USD is a smaller and more compact district than the peer districts.
Consequently, Higley’s buses traveled 22 percent fewer miles per rider than the peer group’s
average. Prior school district performance audits have shown that districts that transport
students fewer miles tend to have higher per-mile costs and lower per-rider costs. However, as
noted above, Higley USD’s transportation costs per rider were higher than the peer group’s.
Further, when Higley USD’s cost per mile is compared to the three districts from the peer group
with the most similar number of miles, Higley’s per-mile costs were still 5 percent higher.
•• Special needs services increased costs—Another reason for the District’s higher per-mile
costs is the number of miles traveled on routes for special needs students. Compared with its
peers, more of Higley USD’s miles were spent transporting special needs students—53 percent
FINDING 1
page 4
State of Arizona
of total miles for Higley in fiscal year 2010 compared to only 32 percent on average for peer
districts. The costs of transporting these students are inherently higher because transporting
special needs students often requires special buses and routes, as well as additional
employees to assist the students.
•• District received lower per-mile funding rate—Finally, a factor that did not increase costs
but contributed to Higley USD’s need to subsidize its transportation program was the
specific per-mile funding rate the District
received from the State. As shown in the
textbox, the state funding rate changes based
on a district’s daily route miles per rider
transported. The funding rate is highest—$2.32
per mile—for districts that transport students
the shortest distances—less than 0.5 miles on
average—and the longest distances—more
than 1 mile on average. Higley USD’s overall
average falls into the middle category—0.5 miles to 1 mile on average. As a result, the
District received per-mile funding at the lower rate—$1.89. If the District had been funded
at the higher rate, it would have received over $250,000 more in state transportation funding.
However, the District still would have spent nearly $1 million more for transportation than it
received in state transportation funding.
District employs various cost-saving methods, but additional
steps may help control costs
The District uses various methods to help control its transportation costs, including monitoring
employees’ time and work schedules and calculating and monitoring some performance
measures. However, some additional steps may help the District further control its costs and
reduce its subsidy, freeing up monies that could be used in the classroom.
Monitoring of employee time helps control costs—To control costs, the District has
made an effort to reduce the amount of overtime its transportation employees work.
Transportation supervisors assign additional driving duties, such as field trips and athletic
events, to those drivers with the fewest hours worked. The District also monitors overtime
hours each pay period and from year to year to ensure that overtime is kept at a minimum.
Further, by integrating its time accounting, global positioning, and fleet management systems,
the District has been able to reduce the amount of nonproductive time for which employees
are paid. Integrating these systems allows transportation supervisors to monitor when drivers
report for work, when they begin their first duties (including bus inspections), when their buses
leave the bus yard and return, when they complete their return bus inspections, and when they
end their work day. Transportation supervisors monitor drivers’ hours on a daily basis and
address any issues of drivers claiming paid time that is inconsistent with their work schedules
State Per-Mile Funding Rates
For Fiscal Year 2010
Daily Route Miles Per Rider Per-Mile Rate
0.5 or Less $2.32
0.51 through 1.0 1.89*
More than 1.0 2.32
*Rate that Higley USD received.
page 5
Office of the Auditor General
or productivity expectations. Auditors observed that drivers clocked in and out of work in a timely
manner and did not appear to have idle time while on the clock.
Finally, the District is also making use of some transportation performance measures. It is
calculating individual bus’ repair and maintenance costs and fuel usage per month. Additionally,
the District is calculating and monitoring bus capacity utilization rates and making adjustments to
its routing based on these measures. In fiscal year 2010, the District’s overall bus capacity
utilization rate was a reasonably efficient 78 percent. Districts that operate efficient transportation
programs typically have bus capacity utilization rates of 75 percent or higher.
Additional examination of routes and salaries could help lower costs—Although the
District is already doing some things to help run an efficient program and control costs, additional
examination of bus routes and salaries may help lower costs. Specifically:
•• Low bus capacity usage on some regular bus routes—Auditors noted several regular
education routes in fiscal year 2010 that had low ridership at or below 50 percent and likely
could have been combined with other routes. Although the District has made some route
adjustments to improve efficiency, it should continue to monitor any low-ridership routes and
make necessary efficiency adjustments.
•• High number of special needs route miles—Although Higley USD had a higher percentage
of mileage for special needs routes than its peers, the District did not have more special needs
riders. Therefore, the District may need to review the efficiency of its special needs routes.
Additionally, the District should contact nearby districts to determine whether special needs
services or special needs transportation can be provided cooperatively.
•• Low bus capacity usage on shuttle runs—In addition to its home-to-school runs, the District
operated seven daily shuttle runs transporting students to their regular schools after they had
started the school day participating in special programs such as Junior Reserve Officers
Training Corps, orchestra, and alternative education at another district school. Auditors
reviewed rider counts for 3 months and found that the shuttle runs averaged only 8 riders each
on buses with capacities between 48 and 56 riders.
•• Higher salaries—Higley USD’s starting bus driver salaries were 50 cents higher than peer
districts averaged. District officials stated that they increased starting salaries in an effort to
retain drivers since they wanted to maintain consistency on routes.
page 6
State of Arizona
Recommendations
1. The District should continue to review its regular, special needs, and shuttle routes to
determine whether it can increase efficiency and lower costs.
2. The District should contact nearby districts to determine whether special needs services or
special needs transportation can be provided cooperatively.
3. The District should consider reviewing bus driver salaries, comparing them to neighboring
school districts’, and determining whether paying higher salaries is necessary to obtain
and retain qualified drivers.
page 7
Office of the Auditor General
District’s solar power system contract unlikely to meet
expectations for cost savings
In August 2010, Higley USD entered into a 25-year solar power system contract to help lower its
electricity costs. For several reasons, however, the contract is unlikely to meet expectations for saving
energy costs. First, the initial rates are higher than what the District was previously paying for
electricity and are also subject to annual price escalators that appear high when compared with the
District’s past history of cost increases. Second, when it evaluated the costs and benefits of entering
into the contract, the District did not consider certain charges it will continue to incur from its electric
utility. Third, the solar power system produces excess electricity that the District must sell at less than
half the rate it is paying to produce the energy. The District, which was unable to provide
documentation showing that the vendor selected was the lowest bidder or provided the best contract
terms, needs to take several steps to minimize potential losses.
District has 25-year solar power systems contract for two of ten
sites
In August 2010, to help lower its electricity costs, Higley USD entered into a 25-year contract with a
vendor to install solar power systems at two of the District’s ten sites. At one site, the system was
installed on the roof of the elementary school and on a covered parking structure that was built for
this purpose. At the other site, the system was installed on bus shade structures that were built
adjacent to one of the District’s high schools. The contract requires no up-front payment for the
systems’ capital costs, but establishes rates that the District must pay for each kilowatt hour of
electricity produced by the systems. The District has the option to purchase the system for its fair
market value at the end of the 25-year contract term. Both solar energy systems began producing
energy for these two sites in July 2011. The District’s other sites continue to purchase their electricity
from the District’s electric utility.
Contract has high initial rates, and annual price escalators further
reduce cost savings’ likelihood
The District’s initial contracted rates for solar power are higher than what the District was paying for
traditional electricity at these two sites. In the 3 months before the District’s solar power systems
FINDING 2
page 8
State of Arizona
began producing energy, the District was paying 5.7 cents per kilowatt hour on average to its
electric utility for electric generation costs. In contrast, during the contract’s first year, Higley USD
is paying 9.6 cents per kilowatt hour for solar power at one site and 12 cents per kilowatt hour
at the other site.
Higley USD’s rates for solar power also compare unfavorably with rates paid by other Arizona
school districts—especially when automatic long-term increases are taken into account.
Auditors reviewed 19 solar power agreements from other Arizona school districts and found that
per-kilowatt-hour rates varied greatly—ranging from 7 cents to over 16 cents. Although the
9.6-cent-rate for one of Higley USD’s sites is relatively low, the 12-cent rate for the other site is
among the higher rates.
Higley USD’s rates will compare even less
favorably with these other districts over time.
The District’s contract includes an annual
2-percent escalator for one site and an annual
3-percent escalator for the other site. This
means that each year, for 25 years, the cost to
the District for the solar power generated by
the systems will increase 2 and 3 percent,
respectively. Ten of the 19 other contracts
auditors reviewed did not have cost escalators,
so the per-kilowatt-hour costs remained
constant throughout the contracts’ terms
while Higley USD’s rates will rise to 19.51 and
19.3 cents, respectively, as shown in Table 2.
These cost escalators further reduce the
likelihood of the solar power systems
generating real savings.
The District’s cost escalators also appear high when compared with the District’s own history of
cost increases. Although the utility’s commercial electricity rates between 2005 and 2010
increased annually by 4.5 percent on average, the utility’s average annual increase across the
25-year period, 1985 through 2010, was much lower—1.5 percent.
District did not take all costs into account when evaluating
potential for savings
In evaluating the costs and benefits of entering into a solar power system contract, the District
did not take into account two important costs. First, it did not consider the cost of obtaining
power during times when solar power is unavailable—such as nights or cloudy days. Second,
the District did not consider that when the solar power system generates more power than the
District can use, it has to sell this power at a loss.
Contract
Year
Solar
Per-kWh Rate
(in cents)
Site 1
3% Escalator
Solar
Per-kWh Rate
(in cents)
Site 2
2% Escalator
1 9.60 12.00
5 10.80 12.99
10 12.53 14.34
15 14.52 15.83
20 16.83 17.48
25 19.51 19.30
Table 2: Solar Contract Rate Per Kilowatt
Hour, by Site
Contract Years 1 through 25
(Unaudited)
Source: Exhibit 3 of Higley USD’s solar contract.
page 9
Office of the Auditor General
Grid-tied electricity system—Higley USD’s contract for solar power is for a grid-tied system
without a separate means of storing its solar-generated power. The District must therefore still draw
electricity from its electric utility at certain times, which leads to additional costs the District did not
fully consider before entering into the solar power system contract.
Within Arizona, utilities charge separately for different costs associated with providing electricity.
The three primary costs separately charged are electricity generation, demand, and transmission
(see textbox). The electricity generation charge is for the amount of electricity actually used during
the entire month; the demand charge is based on the demand for electricity during any one
particular 30-minute time period occurring during the
month; and the transmission charge is the cost of
delivering the electricity to the end user. Even during
months when the District’s solar power system can
usually generate more electricity than the District
needs, the District will still have 30-minute segments
of peak demand times—such as nights or cloudy
days—when it needs to purchase electricity from its
electric utility. When it does so, it will incur generation,
demand, and transmission charges. Although the
generation costs for this 30-minute period will be
minor, the demand and transmission charges can be
substantial.
Demand and transmission charges result in unexpected costs—Generation charges
make up the majority of an electricity bill, but demand and transmission charges also make up a
substantial portion of an electricity bill—about 35 percent for Higley USD before installing solar
power. Although installing a solar power system will reduce the costs the District pays its electric
utility for electricity generation, the District will continue to be charged large demand charges
because these charges are based on the single highest 30-minute period of regular electricity
used in a billing period that may occur simply by having a 30-minute cloudy period one afternoon
during the month. Additionally, the District will continue to be charged transmission charges for any
regular electricity it needs.
District will likely lose money on the sale of
excess solar power—Another factor that calls
into question the District’s ability to save money on its
total electricity costs under the solar power system
contract is the District’s inability to sell excess solar
power at anything close to the price it is paying to
generate it. At different times of the day, the District’s
solar power system produces more kilowatt hours
than the District needs. These excess kilowatt hours
are not credited to other days in the billing period, but
sold back to its electric utility at a price far below the
District’s cost to produce them. Specifically, as shown
in Table 3, in year 1 of its solar contract (fiscal year
2012), Higley USD is spending 9.6 and 12 cents per
Primary components of electricity costs:
Generation costs: Charges for the electricity itself or
the cost of production.
Demand costs: Charges based on the end user’s
demand for electricity as recorded on a demand
meter. Demand meters record the highest average
kWh reached and maintained in a 30-minute interval
during a billing period.
Transmission costs: Charges for transmitting
electricity from the point of production to the end user.
Rate District
Pays
(per kWh in
cents)
Rate District
Receives
(per kWh in
cents)¹
Loss
(per kWh
in cents)
Site 1 9.6 3.2 (6.4)
Site 2 12.0 3.4 (8.6)
Table 3: Calculated Loss Per Excess Solar
Kilowatt Hour, by Site
Year 1 of Contract
(Unaudited)
Source: Rate District Pays obtained from Exhibit 3 of District’s
solar contract and Rate District Receives obtained from
the District’s electric utility.
1 The rate the District receives from its electric utility for excess
kilowatt hours produced varies based on current indexed
rates. Rates shown are the average rates the District actually
received between July 2011 and March 2012.
page 10
State of Arizona
kilowatt hour to generate its solar power, but its electric utility is paying only about 3 cents per
kilowatt hour to buy the excess solar power remaining at the end of each hour. In other solar
contracts, auditors have noted that kilowatt hours produced in excess of a district’s immediate
needs are accumulated on a continuing basis and able to be used at a later point in time
during the year when the district may use more electricity than its solar panels produce.
Based on auditors’ review of the District’s electricity bills, Higley USD’s systems are producing
considerably more kilowatt hours of electricity than the sites are able to use. For example, from
July 2011 through March 2012, the District’s solar power systems produced over 625,000
kilowatt hours on meters that used only about 217,000 kilowatt hours during the same time
period. Therefore, the District sold back 65 percent of the kilowatt hours of solar power that it
produced, and because the District sells the power back at a lower rate than it costs to
produce, the District lost over $32,000 on this excess solar power during these 9 months
alone.
The District can take steps to reduce these losses. One of the primary reasons that the District
was not using more of the energy that it generated was that the solar panels at one site were
connected to the wrong meter. After auditors discussed this issue with district officials, the
District connected the solar panels to a different meter that has a higher energy demand. This
should decrease the amount of excess energy that the District has to sell back to its electric
utility, but will not eliminate it.
District’s vendor choice unsupported, and cost savings
guarantee insufficiently documented
The District may have been able to negotiate a contract with better rates, but in several respects,
it followed poor contracting procedures. The District had a construction company that was
already doing some work for the District research solar companies and recommend a vendor.
However, the District was unable to provide documentation showing that the vendor selected
was the lowest bidder or provided the best contract terms. Additionally, the rates the vendor
used to project cost savings in its proposal were lower than what the District actually agreed to
in its contract.
To minimize its losses, the District needs to resolve another matter related to the contract. Both
statute and the District’s contract with its solar vendor require that the vendor complete a study
to establish the amount of money that the District will save by implementing solar power and the
methodology for determining actual savings.1 However, neither the District nor the vendor was
able to provide this study. Resolving this issue is important because without this information, the
District will have difficulty determining whether savings have been achieved at the end of each
year or whether the vendor owes the District money.
1 A.R.S. §15-213.01
page 11
Office of the Auditor General
District should monitor electricity costs
Because the District’s expected savings from its solar power system contract now seem unlikely, the
District should monitor the costs of its solar power and regular electricity usage on a monthly and
annual basis to determine whether its contract is cost beneficial to the District. If the District finds that
total electricity costs are higher than what it would have expected to pay if it purchased electricity
only from its electric utility, the District should consider what steps can be taken to reduce further
losses.
Recommendations
1. Since the District loses money on every excess solar kilowatt hour accumulated at the end of
the hour, the District should work with its solar power system vendor to either decrease the size
of the system, increase the number of meters to which the system is connected, or find some
other means to reduce the amount of excess solar power.
2. To determine the actual cost savings from using solar power, monthly and annually, the District
should calculate and compare its total electricity costs, including the costs of solar power and
other electricity purchased from its electric utility, to what its electricity costs would have been
had the District continued purchasing all of its electricity from its electric utility.
3. If the District finds it is paying more for electricity through its solar power system contract than
it would have through its electric utility, the District, in consultation with its legal counsel, should
ensure that the operational cost savings as described in A.R.S. §15-213.01 are accurately
applied to the contract and that the solar vendor makes reimbursements of any savings
shortfall, as appropriate. Additionally, contract modifications to further reduce losses should
also be considered.
page 12
State of Arizona
page 13
Office of the Auditor General
FINDING 3
Some Classroom Site Fund monies spent inappropriately
In fiscal year 2010, Higley USD spent some Classroom Site Fund (CSF) monies inappropriately.1 The
District spent a portion of its CSF performance pay monies for purposes other than those included
in the District’s Governing Board-approved plan and did not have support for all of its payments. The
District also paid CSF monies to two ineligible employees. Further, expected performance pay
amounts were not specified in the District’s performance pay plan or employee contracts.
District used some performance pay monies for purposes not
listed in its plan
In fiscal year 2010, the District spent nearly $40,000 to pay stipends to 58 teachers who reportedly
mentored other teachers. However, the District could not provide support to show that the Governing
Board approved these performance-pay stipends. Further, the District could not demonstrate that the
teachers who received the stipends actually provided mentoring.
Two schools failed to maintain documentation demonstrating that
their teachers fulfilled performance pay requirements
Auditors could not determine whether teachers at two schools were correctly paid performance pay
monies because the District did not keep the documentation. In Higley USD, school administrators
are responsible for maintaining documentation demonstrating whether their teachers met the
performance requirements that are consistent with each teacher’s performance payments. According
to district officials, performance pay documentation at the two schools was discarded. School
districts are required to retain this type of documentation for 4 years as required by state records
retention schedules.2
1 In November 2000, voters passed Proposition 301, which increased the state-wide sales tax to provide additional resources for education
programs. Under statute, these monies, also known as Classroom Site Fund (CSF) monies, may be spent only for specific purposes,
primarily increasing teacher pay.
2 Arizona State Library, Archives, and Public Records. General Records Retention Schedule for All Public Bodies, Finance Records. Schedule
Number 000-11-76.
page 14
State of Arizona
District awarded performance pay to two ineligible employees
Statute only allows performance pay from CSF monies to be awarded to teachers. Further,
according to the Attorney General’s definition of a teacher, only those employed to provide
instruction to students related to the school’s educational mission are eligible for these monies.1
In fiscal year 2010, Higley USD paid $2,200 in CSF monies to two ineligible employees. These
employees performed administrative duties rather than instructing students and therefore do not
qualify for CSF performance pay.
Expected performance pay amounts not specified in plan or
employee contracts
The District’s fiscal year 2010 performance pay plan did not identify the amount, or a range of
amounts, of performance pay that eligible employees could potentially earn. Instead, just prior
to payment, the District divided the total performance monies available by the number of eligible
employees to determine the amount each employee should be paid. According to Attorney
General Opinion I84-034, all compensation provided to teachers should be agreed to before
services are performed. Failure to do so can lead to a violation of the State Constitution’s
prohibition on gifts of public monies. Therefore, the amount or a range of amounts each eligible
employee could earn should have been included in teachers’ contracts or the District’s
performance pay plan. Further, by including the potential performance pay employees can earn,
employees can evaluate the extent to which payment amounts provide an incentive to perform
plan requirements.
Recommendations
1. The District should pay Classroom Site Fund monies in accordance with its Governing
Board-approved plan.
2. The District should ensure that it retains adequate documentation for the required time
period to demonstrate that performance pay goals were met.
3. The District should ensure that it pays Classroom Site Fund monies only to eligible
employees.
4. The District’s performance pay plan or employment contracts should specify the amount
or a range of amounts of performance pay each eligible employee can earn if performance
criteria are met.
1 Arizona Attorney General Opinion I01-014, July 21, 2001.
page 15
Office of the Auditor General
FINDING 4
Inadequate computer controls increases risk of errors and
fraud
Higley USD lacks adequate controls over its computer network and accounting system, and its
disaster recovery plan lacks key components. Although no improper transactions were detected,
these poor controls expose the District to an increased risk of errors and fraud.
Increased risk of unauthorized access to critical systems
Weak controls over user access to the District’s accounting system and computer network increases
the risk of unauthorized access to these critical systems.
Broad access to accounting system—One employee, without any payroll responsibilities,
has the ability within the accounting system to add new employees, set employee pay rates, and
process payroll payments without an independent review. Three additional employees also have
accounting access beyond what is required to complete their job responsibilities. Although no
improper transactions were detected in the sample auditors reviewed, unnecessary access
exposes the District to a greater risk of errors, fraud, and misuse, such as processing false payroll
payments for fictitious employees. The District should review and further restrict its employees’
access to the computerized accounting system to ensure no one employee has the ability to
initiate and complete a transaction without an independent review and approval and to ensure that
employees have only the access necessary for their job duties.
Weak password requirements—The District needs stronger controls over its computer
network system passwords. Common security practice requires passwords to be at least eight
characters, contain a combination of alphabetic and numeric characters, and be changed
periodically. Although the district requires passwords to contain one number or special character
and be changed every 90 days, it requires only that passwords be four characters in length.
Increasing the required password length would decrease the risk of unauthorized persons gaining
access to the system.
page 16
State of Arizona
District’s disaster recovery plan incomplete
The District has a disaster recovery plan, but it is missing some key components. The District’s
plan does not contain important information regarding IT staff roles and responsibilities during
system or equipment failure or interruption. The plan also does not include testing key elements,
including the District’s ability to restore electronic data files from the backup tapes for many of
its systems, which could result in the loss of sensitive and critical data. A comprehensive disaster
recovery plan would help ensure continued operations in the case of a system or equipment
failure or interruption. Additionally, disaster recovery plans should be tested periodically and
modifications made to correct any problems and to ensure their effectiveness.
Recommendations
1. The District should review employee access to the accounting system and modify access
to ensure that an employee cannot initiate and complete a transaction without independent
review and that each employee has only the access necessary to meet their job
responsibilities.
2. The District should implement and enforce password requirements related to password
length.
3. The District should create a comprehensive disaster recovery plan and test it periodically
to identify and remedy any deficiencies.
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Office of the Auditor General
OTHER FINDINGS
In addition to the four main findings presented in this report, auditors identified one other less
significant area of concern that requires district action.
Some purchases lacked proper approval
The District did not always ensure that there was proper approval before purchases were made.
Auditors sampled 30 fiscal year 2010 purchases and found that 9 of them were purchased without
prior supervisory approval. Although no inappropriate transactions were detected, the District should
prepare purchase orders and have them approved by an authorized supervisor prior to ordering
goods or services, as required by the Uniform System of Financial Records for Arizona School
Districts (USFR). This helps ensure that purchases are appropriate, and that the District has adequate
budget capacity prior to ordering goods or services.
Recommendation
The District should ensure that all purchases are approved by appropriate supervisors prior to being
made.
page 18
State of Arizona
APPENDIX
page a-1
Office of the Auditor General
Objectives, Scope, and Methodology
The Office of the Auditor General has conducted a performance audit of the Higley Unified School
District pursuant to A.R.S. §41-1279.03(A)(9). Based in part on their effect on classroom dollars, as
previously reported in the Auditor General’s annual report, Arizona School District Spending
(Classroom Dollars report), this audit focused on the District’s efficiency and effectiveness in four
operational areas: administration, plant operations and maintenance, food service, and student
transportation. To evaluate costs in each of these areas, only current expenditures, primarily for fiscal
year 2010, were considered.1 Further, because of the underlying law initiating these performance
audits, auditors also reviewed the District’s use of Proposition 301 sales tax monies and how it
accounted for dollars spent in the classroom.
In conducting this audit, auditors used a variety of methods, including examining various records,
such as available fiscal year 2010 summary accounting data for all districts and Higley USD’s fiscal
year 2010 detailed accounting data, contracts, and other district documents; reviewing district
policies, procedures, and related internal controls; reviewing applicable statutes; and interviewing
district administrators and staff.
To analyze Higley USD’s operational efficiency, auditors selected a group of peer districts based on
their similarities in district size, type, and location. This operational peer group includes Higley USD
and the nine other unified or union high school districts that also served between 8,000 and 19,999
students and were located in city/suburb areas. To compare districts’ academic indicators, auditors
developed a separate student achievement peer group using poverty as the primary factor because
poverty has been shown to be strongly related to student achievement. Auditors also used secondary
factors such as district type, size, and location to further refine these groups. Higley USD’s student
achievement peer group includes Higley USD and the 13 other unified districts that also served
student populations with poverty rates less than 14 percent. Additionally:
•• To assess whether the District’s transportation program was managed appropriately and
functioned efficiently, auditors reviewed and evaluated required transportation reports, driver
files, bus maintenance and safety records, bus routing, and bus capacity usage. Auditors also
reviewed fiscal year 2010 transportation costs and compared them to peer districts’.
•• To assess whether the District’s plant operations and maintenance function was managed
appropriately and functioned efficiently, auditors reviewed and evaluated fiscal year 2010 plant
operations and maintenance costs and district building space, and compared these costs and
1 Current expenditures are those incurred for the District’s day-to-day operations. They exclude costs associated with repaying debt, capital
outlay (such as purchasing land, buildings, and equipment), and programs such as adult education and community service that are outside
the scope of preschool through grade-12 education.
page a-2
State of Arizona
capacities to peer districts’. To analyze the District’s solar power system contract and its
effect on electricity costs, auditors reviewed 19 solar power contracts from other Arizona
school districts and interviewed and obtained information from representatives of the
District’s electric utility.
•• To assess whether the District was in compliance with Proposition 301’s Classroom Site
Fund requirements, auditors reviewed fiscal year 2010 expenditures to determine whether
they were appropriate and if the District properly accounted for them. Auditors also reviewed
the District’s performance pay plan and analyzed how performance pay was being
distributed.
•• To assess the District’s computer information systems and network, auditors evaluated
certain controls over its logical and physical security, including user access to sensitive data
and critical systems, and the security of servers that house the data and systems. Auditors
also evaluated certain district policies over the system such as data sensitivity, backup, and
recovery.
•• To assess the District’s financial accounting data, auditors evaluated the District’s internal
controls related to expenditure processing and reviewed transactions for proper account
classification and reasonableness. Auditors also evaluated other internal controls that were
considered significant to the audit objectives.
•• To assess the District’s student achievement, auditors reviewed the Arizona’s Instrument to
Measure Standards (AIMS) passing rates, “Adequate Yearly Progress” for the federal No
Child Left Behind Act, and high school graduation rates. AIMS passing rates were compared
to the state-wide average and the average of the student achievement peer districts.
•• To assess whether the District’s administration effectively and efficiently managed district
operations, auditors evaluated administrative procedures and controls at the district and
school level, including reviewing personnel files and other pertinent documents and
interviewing district and school administrators about their duties. Auditors also reviewed
and evaluated fiscal year 2010 administration costs and compared these to peer districts’.
•• To assess whether the District’s food service program was managed appropriately and
functioned efficiently, auditors reviewed fiscal year 2010 food service revenues and
expenditures, including labor and food costs, compared costs to peer districts’; reviewed
the Arizona Department of Education’s food service monitoring reports; and observed food
service operations.
We conducted this performance audit in accordance with 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.
The Auditor General and her staff express their appreciation to the Higley Unified School
District’s board members, superintendent, and staff for their cooperation and assistance
throughout the audit.
DISTRICT RESPONSE
DISTRICT RESPONSE
Responses to Performance Audit Findings
Transportation
Finding:
Additional steps may help lower District’s transportation program costs.
Response:
The District concurs with the finding and will implement the recommendations offered.
HUSD will continue to strive toward enhancing a safe, efficient student transportation
system.
As noted in the report, Higley Unified School District (HUSD), given its small
geographic size (24 square miles), maintains shorter daily transportation routes than
similar sized (Average Daily Membership) school districts. Limited mileage runs
coupled with a higher comparative percentage of route miles originating from special
needs students (53% vs. 32% in peer districts) resulted in increased transportation costs.
HUSD in efforts to control costs in this area, continues to monitor employee time and
work schedules to ensure greater efficiency. Routes are regularly reviewed to create
effective student capacities on buses without sacrificing safety or incurring excessive
time on daily routes. As demographic populations rapidly change in the District, HUSD
will continue to utilize computerized routing systems in order to manage costs in this
area. The District is considering possible Intergovernmental Agreements (IGA’s) with
other neighboring school districts in the area of transportation to assist in lowering costs
in the future.
HUSD believes that continuity of staffing enhances safety and promotes consistency and
effectiveness in getting students to and from school. As a result, the District has strived
to maintain a competitive compensation structure for its drivers as well as other
employees in the District. HUSD will continue to review this area of compensation and
assess if changes are desirable in order to assist in shifting resources closer to the
classroom.
Facilities
Finding:
The District’s solar power system contract is unlikely to meet expectations for cost
savings.
Response:
The District concurs with the finding assuming that traditional cost structures for utilities
do not increase beyond anticipated levels. HUSD will implement the recommendations
offered.
HUSD entered into a solar power purchasing agreement in August 2010 that was
multifaceted. The goal was to create a delivery structure that contained greater long-term
utility rate stability as well as provide ancillary benefits related to shade and educational
opportunities for students.
Given the uncertainty of utility rates in the future, many organizations have been
proactive in seeking out ways to manage costs in this area over an extended period of
time. HUSD entered into a solar power purchase agreement through an existing
cooperative bid with the potential of acquiring the system if it made financial sense to do
so at a later date. The solar agreement conformed to requirements of power purchase
agreements in the State of Arizona requiring an evidential study to be conducted to
identify savings achieved as a result of the project. Given some uncertainty at the time of
the contract as it related to the relationship with Salt River Project (SRP) including the
production of excess power, HUSD has requested the vendor to re-visit pricing as well as
other components of the contract in an attempt to achieve even greater anticipated
savings. Throughout the duration of the solar program, HUSD will monitor costs, usage,
and efficiencies to ensure maximum savings are being pursued.
In addition to providing power at a predictable cost in the future, HUSD is also receiving
the benefit of shade structures at its transportation facility where many of the solar panels
are housed. These shade structures provide not only the stability needed to house the
solar panels but also provide shade for the entire HUSD bus fleet. The shade extends the
life expectancy of the buses while also lessening the time needed to cool them down (via
A/C) when afternoon runs are needed. In addition, safety checks done daily by drivers
are conducted in an environment that is safer decreasing the likelihood of employee burns
and heat exhaustion.
Another attribute that the solar panels provide are educational opportunities for HUSD
students. The District has an extensive program at its high schools in renewable energy
and looks forward to leveraging this solar project to benefit its students as well.
Classroom Site Funds
Finding:
Some Classroom Site Fund monies spent inappropriately.
Response:
The District concurs with the finding, and will implement the recommendations offered.
HUSD strives to create and administer programs originating from the Classroom Site
Fund which recognize and reward exemplary instructional practices. Additional steps
will be taken to educate those administering/participating in the program to ensure that
they fully comply with the program’s intent. These steps will include the retention of
appropriate documentation to support the expenditures incurred.
Technology
Finding:
Inadequate computer control increased the risk of errors and fraud.
Response:
The District concurs with the finding and will implement the recommendations offered to
ensure that internal controls remain strong in the area of technology.
Despite the performance audit not detecting any improper transactions in this area, the
District acknowledges that operations must be continually reviewed to ensure secure, safe
environments are maintained.
HUSD has taken additional steps to limit employee access to the District’s accounting
system. Every employee job function is reviewed to only allow access to accounting
functionality that is needed to perform the specific task at hand. The District at the
beginning of each year meets with staff to outline proper procedures in order to produce
exemplary compliance in a variety of areas of internal control. The most recent
independent audit report identified no internal control weaknesses in this area of concern.
In addition to controls over the District’s accounting system, HUSD regular requires
passwords to be changed and be created in such a way (alpha-numeric) that heighten the
level of security desired. HUSD has also created a comprehensive disaster recovery plan
and tests it periodically to identify and remedy any deficiencies.
Purchasing
Finding:
Some purchases lacked proper approval.
Response:
The District concurs with the finding and will implement the recommendations offered to
ensure that internal controls remain strong in this area.
The District prides itself in its ability to maintain proper internal controls and produce
financial statements that constituents can trust. For years, the HUSD has received
unqualified “clean” audit opinions from independent CPA firms.
Despite this finding producing no inappropriate transactions, it is important to review
various accounting practices to ensure established procedures are being followed. Each
year financial staff visit schools/departments and review proper procedures. This practice
will continue along with additional assistance as needed.