Debts Totaling $2.5 Billion Confront Poway Unified School District in Time

The Poway Unified School District will owe $2.5 billion over the next 40 years—far more than the nearly $1 billion connected to the district’s much-maligned capital appreciation bonds.

That’s the conclusion of an independent audit by Wilkinson Hadley King & Co. LLP of El Cajon, whose report the school board will review Tuesday night.

In the report, “debt service requirements on long-term debt” were depicted for a series of years and four-year periods, ending with 2048-2052. Nearly two dozen so-called special tax bonds or tax refunding bonds have been issued since September 2002. 

A chart halfway through the 100-page report [attached as PDF] showed total principal of $903 million, accreted interest of $1.086 billion, interest of $518 million and a total debt of $2.507 billion.

Spot checks of Poway Unified finances also found “instances of noncompliance” with certain recordkeeping requirements, said the accounting firm.

“We noted certain matters that we reported to management of Poway Unified School District in a separate letter dated October 19, 2012,” the auditors said, and reported the district’s responses.

According to the report for the 2011-12 fiscal year, the district was in the black as of June 30.

“Net assets may serve over time as a useful indicator of a government's stability and financial position,” the report said. “The district's assets exceeded liabilities by $191.5 million at the close of 2011-12.”

But by another measure, the district fell into the red last year.

In 2011-12, the report said, the district had revenues of $344.3 million and expenses of $366.3 million—a deficit of $22 million.

By comparison, the district's revenues in 2010-2011 were $337.8 million and expenses $337.5 million—a positive balance of $300,000, the report said.

The 37-school district had 34,569 students in October 2011—an increase of 434 over the 34,135 enrollment of October 2010, the report said. The district spent $7,169 per student in the 2010-11 school year and $7,323 in 2011-2012—an increase of 2.1 percent.

The report noted a “difference between the original budget and the final amended budget was an increase of $3.3 million or 1.3 percent in total general fund expenditures budget.”

But final budgeted revenues for 2011-2012 “exceeded original budgetary estimates by $26.1 million, or 10.9 percent, to account for increases in federal and state aid and local donations,” the report said.

The phrase “capital appreciation bonds” appears only once in the auditors’ report dated Oct. 19. But outrage over that kind of bond—differing from the traditional general obligation bonds—is said to have led to Tuesday’s ouster of school board president Linda Vanderveen.

Challenger Kimberley Beatty, who won with almost 39 percent of the vote, told Patch: “I think people were looking for some change. I’ve heard their message. I want to increase the transparency and accountability in the school district. If I make a mistake, I will acknowledge that.”

But the audit report may not answer questions about the capital appreciation bonds.

Schools Superintendent John Collins announced at a September school board meeting that he hired a forensic accountant to review its controversial bond issue.

“We want to be open, transparent and forthright in our responsibility to the district,” Collins said. “We realize that it’s not good enough to say that we think we acted in good faith or we believe we did with the best industry expert advice and counsel. We want to take it a step further.”

One section of the Wilkinson report was titled “Poway Unified School District Schedule of Findings and Questioned Costs for the year ended June 30, 2012.”

“In our review of deposits at Bernardo Heights Middle School, Morning Creek Elementary School, Chaparral Elementary School, and Midland Elementary School, we noted that 20 out of 26 deposits tested did not have supporting documentation which substantiated amounts deposited,” auditors said.

“In addition, there was one expenditure of $1,000 which was a donation to an outside charity.”

The report said Bernardo Heights Middle School had appropriate cash transmittal forms to document cash received.

“However, in four instances these forms were not completely filled out correctly,” auditors said. “At all elementary schools, staff responsible for the student body accounts were volunteers who did not understand the procedures established by the district to safeguard the assets of the student body accounts.”

Auditors also found that staff at the school sites “misunderstood that donations to outside charities are considered gifts of public funds.”

As a result, the report said, “Failure to follow internal control procedures established by the district has created an opportunity to misappropriate assets.”

The auditors recommended the district train “all staff responsible for student body funds to ensure procedures established to safeguard assets are understood and followed” and provide each school site with a copy of the Associated Student Body Accounting Manual.

The district responded to these and other criticisms, saying all audited school sites were asked to give their “corrective actions.”

The district said its Finance Department sent email to all elementary schools on Sept. 4, “to require that all deposits be supported by the Cash Verification Form for the actual money received plus the Inventory Tally Sheet for the source or origin of the money collected.”

As far as the errant $1,000 cash donation to a charity—the American Heart Association—the Student Council adviser “talked to the credit union but they were informed that they cannot issue a cashier's check without the money being deposited first into an account. The school ended up depositing the money to the Student Council account and issued a check payable to American Heart Association. The advisor is now aware that they are not supposed to co-mingle funds.”

The district finance office also promised it would “continue to visit school sites to do internal control audits and review of the ASB functions and procedures.”

Poway Unified isn’t alone falling short in auditors’ eyes. In 2011, the Grossmont Union High School District also was alerted to recordkeeping problems.

“Internal controls should be implemented to minimize the possibility of waste or abuse of ASB resources,” the Christy White auditing firm said of El Cajon-based Grossmont.

The Poway Unified auditors also reported:

The demographics of the district reflect a decreasing trend in the high school population and an increasing trend in the elementary and middle school population. Experience shows that the east side of the district is nearly built out and the west and south areas are busy with developments and new families. California voters approved Proposition 13 that not only limits the tax rate on property, but gives an incentive for owners to occupy longer, resulting in slower turnover of homes to new families. This impacts the east side with declining enrollment. The district, however, has offsetting growth on the west side.

Tuesday’s regular meeting is at 6 p.m. at the district office Community Room at 15250 Avenue of Science in San Diego.