Program Audit of the California Clean Energy Jobs Act

PROGRAM AUDIT OF THE CALIFORNIA CLEAN ENERGY JOBS ACT Audit Report PROPOSITION 39 PROGRAM Chapter 29, Statutes of 2013 July 1, 2016, through June 30, 2017 BETTY T. YEE California State Controller July 2018 BETTY T. YEE California State Controller July 13, 2018 Kate Gordon, Chair Citizens Oversight Board 1516 9th Street, MS-19 Sacramento, CA 95814 Dear Ms. Gordon: The State Controller’s Office (SCO) audited a selection of completed projects of the California Clean Energy Jobs Act for the period of July 1, 2016, through June 30, 2017. As of June 30, 2017, 69 local educational agencies (LEAs) reported $41,016,640 in completed project costs and 36 community college districts (CCDs) reported $12,786,264 in completed project costs. From the list of completed projects, we selected for audit 16 LEAs and four CCDs, with reported expenditures of $20,389,253. Our audit found that:  Seven LEAs sole-sourced a portion of their project costs, resulting in unallowable costs of $557,645;  Twelve LEAs and three CCDs did not identify the projected energy savings in the awarded contracts;  Two LEAs applied the Proposition 39 funding to project costs incurred prior to the eligibility period, resulting in unallowable costs of $277,987 ($335,222 less $57,235 that was also sole- sourced); and  Four LEAs submitted their final project completion reports after the deadline. We also reviewed the oversight practices of the California Energy Commission (CEC) and found that it improperly reviewed and approved an LEA’s Energy Expenditure Plan, resulting in an overpayment of funds to that LEA. This final audit report identifies seven LEAs that sole-sourced a portion of their project costs, which is a violation of Public Resources Code (PRC) section 26235(c). In addition, this final audit report identifies two LEAs that applied the Proposition 39 funding to project costs incurred prior to the eligibility period, which is a violation of the CEC’s Program Implementation Guidelines. PRC section 26240(h)(1) states that “The Superintendent of Public Instruction shall require local education agencies to pay back funds if they are not used in accordance with state statute or regulations.” Kate Gordon, Chair -2- July 13, 2018 Findings 1 and 3 of this report are apportionment-significant. If you disagree with these two findings, you have 30 days from the date the U.S. Postal Service delivered this report to request a summary review of any apportionment-significant audit findings on the grounds of substantial compliance. In addition, you have 60 days from delivery of this letter – or 30 days following the conclusion of a summary review, with regards to the finding included in that review – to file a formal appeal of any apportionment-significant audit findings on any one or more of the grounds set forth in Education Code (EC) section 41344(d). The request for a summary review or formal appeal should be submitted to the following address: Executive Officer Education Audit Appeals Panel 770 L Street, Suite 1100 Sacramento, California 95814 If you have any questions regarding the summary review process or the appeal process, please see the Education Audit Appeals Panel (EAAP) website (www.eaap.ca.gov) or call EAAP at (916) 445-7745. LEAs working to resolve audit exceptions may request structured repayment plans under EC section 41344. To request a repayment plan, the LEA must submit a letter to the California Department of Education (CDE) within 90 days of receipt of this letter; within 30 days of withdrawing or receiving a determination of a summary review if there is no appeal; or within 30 days of withdrawing or receiving a final determination regarding an appeal pursuant to EC section 41344(a). More information on repayment plans can be found on the CDE’s website (http://www.cde.ca.gov/fg/au/ag/resolution.asp) or by contacting the CDE, School Fiscal Services Division, Categorical Allocations and Management Assistance Unit, at (916) 327-0538. If you have any questions, please contact Jim L. Spano, CPA, Assistant Division Chief, by telephone at (916) 323-5849. Sincerely, Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits JVB/rg cc: Tom Torlakson, Superintendent of Public Instruction California Department of Education Kimberly Tarvin, Director of Audits and Investigations California Department of Education Thi Huynh, Administrator School Fiscal Services Division California Department of Education Robert B. Weisenmiller, Ph.D., Chair California Energy Commission Kate Gordon, Chair -3- July 13, 2018 Drew Bohan, Executive Director California Energy Commission Dave Ashuckian, P.E., Deputy Director, Efficiency Division California Energy Commission Bill Pfanner, Proposition 39 Project Manager, Efficiency Division California Energy Commission Elise Ersoy, Manager, Local Assistance and Finance Office Efficiency Division, California Energy Commission Cecilia V. Estolano, President, Board of Governors California Community Colleges Chancellor’s Office Eloy Ortiz Oakley, Chancellor California Community Colleges Chancellor’s Office Christian Osmena, Vice Chancellor College Finance and Facilities Planning Division California Community Colleges Chancellor’s Office Carlos Montoya, Director of Facilities Planning and Utilization College Finance and Facilities Planning Division California Community Colleges Chancellor’s Office Jack Bastida, Contract Manager Citizens Oversight Board Jim Bartridge, Program and Policy Advisor Citizens Oversight Board Mary Kelly, CPA, Executive Officer Education Audit Appeals Panel Randy Scofield, President, Board of Trustees Cambrian Elementary School District Carrie Andrews, Ph.D., Superintendent Cambrian Elementary School District Olga Shargo, Controller, Business Services Cambrian Elementary School District Penny Timboe, Chief Financial Officer, Business Services Cambrian Elementary School District Ceil Howe, III, President, Board of Trustees Central Union Elementary School District Tom Addington, Superintendent Central Union Elementary School District Andrea Affrunti, Assistant Superintendent of Business, Facilities, and Financial Services Central Union Elementary School District Leslie Ray Bunker, President, Board of Trustees Chula Vista Elementary School District Francisco Escobedo, Ed.D, Superintendent Chula Vista Elementary School District Oscar Esquivel, Deputy Superintendent, Business Services Chula Vista Elementary School District Jim Van Volkinburg, D.D.S, Board President, Board of Trustees Clovis Unified School District Eimear O’Farrell, Ed.D., Superintendent Clovis Unified School District Kate Gordon, Chair -4- July 13, 2018 Susan Rutledge, Assistant Superintendent, Business Services Clovis Unified School District Kyle Ellis, Coordinator, Budget and Finance Clovis Unified School District Kristin Gibson, Governing Board President, Board of Trustees Del Mar Union Elementary School District Holly McClurg, Ph.D., Superintendent of Schools Del Mar Union Elementary School District Catherine Birks, Assistant Superintendent, Business Services Del Mar Union Elementary School District Mark Pong, Director of Finance, Business Services Del Mar Union Elementary School District Gino Kwok, Esq., President, Board of Education Hacienda La Puente Unified School District Cynthia Parulan-Colfer, Superintendent Hacienda La Puente Unified School District Annie Bui, Associate Superintendent, Business Services Hacienda La Puente Unified School District Mark Hansberger, Director of Facilities Hacienda La Puente Unified School District Mary Raia, President, Board of Trustees Harmony Union School District Rene McBride, Superintendent/President Harmony Union School District Ann Hayes-Stern, Business Manager Harmony Union School District Derrell Meek, President, Board of Trustees Lakeside Union Elementary School District Cynthia Marshall, Superintendent/Principal Lakeside Union Elementary School District Shelley Leal, Chief Business Officer/Technology Director, Fiscal Services Lakeside Union Elementary School District Mikala Rahn, Ph.D., CEO and Founder Learning Works Charter School Tomoko Patrick, Financial Manager Learning Works Charter School Mike Fong, President, Board of Trustees Los Angeles Community College District Francisco Rodriguez, Ph.D., Chancellor Los Angeles Community College District Jeanette Gordon, Chief Financial Officer/Treasurer Los Angeles Community College District Thomas Hall, Director of Facilities Planning and Development Los Angeles Community College District Dawn McAuley, President, Board of Trustees Lucerne Elementary School District Mike Brown, Superintendent/Principal Lucerne Elementary School District Kate Gordon, Chair -5- July 13, 2018 Lisa Cockerton, Business Manager Lucerne Elementary School District Carmen Ramirez, President, Board of Trustees Merced Community College District Chris Vitelle, Ed.M., Superintendent/President Merced Community College District Joe Allison, Vice President of Administrative Services Merced Community College District Sheila Flores, Manager of Capital Planning and Events Merced Community College District Mary Navas, President, Board of Trustees Mountain Elementary School District Diane Morgenstern, Superintendent/District Administrator Mountain Elementary School District Molly Heaster, Business Manager/Executive Assistant Mountain Elementary School District José Hurtado, President, Board of Trustees Napa Valley Unified School District Rosanna Mucetti, Ed.D., Superintendent Napa Valley Unified School District Wade Roach, Assistant Superintendent, Business Services Administration Napa Valley Unified School District Jennifer R. Gibb, Facilities Financial Analyst, School Planning and Construction Napa Valley Unified School District Augustine Nevarez, President Under Construction Education Network Board Juanita Perea, Ed.D., Executive Director Oasis Charter Public School Héctor Rico, Ed.D., Superintendent Alisal Union School District Paul P. McNamara, President, Board of Trustees Palomar Community College District Joi Lin Blake Ed.D., Superintendent/President Palomar Community College District Ron Ballesteros-Perez, Assistant Superintendent/Vice President of Finance and Administrative Services Palomar Community College District Carmen M. Coniglio, Fiscal Services Director Palomar Community College District Tammie Bullard, President, Board of Trustees Tustin Unified School District Gregory A. Franklin, Ed.D., Superintendent Tustin Unified School District Joslyn Crawford, Director of Fiscal Services Tustin Unified School District Michelle Rivas, President, Board of Trustees Twin Rivers Unified School District Kate Gordon, Chair -6- July 13, 2018 Steven Martinez, Ed.D., Superintendent Twin Rivers Unified School District Kate Ingersoll, Executive Director, Fiscal Services Twin Rivers Unified School District Anne Kepner, President, Board of Trustees West Valley-Mission Community College District Patrick Schmitt, Chancellor West Valley-Mission Community College District Gayle Dabalos, Director of Facilities Construction West Valley-Mission Community College District Ed Maduli, Vice Chancellor of Administrative Services West Valley-Mission Community College District Ngoc Chim, Executive Director of Financial Services West Valley-Mission Community College District Susan Hutton, Director of Accounting West Valley-Mission Community College District Kevin Otto, Deputy Superintendent/Chief Financial Officer, Business Services Fresno County Superintendent of Schools Tammy Airheart, Assistant Superintendent, Business Services Kings County Office of Education Michelle Buell, Senior Director, Business Services Lake County Office of Education Candi Clark, Chief Financial Officer, Business Services Los Angeles County Office of Education Garry Bousum, Associate Superintendent, Business Services Monterey County Office of Education Joshua Schultz, Deputy Superintendent/Chief Business Official Napa County Office of Education Dean West, CPA, Associate Superintendent, Business Services Orange County Office of Education Tamara Sanchez, Assistant Superintendent, Business Services Sacramento County Office of Education Michael Simonson, Assistant Superintendent, Business Services San Diego County Office of Education Megan K. Reilly, Chief Business Officer, Business Services Santa Clara County Office of Education Jean Gardner, Senior Director, Fiscal Services Santa Cruz County Office of Education Mary Downey, Deputy Superintendent, Business Services Sonoma County Office of Education Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Contents Audit Report Summary ............................................................................................................................ 1 Background ........................................................................................................................ 1 Audit Authority.................................................................................................................. 4 Objectives, Scope, and Methodology ............................................................................... 4 Conclusion .......................................................................................................................... 6 Follow-up on Prior Audit Findings .................................................................................. 7 Views of Responsible Officials .......................................................................................... 7 Restricted Use .................................................................................................................... 7 Schedule 1 – Total Completed Proposition 39 Program Costs for Local Educational Agencies .................................................................... 8 Schedule 2 – Total Completed Proposition 39 Program Costs for Community College Districts .................................................................. 10 Findings and Recommendations ........................................................................................... 12 Appendix—Audit Results by Local Educational Agencies and Community College Districts .................................................................. 19 Attachment A—California Energy Commission’s Response to Audit Results Attachment B—Central Union Elementary School District’s Response to Audit Results Attachment C—Del Mar Union Elementary School District’s Response to Audit Results Attachment D—Mountain Elementary School District’s Response to Audit Results Attachment E—Napa Valley Unified School District’s Response to Audit Results Attachment F—Los Angeles Community College District’s Response to Audit Results Attachment G—Palomar Community College District’s Response to Audit Results Attachment H—West Valley-Mission Community College District’s Response to Audit Results Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Audit Report Summary The State Controller’s Office (SCO) audited a selection of completed projects of the California Clean Energy Jobs Act for the period of July 1, 2016, through June 30, 2017. As of June 30, 2017, 69 local educational agencies (LEAs) reported $41,016,640 in completed project costs (Schedule 1) and 36 community college districts (CCDs) reported $12,786,264 in completed project costs (Schedule 2). From the list of completed projects, we selected for audit 16 LEAs and four CCDs, with reported expenditures of $20,389,253. Our audit found that:  Seven LEAs sole-sourced a portion of their project costs, resulting in unallowable costs of $557,645;  Twelve LEAs and three CCDs did not identify the projected energy savings in the awarded contracts;  Two LEAs applied the Proposition 39 funding to project costs incurred prior to the eligibility period, resulting in unallowable costs of $277,987 ($335,222 less $57,235 that was also sole-sourced); and  Four LEAs submitted their final project completion reports after the deadline. We summarized the audit results separately for the 16 LEAs and four CCDs that were selected for audit in the Appendix of this report. We also reviewed the oversight practices of the California Energy Commission (CEC) and found that it improperly reviewed and approved an LEA’s Energy Expenditure Plan (EEP), resulting in an overpayment of funds to that LEA. Background The California Clean Energy Jobs Act was created with the approval of Proposition 39 (Chapter 29, Statutes of 2013) in the November 2012 statewide election. The statute changed the corporate income tax code and allocates projected revenue from the General Fund to the Clean Energy Job Creation Fund for five fiscal years, beginning with fiscal year (FY) 2013-14. Under the initiative, it is estimated that up to $550 million is available annually to be appropriated by the California State Legislature for purposes of funding eligible projects that create jobs in California while improving energy efficiency and expanding clean energy generation. Senate Bill 73 establishes that 89% of the funds deposited annually into the Clean Energy Job Creation Fund be made available to LEAs for energy efficiency and clean energy projects and 11% be made available to CCDs for energy efficiency and clean energy projects. An eligible energy project is an installation at or modification to a school site that improves energy efficiency or expands clean energy generation. Energy efficiency measures include heating, ventilation, and air -1- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program conditioning (HVAC) system retrofits and various interior and exterior retrofits; clean energy generation measures include photovoltaic (solar) panels. All facilities within the LEA are eligible for Proposition 39 program funding. Citizens Oversight Board Proposition 39 also established the Citizens Oversight Board (COB) to review expenditures, audit the Clean Energy Job Creation Fund, and maintain transparency and accountability of the fund. Members of the COB are appointed by the California Treasurer, Attorney General, and State Controller with two ex officio members from the CEC and the California Public Utilities Commission (CPUC). California Department of Education The CDE is responsible for administering awards to LEAs that serve grade K-12 students. CDE awards funds based on the following formula:  85% based on average daily attendance (ADA) reported as of the second principal apportionment for the prior fiscal year (P-2); and  15% based on the number of students eligible for free and reduced- priced meals in the prior year. These funds may be used by LEAs for energy efficiency and clean energy projects, as well as related energy planning, energy training, and energy management. LEAs are required to submit an EEP to the CEC for consideration and approval. An EEP includes a technical description and project specifications for the proposed eligible energy measures. Funds are released to the LEA only after the CEC approves the EEP. LEAs with 1,000 or fewer prior-year ADA are eligible to receive both the current year and the following year funding in the current year. LEAs that select this option do not receive a funding allocation in the following year. LEAs whose first year of eligibility was FY 2013-14 also had the option of requesting a portion of that year’s award allocation for energy planning activities without submitting an EEP to the CEC. The energy planning funds can be spent only on the following four activities:  Energy audits and energy surveys/assessments  Proposition 39 program assistance  Hiring or retaining an energy manager  Energy-related training Any unused energy planning funds must be applied toward implementing energy projects from the LEA’s approved EEP. -2- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program California Energy Commission The CEC is the primary state agency responsible for energy policy and planning. Public Resources Code (PRC) section 26235(a) requires the CEC to establish guidelines in consultation with the State Superintendent of Public Instruction the Chancellor of the California Community Colleges, and the CPUC. On December 19, 2013, the CEC adopted the Proposition 39 Program Implementation Guidelines. These guidelines provide direction to LEAs on the types of awards and the required proposals, explain the screening and evaluation criteria, describe the standards to be used to evaluate project proposals, and outline the award process. Included in Proposition 39 Program Implementation Guidelines is a savings-to-investment ratio (SIR) calculation. To be approved for Proposition 39 funding, the eligible energy project must achieve a SIR above 1.0. For example, for every dollar invested in the eligible energy project, the LEA must accrue over $1.00 in savings. The SIR calculation is based on the present value of the savings divided by project installation costs, subtracting rebates and other grant funding sources. The Proposition 39 Program Implementation Guidelines also include a formula for estimating job creation benefits, which is a criteria outlined in PRC section 26235(e)(10). The CEC also developed an EEP Handbook that includes step-by-step instructions to assist LEAs in completing all the required forms. California Community Colleges Chancellor’s Office The California Community Colleges Chancellor’s Office (CCCCO) is the state agency that oversees the California Community Colleges District system. The CCCCO is responsible for distributing Proposition 39 funding to individual CCDs. The funds may be used by CCDs for energy efficiency and alternative energy projects, along with related improvements and repairs, that contribute to reduced operating costs and improved health and safety conditions in the community college system. The CCCCO developed its Energy Project Guidance to assist CCDs with implementing projects to meet the Proposition 39 requirements. Projects must be consistent with the State’s energy loading order, which guides the State’s energy policies and decisions according to the following priority order: 1) decreasing electricity demand by increasing energy efficiency and reducing energy usage in periods of high demand or cost, 2) meeting new energy supply needs with renewable resources, and 3) meeting new energy generation needs with clean fossil-fuel generation. CCDs have been pursuing and implementing energy efficiency and renewable energy projects for many years through such programs as the CPUC-administered California Community Colleges/Investor Owned Utilities Energy Efficiency Partnership. This public-private partnership has been working on behalf of CCDs since 2006 and has aggressively reduced energy usage, resulting in over $12 million in costs savings for the community college system. -3- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Audit Authority Government Code (GC) section 12410 and PRC section 26210 provides the legal authority to conduct this audit. GC section 12410 states that the Controller shall superintend the fiscal concerns of the State and audit the disbursement of any state money for correctness, legality, and for sufficient provisions of law for payment. The SCO’s interagency agreement with the COB, pursuant to PRC section 26210(d)(2), commissions the SCO to review a selection of projects completed to assess the effectiveness of the expenditures in meeting the objectives of the California Clean Energy Jobs Act. Objectives, Scope, On June 15, 2016, we entered into an agreement with the COB to conduct an audit to assess the CEC’s controls over implementation and and Methodology administration of the Clean Energy Job Creation Fund to ensure that the funds were accounted for and spent in accordance with applicable statutes. In addition, we were tasked to audit a selection of completed projects (80% LEA projects and 20% CCD projects) to determine whether the energy projects were consistent with the Clean Energy Job Creation Fund’s program guidelines. We selected 16 LEAs and four CCDs for audit. We did not audit their financial statements. We conducted this 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. To achieve our audit objectives for the LEA K-12 Proposition 39 Award Program, we:  Reviewed the CEC’s Proposition 39 Program Implementation Guidelines and EEP Handbook to ensure compliance with the applicable provisions of the PRC;  Reviewed the controls established by the CEC to ensure the completeness of the EEPs, annual project expenditure reports, and close-out project completion forms submitted by LEAs; and,  Selected 16 of 69 LEAs with project costs totaling $17,415,829 and determined whether: o Planning funds were expended in accordance with program requirements or applied towards implementing eligible energy projects approved by the CEC; o The LEA submitted an expenditure plan to the CEC consistent with its priority of eligible projects; o The CEC approved the expenditure plan in compliance with the CEC’s Proposition 39 Program Implementation Guidelines and EEP Handbook; o The approved EEP included:  A signed utility data release form from the LEA allowing the -4- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program CEC to access both historical and future utility billing data;  The benchmarking process established by the CEC to determine a prioritized plan for the implementing eligible energy projects;  Any one of the three methods available to LEAs to identify eligible energy projects (these include an energy survey; an American Society of Heating, Refrigerating and Air- Conditioning Engineering (ASHRAE) Level 2 energy audit; or Data analytics);  A SIR that adheres to the cost-effectiveness determination set forth by the CEC; and  A job-creation benefits estimation that adheres to the formula set forth by the CEC. o The final report to the CEC contained the information outlined in PRC section 26240(b)(1) through 26240(b)(7); o The LEA did not use a sole source process to award funds; o The LEA had a signed contract that identified project specifications, costs, and projected energy savings; o The LEA supported project costs; and o The LEA paid back the funds if the project was torn down, remodeled, or deemed surplus and sold prior to the payback of the project. Errors found in the samples selected were not projected to the intended population. To achieve our audit objectives for the CCD Proposition 39 Program, we:  Selected four of 36 CCDs with completed project costs totaling $2,973,424 and determined whether: o The CCD submitted a Proposition 39 Funding Application to the CCCCO, and the CCCCO approved the application consistent with its Proposition 39 Implementation Guidelines; o The CCD submitted a Call for Projects form that identified projects as energy efficiency or renewable energy generation; o The Proposition 39 Close-out Project Completion Form and the Annual Project Expenditure Report submitted to the CCCCO contained the following information:  The estimated amount of energy saved, accompanied by specific energy consumption and utility bill cost data for the individual facility where the project is located;  The nameplate rating of the new clean energy generation method installed;  The number of trainees resulting from the project;  The amount of time between awarding financial assistance and completing the project or training activities; -5- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program  The entity’s energy intensity before and after project completion as determined from an energy rating or benchmark system; and  The number of direct full-time equivalent employees created by each project and the average number of months or years of utilization of each of these employees. o The CCD did not use a sole source process to award funds; o The CCD had a signed contract that identified project specifications, costs, and projected energy savings; o The CCD supported project costs; and o The CCD paid back the funds if the project was torn down, remodeled, or deemed surplus and sold prior to the payback of the project. Errors found in the samples selected were not projected to the intended population. Conclusion Our audit found instances of noncompliance with the requirements outlined in the Objectives, Scope, and Methodology section. These instances are quantified in the accompanying Schedule 1 (Total Completed Proposition 39 Program Costs for Local Educational Agencies) and Schedule 2 (Total Completed Proposition 39 Program Costs for Community College Districts), and described in the Findings and Recommendations section of this report. We selected 16 LEAs and four CCDs with completed projects for audit. These 20 LEAs and CCDs reported total completed project costs of $20,389,253 ($17,415,829 for LEAs and $2,973,424 for CCDs). Our audit found that:  Seven LEAs sole-sourced a portion of their project costs, resulting in unallowable costs of $557,645;  Twelve LEAs and three CCDs did not identify the projected energy savings in the awarded contracts;  Two LEAs applied the Proposition 39 funding to project costs incurred prior to the eligibility period, resulting in unallowable costs of $277,987 ($335,222 less $57,235 that was also sole-sourced); and  Four LEAs submitted their final project completion reports after the deadline. We also reviewed the oversight practices of the CEC and found that the CEC improperly reviewed and approved an LEA’s EEP, resulting in an overpayment of funds to that LEA. -6- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Follow-up on We previously conducted an audit of 20 LEAs and CCDs with completed projects between December 19, 2013, and June 30, 2016. Our audit report, Prior Audit issued on June 30, 2017, found that: Findings  Four LEAs sole-sourced either a portion or all of their project costs;  Twelve LEAs and three CCDs did not identify the projected energy savings in the awarded contracts; and  One LEA applied its Proposition 39 funding to ineligible project costs incurred prior to the eligibility period. The 20 LEAs and CCDs identified in the prior audit are not the same 20 LEAs and CCDs selected for the current audit; however, we found that both audits identified the same issues. Views of We discussed our audit results with the CEC and the 16 LEAs and four CCDs selected for testing during audit fieldwork, and via email at the end Responsible of the audit. All responses have been included in the attached Appendix Officials and Attachments A through H. Restricted Use This report is solely for the information and use of the COB, the CDE, the CEC, the CCCCO, Cambrian Elementary School District, Central Union Elementary School District, Clovis Unified School District, Del Mar Union Elementary School District, Hacienda La Puente Unified School District, Harmony Union Elementary School District, Lakeside Union Elementary School District, Learning Works Charter School, Los Angeles Community College District, Lucerne Elementary School District, Merced Community College District, Mountain Elementary School District, Mueller Charter School, Napa Valley Unified School District, Oasis Charter Public School, Palomar Community College District, Price Charter Middle School, Tustin Unified School District, Twin Rivers Unified School District, West Valley-Mission Community College District, and the SCO; it is not intended to be and should not be used by anyone other than these specified parties. This restriction is not intended to limit distribution of this report, which is a matter of public record. Original signed by JEFFREY V. BROWNFIELD, CPA Chief, Division of Audits July 13, 2018 -7- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Schedule 1— Total Completed Proposition 39 Program Costs for Local Educational Agencies July 1, 2016, through June 30, 2017 Program Planning Amount Local Educational Agency Implementation Funds 1 Total Unallowable Reference 2 Completed projects selected for audit: 1 Cambrian Elementary School District $ 2 41,687 $ 1 7,028 $ 258,715 $ (17,028) Finding 1 2 Central Union Elementary School District 4 59,657 - 459,657 - Finding 2 3 Clovis Unified School District 3 ,304,710 2 0,300 3,325,010 (297,981) Findings 1 – 4 4 Del Mar Union Elementary School District 8 55,825 - 855,825 - Finding 2 5 Hacienda La Puente Unified School District 5 ,078,045 3 35,367 5,413,412 - 6 Harmony Union Elementary School District 5 9,450 1 5,452 74,902 (17,705) Findings 1, 2 7 Lakeside Union Elementary School District 1 83,406 5 4,610 238,016 - Finding 2 8 Learning Works Charter School 1 12,040 1 7,767 129,807 (1,068) Findings 1, 2 9 Lucerne Elementary School District 2 25,689 4 0,937 266,626 - Finding 2 10 Mountain Elementary School District 1 43,017 8 ,000 151,017 - Finding 2 11 Mueller Charter School 3 36,771 - 336,771 - Finding 2 12 Napa Valley Unified School District 3 ,523,180 - 3,523,180 (399,341) Findings 1, 3 13 Oasis Charter Public School 9 5,930 4 ,450 100,380 (94,980) Findings 1, 2, 4 14 Price Charter Middle School 5 08,141 7 ,529 515,670 (7,529) Finding 1 15 Tustin Unified School District 7 05,750 - 705,750 - Findings 2, 4 16 Twin Rivers Unified School District 1 ,061,091 - 1,061,091 - Findings 2, 4 Total, completed projects selected for audit 16,894,389 521,440 17,415,829 3 (835,632) Completed projects not selected for audit: 1 Alta Vista Elementary School District 2 04,553 - 204,553 2 Bonita Unified School District 5 31,009 1 30,000 661,009 3 Brawley Union High School District 4 59,688 1 19,570 579,258 4 Buttonwillow Union Elementary School District 2 58,021 1 8,199 276,220 5 Chino Valley Unified School District 3 55,829 2 11,144 566,974 6 Chula Vista Elementary School District – Arroyo Vista Charter School 9 3,894 - 93,894 7 Chula Vista Elementary School District – Chula Vista Learning Community Charter School 5 7,652 - 57,652 8 Chula Vista Elementary School District – Discovery Charter School 5 3,899 - 53,899 9 Cuyama Joint Unified School District 2 12,168 5 3,042 265,210 10 Delta Elementary Charter School 5 0,914 3 5,000 85,914 11 Dunsmir Elementary School District 2 24,495 3 3,900 258,395 12 Elverta Joint Elementary School District 1 62,276 5 3,327 215,603 13 Escalon Unified School District 5 89,225 2 1,781 611,006 14 Escondido Union High School District 1 ,556,121 1 05,000 1,661,121 15 Exeter Unified School District 5 67,581 5 4,000 621,581 16 Fammatre Elementary School 2 51,861 3 ,764 255,625 17 Farnham Charter School 2 50,141 8 ,414 258,555 18 Feaster (Mae L.) Charter School 2 22,732 - 222,732 19 Gonzales Unified School District 5 51,026 - 551,026 20 Horicon Elementary School District 7 5,000 - 75,000 21 Howell Mountain Elementary School District 1 2,600 2 13 12,813 22 Huntington Beach City School District 1 ,326,586 - 1,326,586 23 Inyo County Office of Education 7 1,324 - 71,324 24 Kings River Union Elementary School District 2 66,807 1 5,828 282,635 25 Kit Carson Union Elementary School District 2 62,280 1 1,800 274,080 26 La Habra City School District 4 96,159 1 ,469 497,628 27 Lennox School District 1 ,198,672 - 1,198,672 -8- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Schedule 1—(continued) Program Planning Amount Local Educational Agency Implementation Funds 1 Total Unallowable Reference 2 Completed projects not selected for audit (continued): 28 Los Angeles Leadership Academy 5 8,460 5 7,700 116,160 29 Making Waves Academy 2 86,440 9 ,000 295,440 30 Mt. Shasta Union Elementary School District 1 97,429 - 197,429 31 Novato Charter School 5 0,060 - 50,060 32 Oak Valley Union Elementary School District 2 40,441 3 ,775 244,216 33 Palmdale Elementary School District 4 ,451,934 2 15,000 4,666,934 34 Paso Robles Joint Unified School District 3 5,057 1 5,000 50,057 35 Placer Hills Union Elementary School District 1 14,810 - 114,810 36 Pleasant View Elementary School District 2 33,056 5 8,264 291,320 37 Pomona Unified School District 6 63,967 3 38,310 1,002,277 38 Reef Sunset Unified School District 6 44,732 4 2,250 686,982 39 Rescue Union Elementary School District 7 88,175 - 788,175 40 Riverside Unified School District 1 ,268,653 - 1,268,653 41 Round Valley Unified School District 2 55,078 2 4,547 279,625 42 Salmon Creek Charter School 2 01,821 2 0,844 222,665 43 Sartorette Charter School 2 50,301 8 ,414 258,715 44 Sherman Thomas Charter School 9 7,632 6 ,200 103,832 45 Sierra Montessori School 7 7,940 - 77,940 46 Snelling Merced Falls Union Elementary School District 9 3,325 6 ,620 99,945 47 Stellar Secondary Charter High School 6 1,204 1 5,301 76,505 48 Terra Bella Union Elementary School District 2 56,000 6 4,000 320,000 49 Traver Joint Elementary School District 1 98,931 - 198,931 50 Washington Unified School District 5 40,122 - 540,122 51 Waugh Elementary School District 1 99,248 - 199,248 52 Weed Union Elementary School District 1 00,983 - 100,983 53 Weimer Hills Charter School 1 01,229 9 ,593 110,822 Total, completed projects not selected for audit 21,829,542 1,771,269 23,600,811 Total completed projects $ 38,723,930 $ 2,292,709 $ 41,016,640 _________________________ 1 The planning funds are requested directly from CDE before an EEP is submitted. 2 See the Findings and Recommendations section. 3 We tested 100% of the costs reported, totaling $17,415,829, for the 16 LEAs selected for audit. -9- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Schedule 2— . Total Completed Proposition 39 Program Costs for Community College Districts July 1, 2016, through June 30, 2017 Program Amount Community College District Implementation Unallowable Reference 1 Completed projects selected for audit: 1 Los Angeles Community College District $ 9 89,106 $ - Finding 2 2 Merced Community College District 5 98,664 - 3 Palomar Community College District 6 68,282 - Finding 2 4 West Valley-Mission Community College District 7 17,372 - Finding 2 Total, completed projects selected for audit 2 ,973,424 2 - Completed projects not selected for audit: 1 Allan Hancock Joint Community College District $ 4 94,316 2 Barstow Community College District 7 3,327 3 Cabrillo Community College District 2 45,788 4 Cerritos Community College District 5 36,748 5 Chaffey Community College District 2 4,743 6 Citrus Community College District 3 26,779 7 Contra Costa Community College District 5 1,185 8 Desert Community College District 2 28,812 9 El Camino Community College District 4 15,936 10 Gavilan Joint Community College District 3 16,977 11 Imperial Community College District 1 34,739 12 Kern Community College District 4 93,592 13 Lake Tahoe Community College District 5 8,412 14 Long Beach Community College District 4 19,727 15 Los Rios Community College District 7 35,178 16 MiraCosta Community College District 6 78,122 17 Monterey Peninsula Community College District 2 03,557 18 Mt. San Jacinto Community College District 3 68,277 19 Napa Valley Community College District 1 76,537 20 North Orange County Community College District 4 93,202 21 Ohlone Community College District 2 38,618 22 Palo Verde Community College District 9 1,160 23 Rancho Santiago Community College District 7 59,640 24 Riverside Community College District 1 73,212 25 San Bernardino Community College District 3 81,753 26 San Joaquin Delta Community College District 2 03,943 27 San Luis Obispo County Community College District 2 03,859 -10- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Schedule 2—(continued) Program Amount Community College District Implementation Unallowable Reference 1 Completed projects not selected for audit (continued): 28 Sequoias Community College District 2 54,914 29 Sierra Joint Community College District 1 48,785 30 Solano Community College District 4 57,476 31 Sonoma County Junior College District 1 94,711 32 West Hills Community College District 2 28,815 Total, completed projects not selected for audit 9 ,812,840 Total completed projects $ 1 2,786,264 _________________________ 1 See the Findings and Recommendations section. 2 We tested 100% of the costs reported, totaling $2,973,424, for the four CCDs selected for audit. -11- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Findings and Recommendations FINDING 1— We found that seven LEAs sole-sourced a portion of their project costs, totaling $557,645, as follows: Seven LEAs sole- sourced a portion of their project costs Local Educational Agency Amount 1. Cambrian Elementary School District $ 17,028 2. Clovis Unified School District 2 0,300 3. Harmony Union Elementary School District 1 7,705 4. Learning Works Charter School 1,068 5. Napa Valley Unified School District 399,035 1 6. Oasis Charter Public School 9 4,980 7. Price Charter Middle School 7,529 Total $ 557,645 1 For Napa Valley Unified School District, we found that of the $399,035 that was sole-sourced, $57,235 was also incurred prior to the eligibility period (see Finding 3). These seven LEAs did not provide documentation to support that they considered other vendors when awarding contracts. PRC section 26235(c) states, in part, “A community college district or LEA shall not use a sole source process to award funds pursuant to this chapter.” We have interpreted the requirement to “not use a sole source process to award funds,” as the need to use a competitive process. Competitive processes promote competition, prevent favoritism, and make the procurement process transparent. For the Proposition 39 Program, LEAs hired contractors to perform critical functions for energy upgrades. Despite program guidelines and requirements, these LEAs used noncompetitive processes to award contracts and thus did not ensure the cost-effectiveness of these services. Recommendation We recommend that:  LEAs use competitive processes when awarding contracts that will be paid for with Proposition 39 funds; and  The CDE take appropriate action in response to funds paid to LEAs that do not meet the requirement not to use a sole-source process. LEAs’ Response We notified the seven LEAs of this finding during audit fieldwork and at the end of the audit via email. The individual LEA responses are included in Appendix. -12- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program FINDING 2— We found that 12 LEAs and three CCDs did not identify the required projected energy savings in the awarded contracts, as follows: 12 LEAs and three CCDs did not identify the projected energy Local Educational Agency savings in the 1. Central Union Elementary School District awarded contracts 2. Clovis Unified School District 3. Del Mar Union Elementary School District 4. Harmony Union Elementary School District 5. Lakeside Union Elementary School District 6. Learning Works Charter School 7. Lucerne Elementary School District 8. Mountain Elementary School District 9. Mueller Charter School 10. Oasis Charter Public School 11. Tustin Unified School District 12. Twin Rivers Unified School District Community College District 13. Los Angeles Community College District 14. Palomar Community College District 15. West Valley-Mission Community College District PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” We found that many of the awarded contracts state that energy savings will be realized; however, the contracts do not identify the amount of projected energy savings, as the contractor does not control the building operations, weather, or changes to the hours of operation of the facilities. In our discussions with the agencies during audit fieldwork, many commented that the approved energy plans and board documents included the required projected energy savings amounts. We agree that these documents included the projected energy savings amounts; however, the guidelines require the projected energy savings amounts to be included in the awarded contract. Recommendation We recommend that the LEAs and CCDs comply with PRC section 26206(d) and identify the projected energy savings in their awarded contracts. LEAs’ and CCDs’ Response We notified the 12 LEAs and three CCDs of this finding during audit fieldwork and at the end of the audit via email. Their individual responses are included in Appendix. -13- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program FINDING 3— We found that two LEAs applied their Proposition 39 funds to project Two LEAs applied the costs incurred prior to December 19, 2013, resulting in ineligible costs of Proposition 39 funds $335,222, as follows: to project costs Local Educational Agency Amount incurred prior to the eligibility period 1. Clovis Unified School District $ 277,681 2. Napa Valley Unified School District 57,541 1 Total $ 335,222 1 For Napa Valley Unified School District, we found that of the $57,541 incurred prior to the eligibility period, $57,235 was also sole-sourced (see Finding 1). The CEC Program Implementation Guidelines state, in part: Proposition 39 funding may be used only to pay for eligible energy projects installed on or after December 19, 2013, the date guidelines were approved at the Energy Commission’s business meeting … If eligible energy projects are implemented prior to the Proposition 39 Guidelines approval date, those eligible energy projects are not eligible for retroactive Proposition 39 funding. Clovis Unified School District We reviewed the invoices from Knorr Systems, Inc. and Nadar, Inc., for the purchase and installation of variable frequency drive equipment at eight swimming pools in the district, and found that the equipment was purchased and shipped to the district on October 31, 2013. We also reviewed Nadar, Inc.’s pay request. We confirmed that it was dated and signed by the vendor on December 20, 2013. The pay request showed that 73% of the work had been completed at that time. We confirmed that the work at only two schools (Clovis West High and Clovis East High) was incomplete at the time the pay request was signed by the vendor. Therefore, we found that the entire amount (for the purchase of the equipment and its installation at all school sites except Clovis West High and Clovis East High), totaling $277,681, was incurred prior to December 19, 2013, and is ineligible for Proposition 39 funding. Napa Valley Unified School District We reviewed the LEA’s financial transactions report for FY 2013-14, and found that Proposition 39 funding was used to pay for expenditures incurred prior to December 19, 2013, totaling $57,541 ($26,568 to Quattrocchi Kwok Architects [QKA]; $30,000 paid to Récolte Energy; $667 to GSM Landscape Architects, Inc.; and $306 to Napa Electric). The LEA initially coded these transactions to Fund 35, Resource Code 7710, as approved by the Board of Education during meetings in September and October 2013. However, on March 11, 2014, the LEA -14- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program reversed these transactions and re-coded them to Fund 40, Resource Code 6230 (Proposition 39). Recommendation We recommend that:  LEAs use Proposition 39 funds only for eligible efficiency measures that are implemented after December 19, 2013; and  The CDE take appropriate action in response to funds paid that are not eligible for Proposition 39 funding. LEAs’ Response We notified the two LEAs of this finding during audit fieldwork and at the end of the audit via email. The individual LEA responses are included in Appendix. FINDING 4— We found that four LEAs submitted their final project completion reports Four LEAs submitted after the deadline. LEAs are required to submit final project completion their final project reports to the CEC 12 to 15 months after their EEPs are completely installed. An EEP is considered complete when the LEA has completed all completion reports measures in the approved EEP. after the deadline The following table identifies the number of months that the final reports were submitted after the project was completed: Local Educational Agency Months 1. Clovis Unified School District 31 2. Oasis Charter Public School 19 3. Tustin Unified School District 18 4. Twin Rivers Unified School District 29 PRC section 26240(b) states, in part: As a condition of receiving funds from the Job Creation Fund, not sooner than one year but no later than 15 months after an entity completes its first eligible project with grant, loan, or other assistance from the Job Creation Fund, the entity shall submit a report of its project expenditures to the Citizens Oversight Board….To the extent practical, this report shall also contain information on any of the following: 1. The total final gross project costs before deducting any incentives or other grants and the percentage of total project costs derived from the Job Creation Fund. 2. The estimated amount of energy saved, accompanied by specified energy consumption and utility bill cost data for the individual facility where the project is located, in a format to be specified by the Energy Commission. 3. The nameplate rating of new clean energy generation installed. 4. The number of trainees. -15- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program 5. The number of direct full-time equivalent employees and the average number of months or years of utilization of each of these employees. 6. The amount of time between awarding of the financial assistance and the completion of the project or training activities. 7. The entity’s energy intensity before and after project completion, as determined from an energy rating or benchmark system… Recommendation We recommend that LEAs comply with PRC section 26240(b) and submit their final reports no later than 15 months after project completion. LEAs’ Response We notified the four LEAs of this finding during audit fieldwork and at the end of the audit via email. The individual LEA responses are included in Appendix. FINDING 5— We found that one of the 16 EEPs was improperly reviewed and approved CEC did not properly by the CEC, resulting in an overpayment of funds. Specifically, the CEC did not consider total project costs and leveraged funds when reviewing review one EEP and approving the EEP. In January 2015, Learning Works Charter School submitted an EEP requesting $112,040 in Proposition 39 funding. When reviewing the EEP, the CEC did not consider that project costs totaled $91,331 and leveraged funds (e.g., rebates and grants) totaled $26,363, and it approved the EEP for $112,040. The EEP should have been approved for $64,968, which is a difference of $47,072, as follows: Project costs $ 91,331 Less: leverage funds ( 26,363) EEP approval amount 64,968 Less: amount paid (112,040) Overpayment $ (47,072) The error occurred because the EEP was submitted on spreadsheets that were not manually checked for accuracy. This error was corrected during the audit fieldwork. PRC section 26235(f) states: The Superintendent of Public Instruction shall not distribute funds to an LEA unless the LEA has submitted to the Energy Commission, and the Energy Commission has approved, an expenditure plan that outlines the energy projects to be funded. An LEA shall utilize a simple form expenditure plan developed by the Energy Commission. The Energy Commission shall promptly review the plan to ensure that it meets the criteria specified in this section and in the guidelines developed by the Energy Commission. [Emphasis added] -16- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Recommendation We recommend that the CEC:  Properly review all EEPs for accuracy before approval for payment; and  Implement policies and procedures to ensure the accuracy of all EEP reviews. CEC’s Response We informed the CEC of this finding via email on June 15, 2018. Drew Bohan, Executive Director, responded by letter on July 5, 2018. The CEC’s response letter is included in Attachment A. The CEC’s response to the finding is as follows: Funding made available by the Proposition 39: California Clean Energy Jobs Act (Proposition 39 K-12 program) has provided California schools with a tremendous opportunity to invest in energy efficiency improvements and on-site clean energy generation. The California Energy Commission (CEC) has processed 2,141 applications involving 7,298 school sites, awarding total of $1.491 billion to California schools. The energy efficiency and renewable energy measures approved help schools save energy, reduce greenhouse gases, reduce energy costs, create jobs, and improve the classroom learning environment for students and educators. The Energy Commission appreciates the opportunity to respond to the State Controller’s Office’s (SCO) findings regarding the July 1, 2016, through June 30, 2017, audit of the Proposition 39: California Clean Energy Jobs Act Program. The SCO found that one of the 16 energy expenditure plans (EEP) selected for audit was improperly reviewed and approved by the Energy Commission, resulting in the authorization of an overpayment of funds by the California Department of Education (CDE) in the amount of $47,072. The EEP in question, Learning Works Charter School, was submitted to the Energy Commission in early 2015, and reviewed using a spreadsheet application, not the current online form (PEPS). This EEP required extensive work by the Energy Commission’s compliance project manager with many iterations and revisions. In the spreadsheet application, some changes made to the EEP did not automatically update the calculations, resulting in the oversight and ultimately, the error in requested funds. Errors such as this are identified and corrected when the entity submits its annual report. In this case, an overpayment was never made to the Learning Works Charter School by CDE, the Energy Commission identified and corrected the overpayment authorization and reallocated the funds appropriately for uses allowed under Proposition 39. In addition, the program was updated to use an online application instead of a spreadsheet to ensure the grant amount requested cannot exceed total project cost, less rebates and other non-repayable funds. The Energy Commission is also conducting a comprehensive re-evaluation of all EEPs to verify accurate authorization of funds. We look forward to working with SCO on the next audit. -17- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program SCO Comment We informed the CEC of the overpayment issue during the audit. The CEC worked with the LEA to amend the EEP and the Final Project Completion Report to the reduced amount of $64,968. Subsequently, the LEA submitted, and the CEC approved, another EEP to spend the remainder of the funds. Had these changes not been identified or corrected during the audit, the LEA would have been overpaid by $47,072. We updated the finding to reflect that the error was corrected during the audit fieldwork. -18- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Appendix— Audit Results by Local Educational Agencies and Community College Districts Local Educational Agencies Cambrian Elementary School District ............................................................................................. 20 Central Union Elementary School District ...................................................................................... 22 Clovis Unified School District ......................................................................................................... 24 Del Mar Union Elementary School District ..................................................................................... 28 Hacienda La Puente Unified School District ................................................................................... 30 Harmony Elementary School District .............................................................................................. 31 Lakeside Union Elementary School District .................................................................................... 33 Learning Works Charter School ...................................................................................................... 34 Lucerne Elementary School District ................................................................................................ 36 Mountain Elementary School District ............................................................................................. 37 Mueller Charter School .................................................................................................................... 38 Napa Valley Unified School District ............................................................................................... 39 Oasis Charter Public School ............................................................................................................ 42 Price Charter Middle School ............................................................................................................ 44 Tustin Unified School District ......................................................................................................... 46 Twin Rivers Unified School District ............................................................................................... 48 Community College Districts Los Angeles Community College District ....................................................................................... 50 Merced Community College District ............................................................................................... 52 Palomar Community College District .............................................................................................. 53 West Valley-Mission Community College District ......................................................................... 55 -19- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Cambrian Elementary School District Proposition 39 Program Background The CEC approved Cambrian Elementary School District’s EEP for $241,687, which was used to implement the following renewable energy generation measures: Proposition 39 Renewable Reported Share Used Generation Annual Cost School Site at School Site Measures Savings Cambrian District Office $ 120,843 Solar panels $ 24,270 Bagby Elementary 120,844 Solar panels 49,428 Total $ 241,687 $ 7 3,698 With these renewable energy generation measures, the district reported a combined SIR of 1.36 and the creation of 1.02 direct job-years. The district also received $17,028 in planning funds directly from the CDE, which was used for program assistance. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issue: Sole-sourced funds We found that the district sole-sourced its ASHRAE energy audit services, totaling $17,028 ($8,614 for Bagby Elementary and $8,414 for the district office). The district did not provide SCO with any documentation to support that it considered other vendors when awarding the contract to Environmental Building Strategies (EBS). Therefore, we find that the district sole-sourced its Proposition 39 contract. PRC section 26235(c) states, in part, “A community college district or LEA shall not use a sole source process to award funds pursuant to this chapter.” Recommendation We recommend that:  The district comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds; and  The CDE take appropriate action in response to funds paid to LEAs that do not meet the requirement not to use a sole-source process. -20- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program District’s Response We informed the district of the audit finding via email on June 19, 2018. Irma Manzo, Interim Chief Financial Officer, responded via email on June 26, 2018, as follows: The district utilized a competitive RFP [Request for Proposal] process for the solar construction contract per Government Code 4217.10, RFP for inspection services, CM and architectural services per Government Code 53069, which were performed in full compliance with the statutes. However, this audit finding appears to be technically correct per Public Resource Code 26235(c) for the $45,149 for the ASHRAE energy audit services required by the program. Per the Public Contract Code 20111(a), professional services below $86,000 did not require competitive processes and we were in compliance in that regard. EBS was highly qualified, knowledgeable and highly recommended by other Districts. We would plead that this is a strict interpretation of the statute when it comes to contracting for minor professional services i.e. below $86,000. When the ASHRAE audit was conducted, the program was relatively new and there was no prior history or lessons learned to guide us. The handbooks and guidance material were largely in development and the statutes were in frequent revision. We did our best to comply with the intent for competitive processes for the project, however in this case we only had one audit proposal that only amounts to 1% of the entire solar project. The ASHRAE level II audit was a requirement of the Prop 39 program to determine projects eligible for the program. Although its findings developed projects eligible for Prop 39 funding, its findings were not used for establishing eligibility for the solar project. The established calculators were utilized instead for establishing solar eligibility for Prop 39 funding. The results of the ASHRAE audit are of value to the District, and are being utilized for planning other energy initiatives in the District, many of which would have been eligible as well. We believe we were in substantial compliance with the statute. SCO Comment Our finding and recommendation remain unchanged. The district acknowledges that the finding may be “technically correct,” yet states that the SCO is applying a “strict interpretation of the statute.” The scope of our audit is to ensure compliance with state statutes and regulations. Therefore, we found that the district did not comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds. -21- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Central Union Elementary School District Proposition 39 Program Background The CEC approved Central Union Elementary School District’s EEP for $459,657, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Akers Elementary $ 30,181 HVAC controls $ 11,780 Central Elementary 359,899 Lighting and HVAC controls 14,868 Stratford Elementary 69,577 HVAC controls 5,460 Total $ 459,657 $ 3 2,109 With these energy efficiency measures, the district reported a combined SIR of 1.19 and the creation of 2.57 direct job-years. We audited the Proposition 39 program costs to ensure compliance with Audit Results the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issue: Projected energy savings not identified in the contract We reviewed the district’s contract with Indoor Environmental Services (IES) and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings. District’s Response We informed the district of the audit finding via email on June 14, 2018. Andrea Affrunti, Assistant Superintendent of Business, Facilities, and Financial Services, responded by letter on June 21, 2018. The district’s response letter is included in Attachment B. The district’s response to this finding is as follows: The District included the projected energy savings as an attachment to the Board Resolution that was officially approved by the Board. The District did not have a clear understanding that the projected energy savings was required to be included with the contract itself and was -22- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program confident that IES included all the required information in the contract based on their knowledge and experience. SCO Comment Our finding and recommendation remain unchanged. The district indicates its confidence that IES included the required information in the awarded contract based on their knowledge and experience. We reviewed the awarded contract with IES and did not see the required projected energy savings. Furthermore, PRC section 26206(d), not the Board Resolution, requires that the projected energy savings be included in the awarded contract. -23- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Clovis Unified School District Proposition 39 Program Background The CEC approved Clovis Unified School District’s EEP for $3,304,710, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Clovis Gym & Dance $ 20,096 Lighting ̶ interior fixture retrofit $ 4,397 Clovis North High 57,484 Variable frequency drives (VFD) 27,348 Clovis West High 108,577 VFD and interior lighting retrofits 27,047 Buchanan High 48,004 VFD 28,249 Clovis East High 30,947 VFD 25,739 Clovis High 786,084 VFD and HVAC replacement 37,394 Dry Creek Elementary 457,111 Lighting and HVAC controls 19,914 Sierra Vista 181,149 Lighting ̶ interior and exterior retrofit, light-emitting diode exit signs 24,598 Tarpey Elementary 511,948 Lighting and HVAC controls 26,786 Temperance-Kutner 410,250 HVAC controls 16,631 Clark Intermediate 257,013 VFD, lighting, and HVAC controls 17,049 Kastner Intermediate 26,301 VFD 9,415 Valley Oak Elementary 383,342 Lighting and HVAC controls 16,695 Alta Sierra 26,404 VFD 14,478 $3,304,710 $ 295,740 With these energy efficiency measures, the district reported a combined SIR of 1.68 and the creation of 18.51 direct job-years. The district also received $20,300 in planning funds directly from the CDE, which was used for screening and audits. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issues: Sole-sourced funds We found that the district sole-sourced its contract with CLEAResults for data analytic audits, and with Lawrence Nye Carlson Associates (LNCA) for HVAC energy calculations and costs study. The district stated that it did not consider other vendors when it awarded these contracts because CLEAResults and LNCA were the only companies providing these types of services at the time; however, the district did not provide documentation to support this claim. Therefore, we find that the district sole-sourced its Proposition 39 planning fund expenditures, totaling $20,300. PRC section 26235(c) states, in part, “A community college district or LEA shall not use a sole source process to award funds pursuant to this chapter.” -24- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Proposition 39 funds applied to project costs incurred prior to the eligibility period We reviewed invoices from Knorr Systems, Inc. and Nadar, Inc. for the purchase and installation of swimming pool VFD equipment at eight school sites in the district, and found that the equipment was purchased and shipped to the district on October 31, 2013. Additionally, a pay request from Nadar, Inc., signed by the contractor on December 20, 2013, shows that 100% of the equipment had been installed at six locations, and only the work at two remaining locations (Clovis West High and Clovis East High) had not been completed by that date. Therefore, we find that all costs, totaling $277,681, for the purchase of VFD equipment and its installation at six locations, were incurred prior to December 19, 2013, and are ineligible for Proposition 39 funding. The CEC Program Implementation Guidelines state: Proposition 39 funding may be used only to pay for eligible energy projects installed on or after December 19, 2013, the date guidelines were approved at the Energy Commission’s business meeting … If eligible energy projects are implemented prior to the Proposition 39 Guidelines approval date, those eligible energy projects are not eligible for retroactive Proposition 39 funding. Projected energy savings not identified in the contracts We reviewed the district’s contracts with Harris Construction Co., Inc; David A. Bush, Inc.; Mark Wilson Construction, Inc.; and Hull Marketing LLC, and determined that the contracts do not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Final project completion report submitted after the deadline The district’s final report was submitted in October 2017, which is 31 months after the reported project completion date of March 2015. PRC section 26240(b) states, in part: As a condition of receiving funds from the Job Creation Fund, not sooner than one year but no later than 15 months after an entity completes its first eligible project with grant, loan, or other assistance from the Job Creation Fund, the entity shall submit a report of its project expenditures to the Citizens Oversight Board. Recommendation We recommend that:  The district comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds; PRC section 26206(d), which requires that contracts identify the projected energy -25- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program savings; and PRC section 26240(b), which requires that LEAs submit a final report no later than 15 months after project completion;  The district use Proposition 39 funds only for eligible energy efficiency measures that are implemented on or after December 19, 2013; and  The CDE take appropriate action in response to funds paid to LEAs that do not meet the requirement not to use a sole-source process, or are not eligible for Proposition 39 funding. District’s Response We informed the district of the audit findings via email on June 15, 2018. On June 19, 2018, Kyle Ellis, Coordinator, Budget and Finance, responded via email disagreeing with Finding 1 (sole-sourced funds) and Finding 4 (final project completion report submitted after the deadline). The district did not respond to Finding 2 and Finding 3. The district’s response to the Finding 1 and Finding 4 is as follows: Sole-sourced funds Attached are copies of annual UPCCAA [Uniform Public Construction Cost Accounting Act] Resolution Language from 2011-2018 in which district is stating UPCCAA in our best interest as noted in Public Contract Code 22019. UPCCAA takes $15,000 Public Works limit to $45,000. Best interest could align with best value outlined in Prop 39. District elected to be a UPCCAA district a few years prior to start of Prop 39 program. … Therefore, the district believes that the supporting documentation demonstrates compliance and annuls the amount to be refunded due to sole sourcing. Final project completion report submitted after the deadline The timeline outlined below does not align with the timeline CUSD has for the Phase I EEP. Please see the attached for the district’s timeline for Phase I EEP. SCO Comment Our findings and recommendations remain unchanged. UPCCAA refers to public works; the expenditures at issue are audit services, which do not fall under “public works” definition. Furthermore, the district did not provide documentation to support that CLEAResults and LNCA are UPCCAA vendors. The district’s timeline for Phase I EEP shows that 17 months passed between the time that the district received funds in November 2015 and the district completed its Final Report in May 2017. We reviewed the Final Report submitted to the CEC, and used the date printed on the report, October 20, 2017, as the submission date. The statute requires that final reports be submitted “no later than 15 months after an entity completes its first eligible project.” The CEC’s Program Implementation Guidelines also state that “LEAs must report between 12 and 15 months after the -26- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program completion of all eligible energy projects on an energy expenditure plan.” Therefore, the 12 and 15 month timeline began after the projects were all completed, on March 20, 2015, and not when the district received funds. -27- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Del Mar Union Elementary School District Proposition 39 Program Background The CEC approved Del Mar Union Elementary School District’s EEP for $855,825, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings District Office $ 5,913 Interior lighting retrofits $ 1,436 Sycamore Ridge 37,311 HVAC controls and interior lighting retrofits 9,980 Ocean Air 9,404 HVAC controls 2,355 Del Mar Heights 30,605 HVAC controls and interior lighting retrofits 6,882 Del Mar Hills 20,534 HVAC controls and interior lighting retrofits 5,225 Carmel Del Mar 711,970 HVAC controls and interior lighting controls 18,794 Ashley Falls Elementary 2,560 HVAC controls 2,022 Sage Canyon 28,124 Interior lighting retrofits 6,076 Torrey Hills 9,404 HVAC controls 2,026 $ 855,825 $ 54,797 With these energy efficiency measures, the district reported a combined SIR of 1.34 and the creation of 4.79 direct job-years. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issue: Projected energy savings not identified in the contract We reviewed the district’s contract with Balfour Beatty Construction, LLC and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings. District’s Response We informed the district of the audit finding via email on June 7, 2018. Mark Pong, Director of Finance, responded by letter on June 15, 2018. The district’s response letter is included in Attachment C. -28- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program The district’s response to this finding is as follows: The District contracted with an energy/engineering consultant to perform energy audits and to assist with submitting the Proposition 39 energy expenditure plan. The Board of Trustees were presented with the results of the energy audits, planned energy efficiency measures, and projected energy savings to be included in the submitted energy expenditure plan. The District contracted with Balfour Beatty Construction, LLC to implement some of the planned energy efficiency measures. Because the measures were part of a larger school modernization contract, the projected energy savings that was prepared by the independent third party consultant was not included in the contract with Balfour Beatty Construction, LLC. Since completion of the projects, the District has performed multiple energy savings verifications. The District feels that it has operated within the spirit of the program guidelines to achieve projected energy efficiency. SCO Comment Our finding and recommendation remain unchanged. While we recognize that the district operated within the spirit of the program, the scope of our audit is to ensure compliance with state statutes and regulations, which require that the projected energy savings be identified in the awarded contract. -29- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Hacienda La Puente Unified School District Proposition 39 Program Background The CEC approved Hacienda La Puente Unified School District’s EEP for $5,078,045, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings La Puente High School $ 1,136,514 Lighting retrofit and controls $ 46,831 Los Altos High School 726,483 Lighting retrofit and controls 43,989 Glen A. Wilson High School 1,476,843 Lighting retrofit/controls and HVAC controls 118,274 William Workman High 1,738,205 Lighting retrofit/controls and HVAC controls 108,410 $ 5,078,045 $ 317,504 With these energy efficiency measures, the district reported a combined SIR of 1.18 and the creation of 28.44 direct job-years. The district also received $335,367 in planning funds directly from the CDE, which was used for screening and audits. Audit Results We audited the Proposition 39 program costs and found that all costs reported are in compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. District’s Response We informed the district via email on June 14, 2018, that all costs reported for Hacienda La Puente Unified School District are in compliance with the program guidelines. Mark Hansberger, Director of Facilities, responded via email on June 14, 2018, to thank us for our assistance in the audit process. -30- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Harmony Union Elementary School District Proposition 39 Program Background The CEC approved Harmony Union Elementary School District’s EEP for $59,450, which was used to implement the following renewable energy generation and energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Harmony Elementary $ 59,450 Lighting retrofit, HVAC controls, and solar panels $ 5,142 $ 59,450 $ 5,142 With these renewable energy generation and energy efficiency measures, the district reported a combined SIR of 1.47 and the creation of 0.29 direct job-years. The district also received $15,452 in planning funds directly from the CDE, which was used for screening and audits, program assistance, an energy manager, and training. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issues: Sole-sourced funds We found that the district sole-sourced its contract with Persinger Architects for energy management services and architectural services. The district did not provide documentation to support that it considered other vendors when it awarded the contract to Persinger Architects. Therefore, we find that the district sole-sourced its Proposition 39 contract, totaling $17,705. PRC section 26235(c) states, in part, “A community college district or LEA shall not use a sole source process to award funds pursuant to this chapter.” Projected energy savings not identified in the contract We reviewed the district’s lighting and HVAC contracts with O’Rourke Electric, Inc., and determined that neither contract identifies the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” -31- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Recommendation We recommend that:  The district comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds; and PRC section 26206(d), which requires that contracts identify the projected energy savings; and  The CDE take appropriate action in response to funds paid to LEAs that do not meet the requirement not to use a sole-source process. District’s Response We informed the district of the two audit findings via email on June 19, 2018. We did not receive a response from the district. -32- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Lakeside Union Elementary School District Proposition 39 Program Background The CEC approved Lakeside Union Elementary School District’s EEP for $183,406, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Lakeside Elementary $ 183,406 HVAC system and lighting retrofits $ 8,290 $ 183,406 $ 8,290 With these energy efficiency measures, the district reported a combined SIR of 1.18 and the creation of 0.84 direct job-years. The district also received $54,610 in planning funds directly from the CDE, which was used for screening and audits, program assistance, an energy manager, and training. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issues: Projected energy savings not identified in the contract We reviewed the district’s contract with IES and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings. District’s Response We informed the district of the audit finding via email on June 7, 2018. We did not receive a response from the district. -33- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Learning Works Charter School Proposition 39 Program Background The CEC approved Learning Works Charter School’s EEP for $112,040, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Learning Works Charter School $ 112,040 HVAC system and lighting retrofit $ 3,115 $ 112,040 $ 3,115 With these energy efficiency measures, the charter school reported a combined SIR of 1.22 and the creation of 0.63 direct job-years. The charter school also received $17,767 in planning funds directly from the CDE, which was used for program assistance. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issues: Sole-sourced funds We found that the charter school sole-sourced its contract with Kenneth Kashima Electrical Service Company, for the interior lighting retrofit. The charter school did not provide the SCO with any documentation to support that it considered other vendors when awarding the contract to Kenneth Kashima. Therefore, we find that the charter school sole-sourced its Proposition 39 contract, totaling $1,068. PRC section 26235(c) states, in part, “A community college district or LEA shall not use a sole source process to award funds pursuant to this chapter.” Projected energy savings not identified in the contract We reviewed the charter school’s contract with Kenneth Kashima and found that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” -34- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Recommendation We recommend that:  The charter school comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds; and PRC section 26206(d), which requires that contracts identify the projected energy savings; and  The CDE take appropriate action in response to funds paid to LEAs that do not meet the requirement not to use a sole-source process. Charter School’s Response We informed the charter school of the two audit findings via email on June 14, 2018. Patrick Tomoko, Financial Manager, responded via email on June 25, 2018, disagreeing with the audit results. The charter school’s response to the findings is as follows: Sole-sourced funds At the time, the vendor Kenneth Kashima was already working on site on existing renovation projects. Based on the small scale of this particular project, a separate vendor was not acquired. Projected energy savings not identified in the contract An extensive energy audit was conducted by UC Davis back in December 2014. The audit provided project energy savings based on existing equipment, square footage and utility data and this was communicated to vendors to prepare quotes. SCO Comment Our findings and recommendations remain unchanged. We agree that the sole-source dollar finding is small; however, PRC section 26235(c) does not identify a monetary threshold below which an LEA would be exempt from compliance. In addition, PRC section 26206(d) refers specifically to the awarded contract and not the energy audit. -35- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Lucerne Elementary School District Proposition 39 Program The CEC approved Lucerne Elementary School District’s EEP for Background $225,689, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Lucerne Elementary School $ 225,689 HVAC system and lighting retrofits $ 13,290 $ 225,689 $ 13,290 With these energy efficiency measures, the district reported a combined SIR of 1.17 and the creation of 1.26 direct job-years. The district also received $40,937 in planning funds directly from the CDE, which was used for screening and audits, an energy manager, and training. We audited the Proposition 39 program costs to ensure compliance Audit Results with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issue: Projected energy savings not identified in the contract We reviewed the district’s contract with IES and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the energy savings. District’s Response We informed the district of the audit finding via email on April 4, 2018. We did not receive a response from the district regarding this finding. -36- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Mountain Elementary School District Proposition 39 Program The CEC approved Mountain Elementary School District’s EEP for Background $143,017, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Mountain School $ 143,017 HVAC system, lighting retrofits, and plug loads $ 9,920 $ 143,017 $ 9,920 With these energy efficiency measures, the district reported a combined SIR of 1.15 and the creation of 0.71 direct job-years. The district also received $8,000 in planning funds directly from the CDE, which was used for screening and audits, and program assistance. We audited the Proposition 39 program costs to ensure compliance with Audit Results the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issue: Projected energy savings not identified in the contract We reviewed the district’s contract with Mynt Systems and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings. District’s Response We informed the district of the audit finding via email on March 15, 2018. Diane Morgenstern, Superintendent, responded by letter on March 15, 2018, explaining that the district was previously unaware of the need to identify projected energy savings in the contract, and that they have taken steps to ensure that future contracts contain the required information. The district’s response letter is included in Attachment D. -37- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Mueller Charter School Proposition 39 Program Background The CEC approved Mueller Charter School’s EEP for $336,771, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Mueller Charter School $ 336,771 Lighting retrofit and controls $ 44,718 $ 336,771 $ 44,718 With these energy efficiency measures, the charter school reported a combined SIR of 1.33 and the creation of 1.52 direct job-years. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issue: Projected energy savings not identified in the contract We reviewed the charter school’s contract with Ameresco and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the charter school comply with PRC section 26206(d), which requires that contracts identify projected energy savings. Charter School’s Response We informed Chula Vista Elementary School District of the audit finding via email June 7, 2018. Carolyn Scholl, Facility Planning Manager, responded via email on June 8, 2018, stating that the omission was an oversight and the projected energy savings should have been identified in the contract. -38- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Napa Valley Unified School District Proposition 39 Program Background The CEC approved Napa Valley Unified School District’s EEP for $3,523,180, which was used to implement the following renewable energy generation measures: Proposition 39 Renewable Reported Share Used Generation Annual Cost School Site at School Site Measures Savings Napa Education Center $ 1,000,000 Solar panels $ 105,180 Vintage High School 1,523,180 Solar panels 2 71,600 Napa High School 1,000,000 Solar panels 97,256 $ 3,523,180 $ 474,036 With these renewable energy generation measures, the district reported a combined SIR of 1.39 and the creation of 14.8 direct job-years. We audited the Proposition 39 program costs to ensure compliance with Audit Results the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issue: Sole-sourced funds The district contracted QKA for design of the photovoltaic systems; Recolte Energy for project development, oversight, and evaluation services; and GSM Landscape Architects, Inc. for consultation services. The district did not provide documentation to support that it considered other vendors when it awarded the contracts to QKA, Recolte Energy, and GSM Landscape Architects, Inc. Therefore, we find that the district sole- sourced these contracts, totaling $399,035. PRC section 26235(c) states, in part, “A community college district or LEA shall not use a sole source process to award funds pursuant to this chapter.” Proposition 39 funds applied to project costs incurred prior to the eligibility period We reviewed the district’s financial transactions report for FY 2013-14, and found that Proposition 39 funding was used to pay for expenditures incurred prior to December 19, 2013, totaling $57,541 ($26,568 to QKA; $30,000 paid to Recolte Energy; $667 to GSM Landscape Architects, Inc.; and $306 to Napa Electric). The district initially coded these transactions to Fund 35, Resource Code 7710, as approved by the Board of Education during meetings in September and October 2013. However, on March 11, 2014, the district -39- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program reversed these transactions and re-coded them to Fund 40, Resource Code 6230 (Proposition 39). The CEC Program Implementation Guidelines state: Proposition 39 funding may be used only to pay for eligible energy projects installed on or after December 19, 2013, the date guidelines were approved at the Energy Commission’s business meeting … If eligible energy projects are implemented prior to the Proposition 39 Guidelines approval date, those eligible energy projects are not eligible for retroactive Proposition 39 funding. Recommendation We recommend that:  The district comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds;  The district use Proposition 39 funds only for eligible energy efficiency measures implemented on or after December 19, 2013; and  The CDE take appropriate action in response to funds paid to LEAs that do not meet the requirement not to use a sole-source process. District’s Response We informed the district of the audit finding via email on June 13, 2018. Jennifer Gibb, Facility Financial Analyst, responded by letter on June 25, 2018. The district’s response letter is included in Attachment E. The district’s response to these findings is as follows: It appears initially to us as through there may have been an error in coding our expenditures to Resource 6230. We continue to gather all information related to this. We are also reviewing the process in which the district hired the two consultants. Both of these consultants had been involved with the District for many years with projects at a variety of sites, as well as the initial project planning and approval process by our Board of Education. We will need to find just when that was that they were brought on board and by what process. We are reasonably confident that each of these consultants have been involved in an RFP process for services that they have been providing the District for many years. When the District made a decision to begin exploring solar operations we looked to see who was available and found there was very limited knowledgeable people that understood solar and its application. In the process, we found a businessperson in Napa Valley whom had been working in the commercial area of solar for many years and had served on state boards and appeared before the Public Utilities Commission on possible regulations related to the solar industry. After contacting the commercial clients that the company had, many of whom were in the Napa Valley, the District made the decision to request a proposal from Recolte Energy. As to the architect we looked around and found that an architect who had extensive experience on a variety of projects with NVUSD had as one of their principals Aaron Jobson, who had been selected to serve on the state -40- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program committee that as assisting school districts in their application process for solar. So the district went to QKA to ask if Mr. Jobson was available to assist us in the application process and found that he was working with several individuals at the state level who were assisting through his committee development of solar systems throughout the state. We now remember that GSM Landscaping (GSM) was brought into the project, after it was well along, in terms of construction, when we realized that one of the columns for the solar panels was going to have to go into a memorial garden, that if not relocated would have to be removed and disposed of. Wanting not to offend staff that has passed away and had been recognized through the planting of a rose or a tree, we asked GSM to design a new garden location and the process in which the roses and trees could be moved and continue to live. In closing, the District believes that it will be able to provide documentation that will show a thorough process was involved in retaining QKA and Recolte Energy. We additionally acknowledge that though we hired GSM that was clearly a clerical mistake and now in reflection we realize we should have never charged those expenses to Prop 39. SCO Comment Our findings and recommendations remain unchanged. Although the district may have gone through RFP process in the past with QKA and Recolte Energy, the district did not provide us with documentation to support that a competitive process was completed prior to awarding the Proposition 39 contracts to QKA and Recolte Energy. -41- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Oasis Charter Public School Proposition 39 Program The CEC approved Oasis Charter Public School’s EEP for $95,930, which Background was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Oasis Charter Public School $ 95,930 Lighting retrofits, HVAC system, and plug loads $ 6,604 $ 95,930 $ 6,604 With these energy efficiency measures, the charter school reported a combined SIR of 1.22 and the creation of 0.54 direct job-years. The charter school also received $4,450 in planning funds directly from the CDE, which was used for screening and audits, and program assistance. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issues: Sole-sourced funds The charter school contracted with Highlands Energy for lighting retrofits and HVAC measure implementation. The charter school did not provide documentation to support that it considered other vendors when it awarded the contract to Highlands Energy. Therefore, we find that the charter school sole-sourced the contract, totaling $94,980. PRC section 26235(c) states, in part, “A community college district or LEA shall not use a sole source process to award funds pursuant to this chapter.” Projected energy savings not identified in the contract We reviewed the contract with Highlands Energy and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Final project completion report submitted after the deadline The charter school’s final report was submitted in May 2017, 19 months after the reported project completion date of October 2015. -42- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program PRC section 26240(b) states, in part: As a condition of receiving funds from the Job Creation Fund, not sooner than one year but no later than 15 months after an entity completes its first eligible project with grant, loan, or other assistance from the Job Creation Fund, the entity shall submit a report of its project expenditures to the Citizens Oversight Board. Recommendation We recommend that:  The charter school comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds; PRC section 26206(d), which requires that contracts identify the projected energy savings; and PRC section 26240(b), which requires that LEAs submit a final report no later than 15 months after project completion; and  The CDE take appropriate action in response to funds paid to LEAs that do not meet the requirement not to use a sole-source process. Charter School’s Response We informed the charter school of the audit findings via email on April 6, 2018. We did not receive a response from the charter school. -43- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Price Charter Middle School Proposition 39 Program Background The CEC approved Price Charter Middle School’s EEP for $508,141, which was used to implement the following renewable energy generation measures: Proposition 39 Renewable Reported Share Used Generation Annual Cost School Site at School Site Measures Savings Price Charter Middle School $ 508,141 Solar panels $ 7 9,118 $ 508,141 $ 79,118 With these renewable energy generation measures, the charter school reported a combined SIR of 1.46 and the creation of 2.13 direct job- years. The charter school also received $7,529 in planning funds directly from the CDE, which was used for program assistance. We audited the Proposition 39 program costs to ensure compliance with Audit Results the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issues: Sole-sourced funds We found that the charter school sole-sourced its energy audit services, totaling $7,529. The charter school did not provide documentation to support that it considered other vendors when awarding the contract to EBS. PRC section 26235(c) states, in part, “A community college district or LEA shall not use a sole source process to award funds pursuant to this chapter.” Recommendation We recommend that:  The charter school comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds; and  The CDE take appropriate action in response to funds paid to LEAs that do not meet the requirement not to use a sole-source process. -44- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Charter School’s Response We informed the charter school of the finding via email on June 19, 2018. Irma Manzo, Interim Chief Financial Officer, Cambrian Elementary School District, responded via email on June 26, 2018. The charter school’s response to this finding is as follows: The district utilized a competitive RFP process for the solar construction contract per Government Code 4217.10, RFP for inspection services, CM and architectural services per Government Code 53069, which were performed in full compliance with the statutes. However, this audit finding appears to be technically correct per Public Resource Code 26235(c) for the $45,149 for the ASHRAE energy audit services required by the program. Per the Public Contract Code 20111(a), professional services below $86,000 did not require competitive processes and we were in compliance in that regard. EBS was highly qualified, knowledgeable and highly recommended by other Districts. We would plead that this is a strict interpretation of the statute when it comes to contracting for minor professional services i.e. below $86,000. When the ASHRAE audit was conducted, the program was relatively new and there was no prior history or lessons learned to guide us. The handbooks and guidance material were largely in development and the statutes were in frequent revision. We did our best to comply with the intent for competitive processes for the project, however in this case we only had one audit proposal that only amounts to 1% of the entire solar project. The ASHRAE level II audit was a requirement of the Prop 39 program to determine projects eligible for the program. Although its findings developed projects eligible for Prop 39 funding, its findings were not used for establishing eligibility for the solar project. The established calculators were utilized instead for establishing solar eligibility for Prop 39 funding. The results of the ASHRAE audit are of value to the District, and are being utilized for planning other energy initiatives in the District, many of which would have been eligible as well. We believe we were in substantial compliance with the statute. SCO Comment Our finding and recommendation remain unchanged. The charter school acknowledges that the finding may be “technically correct” yet states that the SCO is applying a “strict interpretation of the statute.” The scope of our audit is to ensure compliance with state statutes and regulations. Therefore, we found that the charter school did not comply with PRC section 26235(c), which requires that LEAs not use a sole-source process to award funds. -45- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Tustin Unified School District Proposition 39 Program Background The CEC approved Tustin Unified School District’s EEP for $705,750, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Guin Foss Elementary School $ 535,899 Interior lighting retrofit and HVAC systems $ 20,592 Currie Middle School 169,851 Interior lighting retrofit and HVAC systems 22,295 $ 705,750 $ 42,887 With these energy efficiency measures, the district reported a combined SIR of 1.62 and the creation of 3.95 direct job-years. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issues: Projected energy savings not identified in the contract We reviewed the district’s contract with Balfour Beatty Construction and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Final project completion report submitted after the deadline The district’s final report was submitted 18 months after the project completion date of November 2015. PRC section 26240(b) states, in part: As a condition of receiving funds from the Job Creation Fund, not sooner than one year but no later than 15 months after an entity completes its first eligible project with grant, loan, or other assistance from the Job Creation Fund, the entity shall submit a report of its project expenditures to the Citizens Oversight Board. Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings; and PRC section 26240(b), which requires that the district submit a final report no later than 15 months after project completion. -46- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program District’s Response We informed the district of the two audit findings via email on June 7, 2018. Joslyn Crawford, Director of Fiscal Services, responded via email on June 18, 2018. The district’s response to these findings is as follows: This project was partially constructed through Balfour Beatty construction. Given that this was Tustin’s first prop 39 related project and there was a change in administrative staff, it was unfortunately missed. However, we have established processes and it has been corrected for the subsequent years. Savings have been identified in the resolution and in the RFP. Additionally, after speaking with our consultant (Cumming), submitted the expenditure two months after the deadline was an oversight on their part. -47- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Twin Rivers Unified School District Proposition 39 Program Background The CEC approved Twin Rivers Unified School District’s EEP for $1,061,091, which was used to implement the following energy efficiency measures: Proposition 39 Reported Share Used Annual Cost School Site at School Site Efficiency Measures Savings Grant Union High School 1,061,091 HVAC system 42,116 $ 1,061,091 $ 42,116 With these energy efficiency measures, the district reported a combined SIR of 1.88 and the creation of 5.94 direct job-years. Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines, the CEC’s Program Implementation Guidelines, and the EEP Handbook. We identified the following audit issues: Projected energy savings not identified in the contract We reviewed the district’s contract with Lamon Construction Company and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Final project completion report submitted after the deadline The district’s final report was submitted 29 months after the project completion date of October 2014. PRC section 26240(b) states, in part: As a condition of receiving funds from the Job Creation Fund, not sooner than one year but no later than 15 months after an entity completes its first eligible project with grant, loan, or other assistance from the Job Creation Fund, the entity shall submit a report of its project expenditures to the Citizens Oversight Board. Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings; and PRC section 26240(b), which requires that the district submit a final report no later than 15 months after project completion. -48- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program District’s Response We informed the district of the two audit findings via email on June 7, 2018. Kate Ingersoll, Executive Director of Fiscal Services, responded by email on June 14, 2018. The district’s response to these findings is as follows: The projected energy savings were not included in the contract as the requirement was not known at the time of the contract approval. Due to management turnover in the Facilities Department, the final report was submitted 29 months after the project completion date. -49- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Los Angeles Community College District Proposition 39 Program Background The CCCCO approved Los Angeles Community College District’s Proposition 39 Funding Application (Form B) for $989,106, which was used to implement the following energy efficiency measures: Proposition 39 Year 1 Savings-to- Direct Share Used Cost Investment Job-Years School Site at School Site Efficiency Measures Savings Ratio Created Application No. LOSANG-1314-022 Los Angeles Southwest College $ 9 9,176 Backup swimming pool boiler Los Angeles Southwest College 1 47,489 Parking garage exterior lighting East Los Angeles College 1 43,107 High bay lighting Los Angeles Trade-Tech College 1 13,555 Pool cover installation Los Angeles Valley College 1 7,679 Pool cover installation West Los Angeles College 2 19,803 Boiler retrofits East Los Angeles College 4 4,019 Pool cover installation $ 7 84,828 $ 7 9,955 1.18 4.87 Application No. LOSANG-1314-024 Los Angeles Harbor College 2 04,278 Central plant control upgrade 2 04,278 $ 3 2,464 1.15 1.77 $ 989,106 $ 112,419 Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines and the CCCCO’s Energy Project Guidance. We identified the following audit issue: Projected energy savings not identified in the contract We reviewed the district’s contracts with Xcel Mechanical, CSI Services, Sea Clear Pools, Line Tech Contractors, and Climatec and determined that the contracts do not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings. District’s Response We informed the district of the audit finding via email on June 7, 2018. Thomas Hall, Director of Facilities, Planning, and Development, responded by letter dated June 11, 2018, explaining -50- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program that the district was unaware of the requirement that contracts must identify the projected energy savings, and is taking steps to include the required language in all future contracts. The district’s response letter is included in Attachment F. -51- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Merced Community College District Proposition 39 Program Background The CCCCO approved Merced Community College District’s Proposition 39 Funding Application (Form B) for $598,664, which was used to implement the following energy efficiency measures: Proposition 39 Year 1 Savings-to- Direct Share Used Cost Investment Job-Years School Site at School Site Efficiency Measures Savings Ratio Created MERCED-1314-001 Los Banos Campus $ 1 21,436 Campus-wide lighting Los Banos Campus 7 4,942 Desktop virtualization Los Banos Campus 7 ,977 Window films Los Banos Campus 1 0,504 Domestic hot water heater 2 14,859 $1 9,657 1.12 1.37 MERCED-1314-002 Merced College 2 5,402 VFDs on pool pumps 2 5,402 1 3,988 1.12 0.19 MERCED-1314-003 Merced College 7 0,625 Desktop virtualization 7 0,625 3 ,825 1.12 0.40 MERCED-1415-001 Merced College 4 7,320 Replace 4 gas HVAC units Merced College 7 0,859 Replace 7 gas HVAC units Merced College 4 1,905 Replace 4 gas HVAC units Merced College 2 3,515 Replace 1 gas HVAC units Merced College 8 ,514 Replace 1 electric heat pump Merced College 9 5,665 Replace 15 electric heat pump 2 87,778 1 9,770 1.14 1.65 $ 598,664 $ 57,240 Audit Results We audited the Proposition 39 program costs and found that all costs reported were in compliance with the Clean Energy Job Creation Fund program guidelines and the CCCCO’s Energy Project Guidance. District’s Response We informed the district via email on May 8, 2018, that all costs reported were in compliance with the program guidelines. We did not receive a response from the district. -52- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Palomar Community College District Proposition 39 Program Background The CCCCO approved Palomar Community College District’s Proposition 39 Funding Application (Form B) for $668,282, which was used to implement the following energy efficiency measures: Proposition 39 Year 1 Savings-to- Direct Share Used Cost Investment Job-Years School Site at School Site Efficiency Measures Savings Ratio Created Application No. PALOMA-1314-001 Escondido Educational Center $ 1 51,347 Interior and exterior lighting retrofits Palomar College 5 16,935 Exterior lighting retrofit $ 6 68,282 $1 39,445 1.49 11.17 Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines and the CCCCO’s Energy Project Guidance. We identified the following audit issue: Projected energy savings not identified in the contract We reviewed the district’s contract with Compass Energy Solutions and determined that the contract does not identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings. District’s Response We informed the district of the audit finding via email on June 7, 2018. Ron Ballesteros-Perez, Assistant Superintendent/Vice President Finance and Administrative Services, responded by letter dated June 18, 2018. The district’s response letter is included in Attachment G. The district’s response to this finding is as follows: The Governing Board approved entering into the agreement with Compass Energy Solutions, by a written Board consent, on December 10, 2013. Board Resolution No. 14-21160 contained the information regarding the anticipated annual electricity and maintenance cost savings to the District. The energy savings was calculated and presented in Attachment B to the Energy Services Agreement (ESA) with Compass Energy Solutions. It was reviewed and validated line by line separately by the Facilities department and was finalized after the initial signing of the document. -53- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Furthermore, the energy savings were presented to and approved by Newcomb Anderson McCormick (NAM) to meet the Savings Investment Ratio (SIR) requirements of Prop 39 and the California Community Colleges – Investor Owned Utilities (CCC/IOU). Lastly it was reviewed and validated by San Diego Gas and Electric (SDGE) to qualify for their full rebate and to receive On Bill Financing (OBF) from SDGE. The Board Resolution serves as the official and legal record of the decision made by the Governing Board on behalf of the Palomar Community College District to approve the ESA. We believe the substance of the Prop 39 requirements have been met. SCO Comment Our finding and recommendation remain unchanged. We reviewed the contract with Compass Energy Solutions and confirmed that Attachment B, titled “Description of the System,” did not identify the projected energy savings. Furthermore, PRC section 26206(d) requires that the projected energy savings be identified in the awarded contract, not the Board Resolution. -54- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program West Valley-Mission Community College District Proposition 39 Program Background The CCCCO approved West Valley-Mission Community College District’s Proposition 39 Funding Application (Form B) for $717,372, which was used to implement the following energy efficiency measures: Proposition 39 Year 1 Savings-to- Direct Share Used Cost Investment Job-Years School Site at School Site Efficiency Measures Savings Ratio Created WESTVA-1516-001 West Valley College $ 7 17,372 Replaced water-cooled chillers $ 717,372 $ 4 0,668 1.53 4.04 Audit Results We audited the Proposition 39 program costs to ensure compliance with the Clean Energy Job Creation Fund program guidelines and the CCCCO’s Energy Project Guidance. We identified the following audit issue: Projected energy savings not identified in the contract We reviewed the district’s contract with Environmental Systems, Inc., which includes the signed agreement, bidding documents, an energy audit report by Interface, and the drawings and specifications; and determined that none of the contract documents identify the projected energy savings. PRC section 26206(d) states, “All projects shall require contracts that identify the project specifications, costs, and projected energy savings.” Recommendation We recommend that the district comply with PRC section 26206(d), which requires that contracts identify the projected energy savings. District’s Response We informed the district of the audit finding via email on June 7, 2018. Gayle Dabalos, Director of Facilities Construction, responded by letter dated June 28, 2018, recognizing that an oversight had been made. The district’s response letter in included in Attachment H. -55- Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Attachment A— California Energy Commission’s Response to Audit Results Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Attachment B— Central Union Elementary School District’s Response to Audit Results Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Attachment C— Del Mar Union Elementary School District’s Response to Audit Results Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Attachment D— Mountain Elementary School District’s Response to Audit Results Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Attachment E— Napa Valley Unified School District’s Response to Audit Results Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Attachment F— Los Angeles Community College District’s Response to Audit Results Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Attachment G— Palomar Community College District’s Response to Audit Results Program Audit of the California Clean Energy Jobs Act Proposition 39 Program Attachment H— West Valley-Mission Community College District’s Response to Audit Results State Controller’s Office Division of Audits Post Office Box 942850 Sacramento, CA 94250-5874 http://www.sco.ca.gov S18-39M-0001