SANTA CLARA COUNTY OFFICE OF EDUCATION AUDIT REPORT …

SANTACLARACOUNTYOFFICEOFEDUCATION

AUDITREPORT

FortheFiscalYearEndedJune30,2013

SANTACLARACOUNTYOFFICEOFEDUCATIONFortheFiscalYearEndedJune30,2013TableofContents

FINANCIALSECTION Page

IndependentAuditors’Report..................................................................................................................................................................1Management’sDiscussionandAnalysis...............................................................................................................................................3BasicFinancialStatements:

Government‐wideFinancialStatements:StatementofNetPosition..........................................................................................................................................................12StatementofActivities................................................................................................................................................................13

GovernmentalFundsFinancialStatements:BalanceSheet–GovernmentalFunds..................................................................................................................................14ReconciliationoftheGovernmentalFundsBalanceSheettothe StatementofNetPosition................................................................................................................................................15StatementofRevenues,Expenditures,andChangesinFundBalances................................................................16ReconciliationoftheGovernmentalFundsStatementofRevenues,

Expenditures,andChangesinFundBalancestotheStatementofActivities.............................................17ProprietaryFundFinancialStatements:

StatementofNetPosition..........................................................................................................................................................18StatementofRevenues,ExpensesandChangesinNetPosition...............................................................................19StatementofCashFlows............................................................................................................................................................20

FiduciaryFundFinancialStatement:StatementofNetPosition..........................................................................................................................................................21

NotestoFinancialStatements...............................................................................................................................................................22

REQUIREDSUPPLEMENTARYINFORMATIONBudgetaryComparisonSchedule–CountySchoolServiceFund...........................................................................................43BudgetaryComparisonSchedule–SpecialEducationPass‐ThroughFund......................................................................44ScheduleofFundingProgress–OPEB...............................................................................................................................................45NotestotheRequiredSupplementaryInformation....................................................................................................................46

SUPPLEMENTARYINFORMATIONLocalEducationalAgencyOrganizationStructure.......................................................................................................................47ScheduleofAverageDailyAttendance..............................................................................................................................................48ScheduleofAverageDailyAttendanceSpecialDayClassesasofSecondPeriod............................................................49ScheduleofInstructionalTime.............................................................................................................................................................50ScheduleofFinancialTrendsandAnalysis......................................................................................................................................51ScheduleofExpendituresofFederalAwards.................................................................................................................................52ReconciliationofAnnualFinancialandBudgetReportwithAuditedFinancialStatements.....................................53CombiningStatements‐Non‐MajorGovernmentalFunds:

CombiningBalanceSheet................................................................................................................................................................54CombiningStatementofRevenues,ExpendituresandChangesinFundBalances...............................................55

ScheduleofCharterSchools...................................................................................................................................................................56NotetotheSupplementaryInformation...........................................................................................................................................57

SANTACLARACOUNTYOFFICEOFEDUCATIONAUDITREPORTFortheFiscalYearEndedJune30,2013TableofContents(continued)

OTHERINDEPENDENTAUDITORS’REPORTS Page

IndependentAuditors'ReportonInternalControloverFinancialReportingandonCompliance andOtherMattersBasedonanAuditofFinancialStatementsPerformedinAccordancewith GovernmentAuditingStandards.....................................................................................................................................................58IndependentAuditors'ReportonComplianceForEachMajorFederalProgramandReporton InternalControlOverCompliance................................................................................................................................................60IndependentAuditors’ReportonStateCompliance...................................................................................................................62

FINDINGSANDQUESTIONEDCOSTSScheduleofAuditFindingsandQuestionedCosts: SummaryofAuditors’Results......................................................................................................................................................64 CurrentYearAuditFindingsandQuestionedCosts...........................................................................................................65 SummaryScheduleofPriorAuditFindings...........................................................................................................................71ManagementLetter....................................................................................................................................................................................72

FinancialSection

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INDEPENDENTAUDITORS’REPORTBoardofEducationSantaClaraCountyOfficeofEducationSanJose,CaliforniaWehaveauditedtheaccompanyingfinancialstatementsofthegovernmentalactivities,eachmajorfund,andtheaggregateremaining fund informationofSantaClaraCountyOfficeofEducation,asofandfor the fiscalyearendedJune30,2013,andtherelatednotestothefinancialstatements,whichcollectivelycomprisetheCounty'sbasicfinancialstatementsaslistedinthetableofcontents.Management’sResponsibilityfortheFinancialStatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordancewithaccountingprinciplesgenerallyaccepted in theUnitedStatesofAmerica; this includes thedesign,implementation,andmaintenanceofinternalcontrolrelevanttothepreparationandfairpresentationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.Auditors'ResponsibilityOurresponsibilityistoexpressopinionsonthesefinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica,thestandardsapplicabletofinancialauditscontainedinGovernmentAuditingStandards,issuedbytheComptrollerGeneralof theUnited States, andStandardsandProcedures forAuditsofCaliforniaK‐12LocalEducationalAgencies2012‐13. Thosestandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoserisk assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the financial statements in order to design audit procedures that are appropriate in thecircumstances,butnot for thepurposeofexpressinganopinionontheeffectivenessoftheentity’s internalcontrol. Accordingly,we express no suchopinion.An audit also includes evaluating the appropriatenessofaccountingpoliciesusedandthereasonablenessofsignificantaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinions.OpinionsInouropinion,thefinancialstatementsreferredtoabovepresentfairly,inallmaterialrespects,therespectivefinancial position of the governmental activities, each major fund, and the aggregate remaining fundinformation of Santa Clara County Office of Education, as of June 30, 2013, and the respective changes infinancialpositionand,whereapplicable,cashflowsthereofforthefiscalyearthenendedinaccordancewithaccountingprinciplesgenerallyacceptedintheUnitedStatesofAmerica.

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OtherMattersRequiredSupplementaryInformationAccounting principles generally accepted in the United States of America require that the management’sdiscussionandanalysisonpages3through11,budgetarycomparisoninformationonpages43and44,andschedule of fundingprogress onpage45bepresented to supplement thebasic financial statements. Suchinformation,althoughnotapartofthebasicfinancialstatements,isrequiredbytheGovernmentalAccountingStandardsBoard,whoconsidersittobeanessentialpartoffinancialreportingforplacingthebasicfinancialstatements in anappropriateoperational, economic, orhistorical context. Wehaveapplied certain limitedprocedures to the required supplementary information in accordance with auditing standards generallyacceptedintheUnitedStatesofAmerica,whichconsistedofinquiriesofmanagementaboutthemethodsofpreparing the informationandcomparing the information forconsistencywithmanagement’s responses toourinquiries,thebasicfinancialstatements,andotherknowledgeweobtainedduringourauditofthebasicfinancialstatements.Wedonotexpressanopinionorprovideanyassuranceontheinformationbecausethelimitedproceduresdonotprovideuswithsufficientevidencetoexpressanopinionorprovideanyassurance.OtherInformationOur auditwas conducted for the purpose of forming opinions on the financial statements that collectivelycomprise Santa Clara County Office of Education’s basic financial statements. The other supplementaryinformation listed in the table of contents is presented for purposes of additional analysis and is not arequiredpartofthebasicfinancialstatements.Theothersupplementaryinformationlistedinthetableofcontents,includingtheScheduleofExpendituresofFederal Awards, is the responsibility of management and was derived from and relates directly to theunderlyingaccountingandotherrecordsusedtopreparethebasicfinancialstatements.Suchinformationhasbeensubjected to theauditingproceduresapplied intheauditof thebasic financialstatementsandcertainadditional procedures, including comparing and reconciling such information directly to the underlyingaccounting and other records used to prepare the basic financial statements or to the basic financialstatements themselves, and other additional procedures in accordance with auditing standards generallyacceptedintheUnitedStatesofAmerica.Inouropinion,theothersupplementaryinformationisfairlystated,inallmaterialrespects,inrelationtothebasicfinancialstatementsasawhole.OtherReportingRequiredbyGovernmentAuditingStandardsInaccordancewithGovernmentAuditingStandards,wehavealsoissuedourreportdatedDecember13,2013on our consideration of the County's internal control over financial reporting and on our tests of itscompliancewithcertainprovisionsof laws,regulations,contracts,andgrantagreementsandothermatters.Thepurposeofthatreportistodescribethescopeofourtestingofinternalcontroloverfinancialreportingandcomplianceandtheresultsofthattesting,andnottoprovideanopiniononinternalcontroloverfinancialreporting or on compliance. That report is an integral part of an audit performed in accordance withGovernment Auditing Standards in considering the County's internal control over financial reporting andcompliance.

December13,2013

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FigureA‐1.OrganizationofSantaClaraCountyOfficeofEducation’sAnnualFinancialReport

SANTACLARACOUNTYOFFICEOFEDUCATIONManagement’sDiscussionandAnalysis(Unaudited)FortheFiscalYearEndedJune30,2013This discussion and analysis of SantaClaraCountyOffice ofEducation’s financial performanceprovides anoverview of the County’s financial activities for the fiscal year ended June 30, 2013. Please read it inconjunctionwiththeCounty’sfinancialstatements,whichimmediatelyfollowthissection.FINANCIALHIGHLIGHTS The County’s financial status increased overall as a result of this year’s operations. Net position of

governmentalactivitiesincreasedby$13.9million,or12.4%. Governmentalexpenseswereabout$244.2million.Revenueswereabout$258.1million. TheCountyspentover$3.8millioninnewcapitalassetsduringtheyear. The County increased its outstanding long‐term debt by $0.4 million. This was primarily due to an

increaseintheotherpostemploymentbenefitsliability. Averagedailyattendance(ADA)decreasedby64,or3.2%.OVERVIEWOFTHEFINANCIALSTATEMENTSThis annual report consists of three parts – management discussion and analysis (this section), the basicfinancial statements, and required supplementary information. The basic financial statements include twokindsofstatementsthatpresentdifferentviewsoftheCounty: Thefirsttwostatementsarecounty‐widefinancialstatementsthatprovidebothshort‐termandlong‐term

informationabouttheCounty’soverallfinancialstatus. The remaining statements are fund financial statements that focus on individual parts of the County,

reportingtheCounty’soperationsinmoredetailthantheCounty‐widestatements. Thegovernmental fundsstatementstellhowbasicservices likeregularandspecialeducationwere

financedintheshorttermaswellaswhatremainsforfuturespending. Short and long‐term financial information about the activities of the County that operate like

businesses(self‐insurancefunds)areprovidedintheproprietaryfundsstatements. Fiduciary funds statement provides information about the financial relationships in which the

Countyactssolelyasatrusteeoragentforthebenefitofotherstowhomtheresourcesbelong.Thefinancialstatementsalsoinclude notes that explainsome of the information inthe statements and providemore detailed data. FigureA‐1 shows how the variousparts of this annual reportare arranged and related tooneanother.

Management’sDiscussionandAnalysis

BasicFinancial

Information

RequiredSupplementaryInformation

FundFinancialStatements

County‐WideFinancialStatements

NotestoFinancialStatements

SUMMARY DETAIL

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SANTACLARACOUNTYOFFICEOFEDUCATIONManagement’sDiscussionandAnalysis(Unaudited)FortheFiscalYearEndedJune30,2013

OVERVIEWOFTHEFINANCIALSTATEMENTS(continued)FigureA‐2summarizesthemajorfeaturesoftheCounty’sfinancialstatements,includingtheportionoftheCounty’sactivitiestheycoverandthetypesofinformationtheycontain.FigureA‐2.MajorFeaturesoftheCounty‐WideandFundFinancialStatements

TypeofStatements

County‐Wide

GovernmentalFunds

ProprietaryFunds

FiduciaryFunds

Scope Entirecounty,exceptfiduciaryactivities

TheactivitiesoftheCountythatarenotproprietaryorfiduciary,suchasspecialeducationandbuildingmaintenance

ActivitiesoftheCountythatoperatelikeabusiness,suchasself‐insurancefunds

InstancesinwhichtheCountyadministersresourcesonbehalfofsomeoneelse,suchasscholarshipprogramsandstudentactivitiesmonies

Requiredfinancialstatements

StatementofNetPosition

StatementofActivities

BalanceSheet

StatementofRevenues,Expenditures&ChangesinFundBalances


StatementofRevenues,Expenses,&ChangesinNetPosition

StatementofCashFlows


Accountingbasisandmeasurementfocus

Accrualaccountingandeconomicresourcesfocus

Modifiedaccrualaccountingandcurrentfinancialresourcesfocus



Typeofasset/liabilityinformation

Allassetsandliabilities,bothfinancialandcapital,short‐termandlong‐term

Onlyassetsexpectedtobeusedupandliabilitiesthatcomedueduringtheyearorsoonthereafter;nocapitalassetsincluded

Allassetsandliabilities,bothshort‐termandlong‐term;TheCounty’sfundsdonotcurrentlycontainnonfinancialassets,thoughtheycan

Allassetsandliabilities,bothshort‐termandlong‐term;TheCounty’sfundsdonotcurrentlycontainnonfinancialassets,thoughtheycan

Typeofinflow/outflowinformation

Allrevenuesandexpensesduringyear,regardlessofwhencashisreceivedorpaid

Revenuesforwhichcashisreceivedduringorsoonaftertheendoftheyear;expenditureswhengoodsorserviceshavebeenreceivedandpaymentisdueduringtheyearorsoonthereafter

Allrevenuesandexpensesduringtheyear,regardlessofwhencashisreceivedorpaid

Allrevenuesandexpensesduringtheyear,regardlessofwhencashisreceivedorpaid

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OVERVIEWOFTHEFINANCIALSTATEMENTS(continued)Theremainderofthisoverviewsectionofmanagement’sdiscussionandanalysishighlightsthestructureandcontentsofeachofthestatements.County‐WideStatementsThe County‐wide statements report information about the County as a whole using accounting methodssimilartothoseusedbyprivate‐sectorcompanies.ThestatementofnetpositionincludesalloftheCounty’sassetsand liabilities. Allof thecurrentyear’srevenuesandexpensesareaccountedfor inthestatementofactivitiesregardlessofwhencashisreceivedorpaid.Thetwocounty‐widestatementsreporttheCounty’snetpositionandhowithaschanged.Netposition–thedifferencebetweentheCounty’sassetsandliabilities–isonewaytomeasuretheCounty’sfinancialhealthorposition. Overtime increasesanddecreases intheCounty’snetpositionarean indicatorofwhether its financial

positionisimprovingordeteriorating. Toassess theoverallhealthof theCounty,youneedtoconsideradditionalnonfinancial factorssuchas

changesintheCounty’spropertytaxbaseandtheconditionofschoolbuildingsandotherfacilities. IntheCounty‐widefinancialstatements,theCounty’sactivitiesarecategorizedasGovernmentalActivities.

Most of the County’s basic services are included here, such as regular and special education,transportation,andadministration.Propertytaxesandstateformulaaidfinancemostoftheseactivities.

FundFinancialStatementsThefundfinancialstatementsprovidemoredetailedinformationabouttheCounty’smostsignificantfunds–nottheCountyasawhole.FundsareaccountingdevicestheCountyusestokeeptrackofspecificsourcesoffundingandspendingonparticularprograms: SomefundsarerequiredbyStatelawandbybondcovenants. TheCountyestablishesotherfundstocontrolandmanagemoneyforparticularpurposes(likerepaying

itslong‐termdebt)ortoshowthatisproperlyusingcertainrevenues.TheCountyhasthreekindsoffunds:1) Governmental funds –Most of the County’s basic services are included in governmental funds,which

generallyfocuson(1)howcashandotherfinancialassetsthatcanreadilybeconvertedtocashflowinand out and (2) the balances left at year‐end that are available for spending. Consequently, thegovernmental funds statements provide a detailed short‐term view that helps you determinewhethertherearemoreorfewerfinancialresourcesthatcanbespentinthenearfuturetofinancetheCounty’sprograms. Because this informationdoesnotencompass theadditional long‐term focusof thecounty‐widestatements,weprovideadditional informationonaseparatereconciliationpage thatexplains therelationship(ordifferences)betweenthem.

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FundFinancialStatements(continued)2) Proprietary funds –When the County charges other County funds for the services it provides, these

services are reported in proprietary funds. Proprietary funds are reported in the same way that allactivitiesarereportedintheStatementofNetPositionandStatementofActivities. Infact,theCounty’sinternal service fund is included within the governmental activities reported in the County‐widestatementsbutprovidemoredetailandadditionalinformation,suchascashflows.TheCountyusestheinternal service fund to report activities that relate to the County’s self‐insured program for workerscompensationclaims.

3) Fiduciary funds – TheCounty is the trustee, or fiduciary, for assets that belong to others, such as thestudentactivities funds. TheCounty isresponsible forensuringthattheassetsreportedinthesefundsareusedonly for their intendedpurposesandbythosetowhomtheassetsbelong. Allof theCounty’sfiduciary activities are reported in a separate statement of fiduciary net position. We exclude theseactivities from the County‐wide financial statements because the County cannot use these assets tofinanceitsoperations.

FINANCIALANALYSISOFTHECOUNTYASAWHOLENetPosition.TheCounty’scombinednetpositionwashigheronJune30,2013,thanitwastheyearbefore–increasing12.4%to$126.1million(SeeTableA‐1).TableA‐1

VarianceIncrease

2013 2012* (Decrease)Currentassets 114.4$ 104.0$ 10.4$Noncurrentassets 0.4 0.5 (0.1)Capitalassets 68.3 67.7 0.6Totalassets 183.1 172.2 10.9Currentliabilities 37.5 40.9 (3.4)Long‐termliabilities 19.5 19.1 0.4Totalliabilities 57.0 60.0 (3.0)NetpositionNetinvestmentincapitalassets 57.9 56.7 1.2Restricted 15.1 22.0 (6.9)Unrestricted 53.1 33.5 19.6

Totalnetposition 126.1$ 112.2$ 13.9$

*Asrestated

GovernmentalActivities(Inmillions)

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FINANCIALANALYSISOFTHECOUNTYASAWHOLE(continued)Changes innetposition,governmentalactivities. TheCounty’s totalrevenues increased3.4%to$258.1million(SeeTableA‐2).Theincreaseisdueprimarilytoanincreaseinrevenuelimitsources.The total cost of all programs and services decreased 4.2% to $244.2million. The County’s expenses arepredominantlyrelatedtoeducatingandcaringforstudents,59%.ThepurelyadministrativeactivitiesoftheCountyaccountedforjust10%oftotalcosts.Asignificantcontributortothedecreaseincostswasadecreaseintransferstootheragenciesandplantservices.TableA‐2

VarianceIncrease

2013 2012 (Decrease)TotalRevenues 258.1$ 249.5$ 8.6$TotalExpenses 244.2 254.9 (10.7)Increase(decrease)innetposition 13.9$ (5.4)$ 19.3$


FINANCIALANALYSISOFTHECOUNTY’SFUNDSThe financial performance of the County as awhole is reflected in its governmental funds aswell. As theCountycompletedthisyear,itsgovernmentalfundsreportedacombinedfundbalanceof$66.7million,whichisabovelastyear’sendingfundbalanceof$56.1million.Theprimarycauseoftheincreasedfundbalanceisincreasedstatefunding.CountySchoolServicesFundBudgetaryHighlightsOverthecourseoftheyear,theCountyrevisedtheannualoperatingbudgetseveraltimes.Themajorbudgetamendmentsfallintothesecategories:

Revenues–increasedby$6.1millionprimarilytoreflectfederalandstatebudgetactions. Salariesandbenefitscosts–decreased$3.5millionduetochangesinstaffingestimates. Other non‐personnel expenses – increased $14.0 million to re‐budget carryover funds and revise

operationalcostestimates.

WhiletheCounty’s finalbudgetfortheCountySchoolServiceFundanticipatedthatrevenueswouldexceedexpendituresbyabout$3.0million,theactualresultsfortheyearshowthatrevenuesexceededexpendituresby roughly $18.4million. Actual revenueswere $4.8million less than anticipated, but expenditureswere$20.1million less thanbudgeted. Thatamount consistsprimarilyof restrictedcategoricalprogramdollarsthatwerenotspentasofJune30,2013thatwillbecarriedoverintothe2013‐14budget.

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CAPITALASSETANDDEBTADMINISTRATIONCapitalAssetsBytheendof2012‐13theCountyhadinvested$3.8millioninnewcapitalassets.(Moredetailedinformationaboutcapitalassetscanbe foundinNote6tothefinancialstatements). Totaldepreciationexpensefortheyearexceeded$3.2million.TableA‐3:CapitalAssetsatYear‐End,NetofDepreciation

VarianceIncrease

2013 2012 (Decrease)Land 5.5$ 5.5$ ‐$Buildingsandimprovements 58.6 50.3 8.3Furnitureandequipment 3.5 4.0 (0.5)Constructioninprogress 0.7 7.9 (7.2)Total 68.3$ 67.7$ 0.6$


Long‐TermDebtAt year‐end the County had $19.5 million in certificates of participation and employment benefits – anincreaseof1.9%fromlastyear–asshowninTableA‐4.(MoredetailedinformationabouttheCounty’slong‐termliabilitiesispresentedinNote7tothefinancialstatements).TableA‐4:OutstandingLong‐TermDebtatYear‐End

VarianceIncrease

2013 2012* (Decrease)Certificatesofparticipation 10.4 11.0 (0.6)Compensatedabsences 1.3 1.4 (0.1)Otherpostemploymentbenefits 7.8 6.7 1.1Total 19.5$ 19.1$ 0.4$

*Asrestated


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FACTORSBEARINGONTHECOUNTY’SFUTUREBudgetOverviewThe finalbudgetpackagewas signedby theGovernoron June27,2013. Notably,aside fromoneaction tocorrect a technical error in the Franchise Tax Board budget, the Governor did not use his line–item vetoauthority to reduce or eliminate non–Proposition 98General Fund spending. TheGovernor did, however,reducespendingfromotherfundsby$5.6million.The state spending plan assumes total budget expenditures of $138.3 billion from the General Fund andspecialfunds,anincreaseof3percentover2012–13.Thisconsistsof$96.3billionfromtheGeneralFundandEducationProtectionAccountcreatedbyProposition30(2012),aswellas$42billionfromspecialfunds.Thebudget estimates that spending from federal funds in 2013–14 will total $87.6 billion, an increase of 7.7percentover2012–13.Theadministration’sMayRevisionestimatesof2012–13revenueswereabout$2.3billionhigherthanwhenthe2012–13spendingplanwasadoptedlastyear.Thesehigherrevenuesresultin$2.5billioninadditionalexpendituresundertheProposition98minimumfundingguaranteeforK–14education.Inaddition,higherexpendituresinotherareascontributedtotheestimated2012–13GeneralFundendingbalancebeingabout$694millionlowerthanwasassumedinthe2012–13spendingplan.Nevertheless,underthespendingplan2012–13wouldendwitha$254millionreserve,thefirstsuchyear–endpositivebalanceinthereservesince2007–08.The spending plan assumesGeneral Fund andEducation ProtectionAccount revenues of $97.1 billion andexpendituresof$96.3billion. Theresulting$817millionoperatingsurpluscombinedwiththe$254millionpositiveendingbalancefor2012–13produceanestimated$1.1billionreservefor2013–14.MajorSpendingChangesForK–12education, the largest2013–14augmentation ($2.1billion) is for implementing theLocalControlFundingFormula(LCFF)forschooldistricts.Othermajor2013–14K–12augmentationsinclude$406millioningrantsandloansforenergyprojects,anadditional$250milliononaone–timebasisfortheCommonCoreStateStandardsinitiative,$250milliononaone–timebasisforanewCareerPathwaysprogram,$50millionto augment the mandate block grant, $32 million to implement the LCFF for county offices of education(COEs),and$10milliontoestablishtheCaliforniaCollaborativeforEducationalExcellence(CCEE)toprovidelow–performingschooldistrictswithacademicassistance.ThebudgetalsofurtherpaysdownK–12deferrals.Additionally,thebudgetincludesa1.57percentcost–of–living adjustment (COLA) for certain K–12 categorical programs. The budget includes a slight increase toreflect0.2percentgrowthinK–12ADA. Thebudgetalsoprovidesa$26million(5percent)increasetothepart–day/part–yearStatePreschoolprogramtosupportapproximately7,100newpreschoolslots.In 2013–14, despite fewer overall resources compared to 2012–13, much less funding is designated forpayingdowndeferrals. This frees up funds in 2013–14 that canbe used for otherpurposes. In total, thebudgetincludesa$2.6billionincreaseinK–12ongoingfunding.Ongoingfundingperstudent(asmeasuredbyADA)increasesfrom$7,590in2012–13to$8,005in2013–14—anincreaseof$415(5.5percent).

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FACTORSBEARINGONTHECOUNTY’SFUTURE(continued)LCFFforSchoolDistrictsandCharterSchoolsThe budget package includes a major restructuring of the state’s funding system for school districts andcharter schools. The new LCFF system replaces existing funding formulas for revenue limits and mostcategoricalprogramswithaweightedstudentfundingformula.Overthecourseofimplementation,districtswillreceiveadditionalfundingtoreducethesameshareofthegapbetweentheirexistingper–pupilfundingratesandtheirtargetsundertheLCFF.FullimplementationoftheLCFFisexpectedtotakeeightyears(withfull implementation in2020–21)andcost$18billion(notaccounting for futureCOLAcosts). The2013–14BudgetActprovidesfirst–yearfundingof$2.1billion. Thisisexpectedtoclose12percentofeachdistrict’sgap.LCFFforCOEsThebudgetpackagealsoreplacestheexistingCOErevenuelimitandcategoricalfundingsystemwithanewtwo–partfundingformula.Thenewformulahas(1)onepartrelatingtofundingforoperationalservicesthatCOEsprovidetolocaleducationalagencieswithintheirrespectivecountiesand(2)asecondpartrelatingtothe alternative education services COEs directly provide to students. Similar to the approach for schooldistricts,theformulaestablishesafundingtargetforeachCOE,countsexistingfundstowardthetarget,andusesnewfundingtoclosethesameproportionalshareofeachCOE’sgapbetweenitsexistingfundinglevelandtargetfundinglevel.FullimplementationofthenewCOEsystemisexpectedtotaketwoyears(withfullimplementationin2014–15)andcost$50million.The2013–14BudgetActprovidesfirst–yearfundingof$32million—almosttwo–thirdsofthefundingneededtobringCOEsuptotheirtargetlevels.DeferralPaydownsAfter four consecutive years of increasing the amount of deferrals for schools and community colleges—reachinga totalof$10.4billion inoutstandingdeferralsby theendof2011–12—the2012–13budgetplanprovided$2.2billiontoreducetheamountofoutstandingdeferrals.Therecentlyenactedbudgetplanmakesan additional $1.8 billion in 2012–13deferral paydowns aswell as $272million inpaydowns in2013–14.Underthebudgetpackage,$6.2billioninoutstandingdeferralsremainasoftheendof2013–14.CommonCoreImplementationThebudgetplanprovides$1.25billion inone–time funding toschools for implementationof theCCSS. (Ofthisamount,thebudgetplancounts$1billiontowardsmeetingthe2012–13minimumguaranteeand$250milliontowardsmeetingthe2013–14guarantee.)TheCCSSarenationallydevelopedstandardsformathandEnglish/Language Arts that the state adopted in 2010. Under current law, schools are required to aligninstructiontotheCCSSbeginningin2014–15.The$1.25billioninCCSSfundingmustbespentin2013–14or2014–15forprofessionaldevelopment,instructionalmaterials,andtechnologythatassistschoolsinaligninginstruction to theCCSS. Local governingboardsare required in a seriesofpublicmeetings todiscuss andadoptaplanforspendingthefundsandmustreporthowthefundswerespenttotheCaliforniaDepartmentofEducation(CDE)byJuly1,2015.Proposition39PassedbythevotersinNovember2012,Proposition39increasesstatecorporatetaxrevenuesandrequiresfor a five–year period, starting in 2013–14, that a portion of these revenues be used to improve energyefficiencyandexpandtheuseofalternativeenergyinpublicbuildings.

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FACTORSBEARINGONTHECOUNTY’SFUTURE(continued)AdultEducationIn an effort to improve coordination among adult education providers, the budget provides $25 million(Proposition 98 General Fund) for a new Adult Education Consortium Program. School districts andcommunitycollegesthatformaregionalconsortiumareeligibletoapplyforthesefunds.Inarelatedaction, thebudgetpackageeliminatesschooldistricts’adulteducationcategoricalprogramandconsolidatesallassociatedannualfunding($635millionProposition98GeneralFund)intotheschooldistrictLCFF.Thebudgetpackage,however,containsarequirementforschooldistricts(throughtheiradultschools)tomaintainatleasttheir2012–13levelofstatespendingonadulteducationin2013–14and2014–15.NewCareerPathwaysProgramThebudgetprovides$250millioninone–timeProposition98fundingtocreatea“CaliforniaCareerPathwaysTrust.” The primary purpose of the new program is to improve linkages between career technical(vocational) programs at schools and community colleges as well as between K–14 education and localbusinesses.Theprogramauthorizesseveraltypesofactivities,suchascreatingnewtechnicalprogramsandcurriculum.SpecialEducationThebudgetpackagemakesthreenotablechangestospecialeducationfunding.First,thepackagesimplifiesthestate’sapproachtodistributingfundingtospecialeducationlocalplanareas(SELPAs)bydelinkingstateand federal special educationallocation formulas. A conforming change revises the “statewide target rate”used to fund new students to the updated statewide average per–pupil funding rate. Second, the budgetprovides $2.6 million in Proposition 98 funds to fully offset federal sequestration funding cuts forpreschoolers and infants/toddlerswith disabilities and provides $2.1million in federal carryover funds topartiallymitigate federalsequestrationfundingcuts forK–12studentswithdisabilities. Third, thepackageconsolidates11specialeducationcategoricalgrantsinto5largergrants.Allof these factorswereconsidered inpreparing theSantaClaraCountyOfficeofEducationbudget for the2013‐14fiscalyear.CONTACTINGTHESANTACLARACOUNTYOFFICEOFEDUCATION'SFINANCIALMANAGEMENTThisfinancialreportisdesignedtoprovideourcitizens,taxpayers,customers,investorsandcreditorswithageneraloverviewoftheSantaClaraCountyOfficeofEducation’sfinancesandtodemonstratetheSantaClaraCountyOfficeofEducation‘saccountabilityforthemoneyitreceives.Ifyouhavequestionsaboutthisreportor need additional financial information, contact Ted O, Director‐Internal Business Services via email [email protected].

Thenotestofinancialstatementsareanintegralpartofthisstatement. 12

SANTACLARACOUNTYOFFICEOFEDUCATIONStatementofNetPositionJune30,2013

TotalGovernmental

ASSETS ActivitiesCurrentassets:

Cash 74,057,352$Accountsreceivable 39,849,060Inventories 327,110Prepaidexpenses 219,309

Totalcurrentassets 114,452,831Non‐currentassets:

Debtissuancecosts 438,336Capitalassets:

Non‐depreciableassets 6,229,631Depreciableassets 86,417,220Lessaccumulateddepreciation (24,371,073)

Totalcapitalassets,netofdepreciation 68,275,778Totalassets 183,166,945

LIABILITIESCurrentliabilities:

Accountspayable 24,304,720Claimliabilities 10,679,000Deferredrevenue 2,520,966

Totalcurrentliabilities 37,504,686Long‐termliabilities:

Dueorpayablewithinoneyear 670,000Dueorpayableafteroneyear 18,848,182

Totallong‐termliabilities 19,518,182Totalliabilities 57,022,868

NETPOSITIONNetinvestmentincapitalassets 57,875,778Restrictedfor:

Capitalprojects 3,890,972Debtservice 1,171,250Categoricalprograms 10,148,055

Unrestricted 53,058,022

Totalnetposition 126,144,077$


SANTACLARACOUNTYOFFICEOFEDUCATIONStatementofActivitiesFortheFiscalYearEndedJune30,2013

Net(Expense)Operating Capital Revenueand

Chargesfor Grantsand Grantsand ChangesinExpenses Services Contributions Contributions NetPosition

GovernmentalActivities:InstructionalServices:

Instruction 90,546,094$ 1,048,418$ 53,432,785$ (348,995)$ (36,413,886)$Instruction‐RelatedServices:

Supervisionofinstruction 14,418,278 2,786,221 6,726,930 ‐ (4,905,127)Instructionallibrary,mediaandtechnology 1,186,565 6 9,057 ‐ (1,177,502)Schoolsiteadministration 10,911,101 532,503 5,149,382 ‐ (5,229,216)

PupilSupportServices:Home‐to‐schooltransportation 1,169,169 ‐ 879,272 ‐ (289,897)Foodservices 1,988,175 126,628 1,603,455 ‐ (258,092)Allotherpupilservices 24,342,272 275,544 14,532,333 ‐ (9,534,395)

GeneralAdministrationServices:Dataprocessingservices 6,063,953 267 78 ‐ (6,063,608)Othergeneraladministration 17,500,895 736,736 7,073,085 ‐ (9,691,074)

Plantservices 5,918,306 176,130 3,181,082 ‐ (2,561,094)

Ancillaryservices 3,280,108 2,525,904 739,067 ‐ (15,137)Communityservices 6,000 4,743 1,383 ‐ 126Enterpriseactivities 12,565 8,488 2,475 ‐ (1,602)Transfersbetweenagencies 65,732,061 ‐ 48,729,855 ‐ (17,002,206)Interestonlong‐termdebt 526,400 ‐ ‐ ‐ (526,400)Otheroutgo 556,128 110,343 ‐ ‐ (445,785)

TotalGovernmentalActivities 244,158,070$ 8,331,931$ 142,060,239$ (348,995)$ (94,114,895)

GeneralRevenues:

Propertytaxes 85,708,740Federalandstateaidnotrestrictedtospecificpurpose 13,060,166Interestandinvestmentearnings 289,548Interagencyrevenues 3,714,417Miscellaneous 5,284,539

Totalgeneralrevenues 108,057,410

Changeinnetposition 13,942,515

Netposition‐July1,2012,asoriginallystated 108,555,179

Adjustmentsforrestatements(Note15) 3,646,383

Netposition‐July1,2012,restated 112,201,562

Netposition‐June30,2013 126,144,077$

Functions/Programs

ProgramRevenues


SANTACLARACOUNTYOFFICEOFEDUCATIONBalanceSheet–GovernmentalFundsJune30,2013

CountySchoolServiceFund

SpecialEducation

Pass‐ThroughFund

Non‐MajorGovernmental

Funds

TotalGovernmental

FundsASSETS

Cash 45,876,222$ 107,650$ 6,931,670$ 52,915,542$Accountsreceivable 20,880,281 18,251,214 677,217 39,808,712Duefromotherfunds 53,900,490 47,450,527 383,316 101,734,333Inventories 327,110 ‐ ‐ 327,110Prepaidexpenditures 2,309 ‐ ‐ 2,309

TotalAssets 120,986,412$ 65,809,391$ 7,992,203$ 194,788,006$

LIABILITIESANDFUNDBALANCES

LiabilitiesAccountspayable 9,217,090$ 13,173,250$ 1,434,312$ 23,824,652$Duetootherfunds 48,113,719 52,630,812 1,009,021 101,753,552Deferredrevenue 2,322,934 ‐ 198,032 2,520,966

TotalLiabilities 59,653,743 65,804,062 2,641,365 128,099,170

FundBalancesNonspendable 354,419 ‐ ‐ 354,419Restricted 9,854,110 5,329 5,350,838 15,210,277Assigned 43,240,891 ‐ ‐ 43,240,891Unassigned 7,883,249 ‐ ‐ 7,883,249

TotalFundBalances 61,332,669 5,329 5,350,838 66,688,836

TotalLiabilitiesandFundBalances 120,986,412$ 65,809,391$ 7,992,203$ 194,788,006$


SANTACLARACOUNTYOFFICEOFEDUCATIONReconciliationoftheGovernmentalFundsBalanceSheettotheStatementofNetPositionJune30,2013Totalfundbalances‐governmentalfunds 66,688,836$

68,275,778

(124,798)

438,336

Certificatesofparticipationpayable (10,400,000)Compensatedabsencespayable (1,300,028) (11,700,028)

2,565,953

Totalnetposition‐governmentalactivities 126,144,077$

Amountsreportedforgovernmentalactivities inthestatementofnetpositionaredifferentbecausecapitalassetsusedforgovernmentalactivitiesarenotfinancialresourcesandthereforearenotreportedasassetsingovernmentalfunds.Thecostoftheassetsis$92,646,851,andtheaccumulateddepreciationis($24,371,073).

Ingovernmentalfunds,interestonlong‐termdebtisnotrecognizeduntiltheperiodinwhichitmaturesandispaid.Inthegovernment‐widestatementofactivities,itisrecognizedintheperiodthatitisincurred.Theadditionalliabilityforunmaturedinterestowingattheendoftheperiodwas:

Ingovernmentalfunds,debtissuecostsarerecognizedasexpendituresintheperiodtheyareincurred.Inthegovernment‐widestatements,debtissuecostsareamortizedoverthelifeofthedebt.Unamortizeddebtissuecostsincludedonthestatementofnetpositionare:

Ingovernmentalfunds,onlycurrentliabilitiesarereported.Inthestatementofnetposition,allliabilities,includinglong‐termliabilities,arereported.Long‐termliabilitiesrelatingtogovernmentalactivitiesconsistof:

Internalservicefundsareusedtoconductcertainactivitiesforwhichcostsarechargedtootherfundsonafullcost‐recoverybasis.Becauseinternalservicefundsarepresumedtooperateforthebenefitofgovernmentalactivities,assetsandliabilitiesofinternalservicefundsarereportedwithgovernmentalactivitiesinthestatementofnetposition.Netpositionforinternalservicefundsis:


SANTACLARACOUNTYOFFICEOFEDUCATIONStatementofRevenues,Expenditures,andChangesinFundBalances–GovernmentalFundsFortheFiscalYearEndedJune30,2013

REVENUESCountySchoolServiceFund

SpecialEducation

Pass‐ThroughFund


Funds

TotalGovernmental

FundsRevenuelimitsources 93,205,078$ ‐$ ‐$ 93,205,078$Federalsources 40,987,170 20,633,360 2,302,143 63,922,673Otherstatesources 22,809,363 38,960,839 2,573,007 64,343,209Otherlocalsources 34,882,982 1,282,354 464,289 36,629,625

TotalRevenues 191,884,593 60,876,553 5,339,439 258,100,585EXPENDITURES

Current:Instruction 84,870,626 ‐ 3,558,811 88,429,437Instruction‐relatedservices:

Supervisionofinstruction 13,642,488 ‐ 436,161 14,078,649Instructionallibrary,mediaandtechnology 1,152,612 ‐ ‐ 1,152,612Schoolsiteadministration 10,101,330 ‐ 568,459 10,669,789

Pupilsupportservices:Home‐to‐schooltransportation 1,128,176 ‐ ‐ 1,128,176Foodservices 273,766 ‐ 1,671,346 1,945,112Allotherpupilservices 23,733,141 ‐ 140,756 23,873,897

Ancillaryservices 3,198,511 ‐ ‐ 3,198,511Communityservices 6,000 ‐ ‐ 6,000Enterpriseactivities 10,737 ‐ ‐ 10,737Generaladministrationservices:

Dataprocessingservices 6,017,116 ‐ ‐ 6,017,116Othergeneraladministration 18,219,968 ‐ 125 18,220,093

Plantservices 5,890,660 ‐ 408,693 6,299,353Transfersofindirectcosts (506,192) ‐ 506,192 ‐

Intergovernmentaltransfers 4,859,235 60,872,825 ‐ 65,732,060Capitaloutlay 918,357 ‐ 2,703,359 3,621,716Debtservice:

Principal ‐ ‐ 640,000 640,000Interest ‐ ‐ 526,400 526,400

TotalExpenditures 173,516,531 60,872,825 11,160,302 245,549,658

Excess(Deficiency)ofRevenuesOver(Under)Expenditures 18,368,062 3,728 (5,820,863) 12,550,927

OTHERFINANCINGSOURCES(USES)Interfundtransfersin 148,376 ‐ 3,417,778 3,566,154Interfundtransfersout (5,406,554) ‐ (148,376) (5,554,930)

TotalOtherFinancingSourcesandUses (5,258,178) ‐ 3,269,402 (1,988,776)

NetChangeinFundBalances 13,109,884 3,728 (2,551,461) 10,562,151

48,222,785 1,601 7,902,299 56,126,685

FundBalances,June30,2013 61,332,669$ 5,329$ 5,350,838$ 66,688,836$

FundBalances,July1,2012


SANTACLARACOUNTYOFFICEOFEDUCATIONReconciliationoftheGovernmentalFundsStatementofRevenues,Expenditures, andChangesinFundBalancestotheStatementofActivitiesFortheFiscalYearEndedJune30,2013

Totalnetchangeinfundbalances‐governmentalfunds 10,562,151$

Amountsreportedforgovernmentalactivities inthestatementofactivitiesaredifferentbecause:

Expendituresforcapitaloutlay 3,840,681Depreciationexpense (3,246,521)

Net: 594,160

640,000

(36,526)

(15,249)

6,800

71,308

2,119,871

Changeinnetpositionofgovernmentalactivities 13,942,515$

Capitaloutlaysarereportedingovernmentalfundsasexpenditures.However,inthestatementofactivities,thecostofthoseassetsisallocatedovertheirestimatedusefullivesasdepreciationexpense.Thedifferencebetweencapitaloutlayexpendituresanddepreciationexpensefortheperiodis:

Ingovernmentalfunds,repaymentsoflong‐termdebtarereportedasexpenditures.Inthegovernment‐widestatements,repaymentsoflong‐termdebtarereportedasreductionofliabilities.Expendituresforrepaymentoftheprincipalportionoflong‐termdebtwere:

Theinternalservicefundisusedbymanagementtochargethecostofself‐insuranceactivities.Thenetrevenue(expense)oftheinternalservicefundisreportedwithgovernmentalactivities.

Ingovernmentalfunds,debtissuancecostsarerecognizedasexpendituresintheperiodtheyareincurred.Inthegovernment‐widestatements,debtissuancecostsareamortizedoverthelifeofthedebt.Debtissuancecostsamortizedfortheperiodwere:

Ingovernmentalfunds,interestonlong‐termdebtisrecognizedintheperiodthatitbecomesdue.Inthegovernment‐widestatementofactivities,itisrecognizedintheperiodthatitisincurred.Unmaturedinterestowingattheendoftheperiod,lessmaturedinterestpaidduringtheperiodbutowingfromthepriorperiod,was:

Inthestatementofactivities,compensatedabsencesaremeasuredbytheamountsearnedduringtheyear.Inthegovernmentalfunds,however,expendituresfortheseitemsaremeasuredbytheamountoffinancialresourcesused(essentially,theamountsactuallypaid.)

Ingovernmentalfunds,theentireproceedsfromdisposalofcapitalassetsarereportedasrevenue.Inthestatementofactivities,onlytheresultinggainorlossisreported.Thedifferencebetweentheproceedsfromdisposalofcapitalassetsandtheresultinggainorlossis:


SANTACLARACOUNTYOFFICEOFEDUCATIONStatementofNetPosition–ProprietaryFundJune30,2013

GovernmentalActivities:

InternalServiceFund

ASSETSCash 21,141,810$Otherreceivables 40,348Prepaidexpenses 217,000Duefromotherfunds 283,389

TotalAssets 21,682,547

LIABILITIESClaimliabilities 10,679,000OPEBliability 7,818,154Accountspayable 355,270Duetootherfunds 264,170

TotalLiabilities 19,116,594

NETPOSITIONRestricted 2,565,953$


SANTACLARACOUNTYOFFICEOFEDUCATIONStatementofRevenues,ExpensesandChangesinNetPosition–ProprietaryFundFortheFiscalYearEndedJune30,2013


InternalServiceFund

OPERATINGREVENUESChargestootherfunds 8,815,291$Otherlocalrevenues 360,957

Totaloperatingrevenues 9,176,248

OPERATINGEXPENSESClassifiedsalaries 217,380Employeebenefits 74,969Booksandsupplies 19,787Servicesandotheroperatingexpenditures 8,827,429

Totaloperatingexpenses 9,139,565

OperatingIncome 36,683

NON‐OPERATINGREVENUESInterestincome 94,412

Incomebeforetransfers 131,095

Interfundtransfersin 1,988,776

Changeinnetposition 2,119,871

Netposition,July1,2012,asoriginallystated 7,180,857

Adjustmentforrestatement(Note15) (6,734,775)

Netposition,July1,2012,restated 446,082

Netposition,June30,2013 2,565,953$


SANTACLARACOUNTYOFFICEOFEDUCATIONStatementofCashFlows–ProprietaryFundFortheFiscalYearEndedJune30,2013


InternalServiceFund

CASHFLOWSFROMOPERATINGACTIVITIESCashreceivedfromassessmentsmadetootherfunds 9,726,649$Cashreceivedfromretireepremiumpayments 361,921Cashpaymentsforpayroll,insuranceandoperatingcosts (8,286,318)

Netcashprovided(used)byoperatingactivities 1,802,252

CASHFLOWSFROMNON‐INVESTINGACTIVITIESOperatingtransfersin 1,988,776

CASHFLOWSFROMINVESTINGACTIVITIESInterestoninvestments 105,538

Netincrease(decrease)incash 3,896,566

Cash,July1,2012 17,245,244

Cash,June30,2013 21,141,810$

Operatingincome(loss) 36,683$

(Increase)Decreaseinoperatingassets:Duefromotherfunds 647,188Accountsreceivable 964Prepaidexpenses 158,748

Increase(Decrease)inoperatingliabilities:Duetootherfunds 264,170Claimliabilities (441,000)OPEBliability 1,083,379Accountspayable 52,120

Netcashprovided(used)byoperatingactivities 1,802,252$

byoperatingactivities:Reconciliationofoperatingincome(loss)tonetcashprovided(used)


SANTACLARACOUNTYOFFICEOFEDUCATIONStatementofNetPosition–FiduciaryFundsJune30,2013

AgencyFunds

AssetsCash 103,595,496$

TotalAssets 103,595,496$

LiabilitiesDeferredsalariespayable 68,837,989$Warrantspayable 34,232,624Duetootheragencies 524,883

TotalLiabilities 103,595,496$

22

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE1‐SIGNIFICANTACCOUNTINGPOLICIESA. ReportingEntity

Theaccompanying financial statementspresent theactivitiesofSantaClaraCountyOfficeofEducationand itscomponentunits, legallyseparateorganizations forwhich theCounty is financiallyaccountable.Thesecomponentunitsareso intertwinedwiththeCountythat theyare, insubstance, thesameastheCountyand,therefore,areblendedandreportedasiftheywerepartoftheCounty.TheCountyBoardofEducation also serves as the governing board for the Santa Clara County Board of Education FinanceCorporation. Although the board members of the Santa Clara County Board of Education FinanceCorporationareappointedby theCountyBoard, thecorporationexistssolelyto financetheacquisitionandconstructionofequipmentandfacilitiesfortheCounty.

ComponentUnit

IncludedintheReportingEntityBecause:

SeparateFinancialStatements

Santa Clara County Board ofEducation Finance Corporationwas formedonFebruary2, 1995 forthe sole purpose of providingfinancial assistance to the County byacquiring, constructing, financing,selling and leasing public facilities,land, personal property andequipment for theuseandbenefitofthe County. The County leasescertain school facilities from thecorporation under a lease‐purchaseagreementdatedMay1,2007.

BoardofEducationcomposesboardofFinanceCorporation

AvailablebycontactingtheCounty.

B. BasisofPresentation,BasisofAccounting

1. BasisofPresentationGovernment‐WideFinancialStatementsThestatementofnetpositionandthestatementofactivitiesdisplayinformationabouttheprimarygovernment(theCounty)anditscomponentunits. Thesestatementsincludethefinancialactivitiesoftheoverallgovernment,exceptforfiduciaryactivities. Eliminationshavebeenmadetominimizethedouble‐countingof internal activities. These statementsdistinguishbetween thegovernmentaland business‐type activities of the County. Governmental activities generally are financed throughtaxes,intergovernmentalrevenues,andothernonexchangetransactions.ThestatementofactivitiespresentsacomparisonbetweendirectexpensesandprogramrevenuesforeachfunctionoftheCounty'sgovernmentalactivities.Directexpensesarethosethatarespecificallyassociatedwithaprogramorfunctionand,therefore,areclearlyidentifiabletoaparticularfunction.Program revenues include (a) fees, fines, and charges paid by the recipients of goods or servicesoffered by the programs and (b) grants and contributions that are restricted to meeting theoperational or capital requirements of a particular program. Revenues that are not classified asprogramrevenues,includingalltaxes,arepresentedasgeneralrevenues.

23

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE1‐SIGNIFICANTACCOUNTINGPOLICIES(continued)B. BasisofPresentation,BasisofAccounting(continued)

1. BasisofPresentation(continued)

FundFinancialStatementsThe fund financial statementsprovide informationabout theCounty's funds, including its fiduciaryfunds (andblendedcomponentunits). Separatestatements foreach fundcategory ‐governmental,proprietary, and fiduciary ‐ are presented. The emphasis of fund financial statements is onmajorgovernmental funds, each displayed in a separate column. All remaining governmental funds areaggregatedandreportedasnonmajorfunds.Proprietaryfundoperatingrevenues,suchaschargesforservices,resultfromexchangetransactionsassociatedwith the principal activity of the fund. Exchange transactions are those inwhich eachpartyreceivesandgivesupessentiallyequalvalues. Nonoperatingrevenues,suchassubsidiesandinvestmentearnings,resultfromnonexchangetransactionsorancillaryactivities.MajorGovernmentalFundsTheCountymaintainsthefollowingmajorgovernmentalfunds:

CountySchoolServicesFund:ThisfundisthegeneraloperatingfundoftheCounty.Itisusedtoaccountforallfinancialresourcesexceptthoserequiredtobeaccountedforinanotherfund.SpecialEducationPass‐ThroughFund:ThisfundisusedbytheAdministrativeUnitofamulti‐district Special Education Local Plan Area (SELPA) to account for Special Education revenuepassedthroughtoothermemberdistricts.

Non‐MajorGovernmentalFundsTheCountymaintainsthefollowingnon‐majorgovernmentalfunds:

SpecialRevenueFunds:

ChildDevelopmentFund: This fund isused to account for resources committed to childdevelopmentandpreschoolprogramsmaintainedbytheCounty.CafeteriaFund:ThisfundisusedtoaccountforrevenuesreceivedandexpendituresmadetooperatetheCounty'sfoodserviceoperations.

CapitalProjectsFunds:

County School Facilities Fund: This fund is used to account for state apportionmentsprovidedformodernizationofschoolfacilitiesunderSB50.

DebtServiceFund:

DebtServiceFund:Thisfundisusedtoaccountfortheaccumulationofresourcesfor,andthe payment of, long‐term debt principal, interest, and related costs on the certificates ofparticipation.

24

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE1‐SIGNIFICANTACCOUNTINGPOLICIES(continued)B. BasisofPresentation,BasisofAccounting(continued)

1. BasisofPresentation(continued)

ProprietaryFundsProprietary fund reporting focuses on the determination of operating income, changes in netposition,financialposition,andcashflows.Proprietaryfundsareclassifiedasenterpriseorinternalservice.TheCountyhasthefollowingproprietaryfund:

InternalServiceFunds:ThesefundsmaybeusedtoaccountforanyactivityforwhichservicesareprovidedtootherfundsoftheCountyOfficeofEducationonacostreimbursementbasis.TheCounty Office of Education operates a self‐insurance program for workers compensation,propertyand liability,otherpostemploymentbenefits,dental, vision, andmedicalbenefits thatareaccountedforinoneinternalservicefundwithmultiplesub‐funds.

FiduciaryFundsFiduciary fund reporting focuses onnet position and changes in net position. Fiduciary funds areusedtoreportassetsheldinatrusteeoragencycapacityforothersandthereforecannotbeusedtosupport the County's own programs. The fiduciary fund category includes pension (and otheremployeebenefit)trustfunds,investmenttrustfunds,private‐purposetrustfunds,andagencyfunds.TheCountymaintainsthefollowingfiduciaryfunds:

Agency Funds: The County maintains a DFS account for clearing funds which are holdingaccountsforCountywarrants,payroll,taxeswithheld,TRANS,andcharterschoolclearing.

2. MeasurementFocus,BasisofAccounting

Government‐Wide,Proprietary,andFiduciaryFundFinancialStatementsThe government‐wide, proprietary, and fiduciary fund financial statements are reported using theeconomicresourcesmeasurementfocusandtheaccrualbasisofaccounting.Revenuesarerecordedwhenearnedandexpensesarerecordedat thetime liabilitiesare incurred,regardlessofwhentherelated cash flows take place. Nonexchange transactions, inwhich the County gives (or receives)valuewithoutdirectlyreceiving(orgiving)equalvalue inexchange, includepropertytaxes,grants,entitlements,anddonations. Onanaccrualbasis,revenuefrompropertytaxes isrecognizedinthefiscalyearinwhichalleligibilityrequirementshavebeensatisfied.GovernmentalFundFinancialStatementsGovernmental fundsarereportedusingthecurrent financialresourcesmeasurement focusandthemodifiedaccrualbasisofaccounting.Underthismethod,revenuesarerecognizedwhenmeasurableandavailable.TheCountyconsidersallrevenuesreportedinthegovernmentalfundstobeavailableif the revenues are collectedwithin 60 days after year‐end. Expenditures are recordedwhen therelatedfundliabilityis incurred,exceptforprincipalandinterestongenerallong‐termdebt,claimsandjudgments,andcompensatedabsences,whicharerecognizedasexpenditurestotheextenttheyhave matured. Capital asset acquisitions are reported as expenditures in governmental funds.Proceedsofgenerallong‐termdebtandfinancingfromcapitalleasesarereportedasotherfinancingsources.

25

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE1‐SIGNIFICANTACCOUNTINGPOLICIES(continued)C. BudgetsandBudgetaryAccounting

Annualbudgets areadoptedonabasis consistentwithgenerallyacceptedaccountingprinciples forallgovernmentfunds.Bystatelaw,theCounty'sgoverningboardmustadoptabudgetnolaterthanJuly1.A public hearingmust be conducted to receive comments prior to adoption. The County's governingboardsatisfiedtheserequirements.

These budgets are revised by the County's governing board during the year to give consideration tounanticipated income and expenditures. The final adopted and revised budgets are presented for theGeneralFundandtheSpecialEducationPass‐ThroughFundintherequiredsupplementaryinformationsection.

Formal budgetary integration was employed as a management control device during the year for allbudgeted funds. TheCounty employs budget control byminor object andby individual appropriationaccounts.Expenditurescannotlegallyexceedappropriationsbymajorobjectaccount.

D. EncumbrancesEncumbranceaccounting isused inallbudgeted funds toreserveportionsofapplicableappropriationsforwhichcommitmentshavebeenmade.Encumbrancesarerecordedforpurchaseorders,contracts,andother commitmentswhen they arewritten. Encumbrances are liquidatedwhen the commitments arepaid.AllencumbrancesareliquidatedasofJune30.

E. Assets,Liabilities,andNetPosition

1. DepositsandInvestments

ThecashbalancesofsubstantiallyallfundsarepooledandinvestedbytheCountyTreasurerforthepurposeofincreasingearningsthroughinvestmentactivities.Thepool'sinvestmentsarereportedatfairvalueatJune30,2013,basedonmarketprices.Theindividualfunds'portionsofthepool'sfairvalue are presented as "Pooled Cash and Investments". Earnings on the pooled funds areapportionedandpaidorcreditedtothefundsquarterlybasedontheaveragedailybalanceofeachparticipatingfund.

2. CashandCashEquivalents

TheCountyconsiderscashandcashequivalentsinproprietaryfundstobecashonhandanddemanddeposits.Inaddition,becausetheTreasuryPoolissufficientlyliquidtopermitwithdrawalofcashatanytimewithoutpriornoticeorpenalty,equityinthepoolisalsodeemedtobeacashequivalent.

3. PropertyTaxCalendar

TheCountyisresponsiblefortheassessment,collection,andapportionmentofpropertytaxesforalljurisdictionsincludingtheschoolsandspecialdistrictswithintheCounty.TheBoardofSupervisorsleviespropertytaxesasofSeptember1onpropertyvaluesassessedonJuly1.Securedpropertytaxpaymentsaredueintwoequalinstallments.ThefirstisgenerallydueNovember1andisdelinquentwithpenaltiesonDecember10,andthesecondisgenerallydueonFebruary1andisdelinquentwithpenaltiesonApril10.SecuredpropertytaxesbecomealienonthepropertyonJanuary1.

4. InventoriesandPrepaidItemsInventoriesarevaluedatcostusingthefirst‐in/first‐out(FIFO)method.Thecostsofgovernmentalfund‐typeinventoriesarerecordedasexpenditureswhenconsumedratherthanwhenpurchased.Certainpaymentstovendorsreflectcostsapplicabletofutureaccountingperiodsandarerecordedasprepaiditems.

26

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE1‐SIGNIFICANTACCOUNTINGPOLICIES(continued)E. Assets,Liabilities,andNetPosition(continued)

5. CapitalAssets

Purchased or constructed capital assets are reported at cost or estimatedhistorical cost. Donatedfixed assets are recorded at their estimated fair value at thedateofdonation. The costofnormalmaintenanceandrepairs thatdonotaddtothevalueof theassetormateriallyextendassets' livesarenotcapitalized.Capital assets are depreciated using the straight‐line method over the following estimated usefullives:

Description EstimatedLivesBuildingsandImprovements 20‐30yearsFurnitureandEquipment 4‐25years

6. CompensatedAbsences

The liability for compensated absences reported in the government‐wide statements consists ofunpaid,accumulatedannualandvacationleavebalances.Theliabilityhasbeencalculatedusingthevestingmethod, inwhich leave amounts for both employeeswho currently are eligible to receivetermination payments and other employees who are expected to become eligible in the future toreceivesuchpaymentsuponterminationareincluded.

7. FundBalancesThefundbalanceforgovernmentalfundsisreportedinclassificationsbasedontheextenttowhichthegovernment isboundtohonorconstraintsonthespecificpurposesforwhichamounts inthosefundscanbespent.Nonspendable: Fund balance is reported as nonspendable when the resources cannot be spentbecausetheyareeitherinanonspendableformorlegallyorcontractuallyrequiredtobemaintainedintact.Resourcesinnonspendableformincludeinventoriesandprepaidassets.Restricted: Fund balance is reported as restricted when the constraints placed on the use ofresourcesareeitherexternallyimposedbycreditors,grantors,contributors,orlawsorregulationsofothergovernments;orimposedbylawthroughconstitutionalprovisionorbyenablinglegislation.Committed:TheCounty'shighestdecision‐makinglevelofauthorityrestswiththeCounty'sBoard.Fund balance is reported as committed when the Board passes a resolution that places specifiedconstraints on how resources may be used. The Board can modify or rescind a commitment ofresourcesthroughpassageofanewresolution.Assigned:ResourcesthatareconstrainedbytheCounty'sintenttousethemforaspecificpurpose,but are neither restricted nor committed, are reported as assigned fund balance. Intent may beexpressedbyeithertheBoard,committees(suchasbudgetorfinance),orofficialstowhichtheBoardhasdelegatedauthority.Unassigned: Unassigned fund balance represents fund balance that has not been restricted,committed,orassignedandmaybeutilizedbytheCountyforanypurpose.Whenexpendituresareincurred,andbothrestrictedandunrestrictedresourcesareavailable,itistheCounty'spolicytouserestrictedresourcesfirst,thenunrestrictedresourcesintheorderofcommitted,assigned,andthenunassigned,astheyareneeded.

27

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE1‐SIGNIFICANTACCOUNTINGPOLICIES(continued)F. UseofEstimates

The preparation of financial statements in conformity with generally accepted accounting principlesrequiresmanagementtomakeestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpendituresduringthereportedperiod. Actualresultscoulddifferfromthoseestimates.

G. NewGASBPronouncements

Duringthe2012‐13fiscalyear,thefollowingGASBPronouncementsbecameeffective:GASBStatementNo.60,AccountingandFinancialReportingforServiceConcessionArrangements:TheobjectiveofthisStatement isto improvefinancialreportingbyaddressingissuesrelatedtoserviceconcessionarrangements(SCAs),whichareatypeofpublic‐privateorpublic‐publicpartnership.Asusedin this Statement, an SCA is an arrangement between a transferor (a government) and an operator(governmentalornongovernmentalentity)inwhich(1)thetransferorconveystoanoperatortherightand related obligation to provide services through the use of infrastructure or another public asset (a"facility") inexchangeforsignificantconsiderationand(2)theoperatorcollectsandiscompensatedbyfeesfromthirdparties. TherequirementsofthisStatementimprovefinancialreportingbyestablishingrecognition,measurement,anddisclosurerequirementsforSCAsforbothtransferorsandgovernmentaloperators, requiringgovernments toaccount forandreportSCAs in thesamemanner,which improvesthecomparabilityoffinancialstatements.GASB Statement No. 61, The Financial Reporting Entity: Omnibus ‐ An Amendment of GASBStatementsNo.14andNo.34: Theobjectiveof thisStatement is to improve financial reporting foragovernmentalfinancialreportingentity.TherequirementsofStatementNo.14,TheFinancialReportingEntity,andtherelatedfinancialreportingrequirementsofStatementNo.34,BasicFinancialStatements‐andManagement'sDiscussion andAnalysis ‐ for State and LocalGovernments, were amended to bettermeet user needs and to address reporting entity issues that have arisen since the issuance of thoseStatements.ThisStatementmodifiescertainrequirementsforinclusionofcomponentunitsinthefinancialreportingentity.Fororganizationsthatpreviouslywererequiredtobeincludedascomponentunitsbymeetingthefiscal dependency criterion, a financial benefit or burden relationship also would need to be presentbetweentheprimarygovernmentandthatorganizationforittobeincludedinthereportingentityasacomponent unit. Further, for organizations that do not meet the financial accountability criteria forinclusion as component units but that, nevertheless, should be included because the primarygovernment’s management determines that it would be misleading to exclude them, this Statementclarifies the manner in which that determination should be made and the types of relationships thatgenerallyshouldbeconsideredinmakingthedetermination.ThisStatementalsoamendsthecriteriaforreportingcomponentunitsasiftheywerepartoftheprimarygovernment(thatis,blending)incertaincircumstances.Forcomponentunitsthatcurrentlyareblendedbased on the “substantively the same governing body” criterion, it additionally requires that (1) theprimary government and the component unit have a financial benefit or burden relationship or (2)management (below the level of the elected officials) of the primary government have operationalresponsibility(asdefinedinparagraph8a)fortheactivitiesofthecomponentunit.Newcriteriaalsoareadded to require blending of component units whose total debt outstanding is expected to be repaidentirely or almost entirely with resources of the primary government. The blending provisions areamended to clarify that funds of a blended component unit have the same financial reportingrequirementsasafundoftheprimarygovernment.

28

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE1‐SIGNIFICANTACCOUNTINGPOLICIES(continued)G. NewGASBPronouncements(continued)

GASBStatementNo.62,CodificationofAccountingandFinancialReportingGuidanceContained inPre‐November 30, 1989 FASB and AICPA Pronouncements: The objective of this Statement is toincorporate into theGASB’s authoritative literature certain accounting and financial reporting guidancethatisincludedinthefollowingpronouncementsissuedonorbeforeNovember30,1989,whichdoesnotconflictwithorcontradictGASBpronouncements:

1. FinancialAccountingStandardsBoard(FASB)StatementsandInterpretations2. AccountingPrinciplesBoardOpinions3. AccountingResearchBulletinsoftheAmericanInstituteofCertifiedPublicAccountants’(AICPA)

CommitteeonAccountingProcedure.Hereinafter,thesepronouncementscollectivelyarereferredtoasthe“FASBandAICPApronouncements.”This Statement also supersedes Statement No. 20, Accounting and Financial Reporting for ProprietaryFunds and Other Governmental Entities That Use Proprietary Fund Accounting, thereby eliminating theelection provided in paragraph 7 of that Statement for enterprise funds and business‐type activities toapplypost‐November30,1989FASBStatementsandInterpretationsthatdonotconflictwithorcontradictGASBpronouncements.However,thoseentitiescancontinuetoapply,asotheraccountingliterature,post‐November30,1989FASBpronouncementsthatdonotconflictwithorcontradictGASBpronouncements,includingthisStatement.Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows ofResources,andNetPosition:ThisStatementprovidesfinancialreportingguidancefordeferredoutflowsof resources and deferred inflows of resources. Concepts Statement No. 4, Elements of FinancialStatements,introducedanddefinedthoseelementsasaconsumptionofnetassetsbythegovernmentthatis applicable to a future reporting period, and an acquisition of net assets by the government that isapplicabletoafuturereportingperiod,respectively.Previousfinancialreportingstandardsdonotincludeguidanceforreportingthosefinancialstatementelements,whicharedistinctfromassetsandliabilities.Concepts Statement 4 also identifies net position as the residual of all other elements presented in astatementoffinancialposition.ThisStatementamendsthenetassetreportingrequirementsinStatementNo. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and LocalGovernments, and other pronouncements by incorporating deferred outflows of resources and deferredinflows of resources into the definitions of the required components of the residual measure and byrenamingthatmeasureasnetposition,ratherthannetassets.

29

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE2–CASHCashatJune30,2013isreportedatfairvalueandconsistedofthefollowing:

GovernmentalFunds

ProprietaryFund Total

FiduciaryFunds

PooledFunds:Cashincountytreasury 51,719,292$ 21,003,828$ 72,723,120$ 103,595,496$Cashwithfiscalagent 1,171,250 ‐ 1,171,250 ‐

TotalPooledFunds 52,890,542 21,003,828 73,894,370 103,595,496

Deposits:Cashonhandandinbanks ‐ 137,982 137,982 ‐Cashinrevolvingfund 25,000 ‐ 25,000 ‐

TotalDeposits 25,000 137,982 162,982 ‐

TotalCash 52,915,542$ 21,141,810$ 74,057,352$ 103,595,496$

GovernmentalActivities

PooledFundsIn accordancewith Education Code Section 41001, the Countymaintains substantially all of its cash in theCounty Treasury. The County pools and invests the cash. These pooled funds are carried at cost whichapproximatesfairvalue. Interestearnedisdepositedannuallytoparticipatingfunds. Anyinvestmentlossesareproportionatelysharedbyallfundsinthepool.

BecausetheCounty'sdepositsaremaintainedinarecognizedpooledinvestmentfundunderthecareofathirdpartyandtheCounty'sshareofthepooldoesnotconsistofspecific,identifiableinvestmentsecuritiesownedby the County, no disclosure of the individual deposits and investments or related custodial credit riskclassificationsisrequired.In accordancewith applicable state laws, the CountyTreasurermay invest in derivative securitieswith theState of California. However, at June 30, 2013, the County Treasurer has represented that the PooledInvestmentFundcontainednoderivativesorotherinvestmentswithsimilarriskprofiles.CustodialCreditRisk–DepositsCustodialcreditriskistheriskthatintheeventofabankfailure,theCounty’sdepositsmaynotbereturnedtoit. TheCountydoesnothaveapolicy forcustodialcreditrisk fordeposits. Cashbalancesheld inbanksareinsuredupto$250,000bytheFederalDepositoryInsuranceCorporation(FDIC)andarecollateralizedbytherespective financial institutions. In addition, the California Government Code requires that a financialinstitutionsecuredepositsmadebyStateor localgovernmentalunitsbypledgingsecurities inanundividedcollateralpoolheldbyadepositoryregulatedunderState law(unlesssowaivedby thegovernmentalunit).Themarketvalueof thepledgedsecurities inthecollateralpoolmustequalat least110percentof thetotalamount deposited by the public agencies. California law also allows financial institutions to secure publicdeposits by pledging first trust deed mortgage notes having a value of 150 percent of the secured publicdepositsand lettersof credit issuedby theFederalHomeLoanBankofSanFranciscohavingavalueof105percent of the secured deposits. As of June 30, 2013, none of the County’s bank balance was exposed tocustodialcreditriskbecauseitwasinsuredbytheFDIC.

30

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE3–ACCOUNTSRECEIVABLEAccountsreceivableasofJune30,2013consistedofthefollowing:

CountySchoolServiceFund

SpecialEducationPass‐ThroughFund


Funds

Self‐InsuranceFund Totals

FederalGovernment:Categoricalaidprograms 10,684,457$ ‐$ 299,353$ ‐$ 10,983,810$

StateGovernment:Revenuelimit 3,108,961 17,825,118 ‐ ‐ 20,934,079Lottery 294,106 ‐ ‐ ‐ 294,106Specialeducation 4,729,184 ‐ ‐ ‐ 4,729,184Childnutrition ‐ ‐ 6,332 ‐ 6,332Categoricalaidprograms 1,514,685 ‐ 147,439 ‐ 1,662,124

Local:Interest 57,264 657 6,004 15,799 79,724Other 491,624 425,439 218,089 24,549 1,159,701

Total 20,880,281$ 18,251,214$ 677,217$ 40,348$ 39,849,060$

NOTE4‐INTERFUNDTRANSACTIONSA. BalancesDueTo/FromOtherFunds

Balancesdueto/fromotherfundsatJune30,2013consistedofthefollowing:

CountySchool SpecialEducation Non‐MajorService Pass‐Through Governmental ProprietaryFund Fund Funds Fund Total

CountySchoolServiceFund ‐$ 47,450,527$ 379,840$ 283,352$ 48,113,719$SpecialEducationPass‐ThroughFund 52,630,812 ‐ ‐ ‐ 52,630,812Non‐MajorGovernmentalFunds 1,005,705 ‐ 3,279 37 1,009,021ProprietaryFund 263,973 ‐ 197 ‐ 264,170

Total 53,900,490$ 47,450,527$ 383,316$ 283,389$ 102,017,722$

DueFromOtherFunds

The$52,630,812duetotheGeneralFundfromtheSpecialEducationPass‐ThroughFundisfortheexcessproperty taxes due from the County. The balance of $47,450,527 due to the Special Education Pass‐Through Fund from the General Fund is for the County's share of the excess property taxes due fromSantaClaraCounty.

31

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013

NOTE4‐INTERFUNDTRANSACTIONS(continued)

B. TransfersTo/FromOtherFundsTransfersto/fromotherfundsforthefiscalyearendedJune30,2013consistedofthefollowing:

CountySchool Non‐MajorService Governmental ProprietaryFund Funds Fund Total

CountySchoolServiceFund ‐$ 3,417,778$ 1,988,776$ 5,406,554$Non‐MajorGovernmentalFunds 148,376 ‐ ‐ 148,376

Total 148,376$ 3,417,778$ 1,988,776$ 5,554,930$

CountySchoolServiceFundtransfertoChildDevelopmentFundforreimbursementsfromtheHeadStartprogram 1,540,958$CountySchoolServiceFundtransfertoCafeteriaFundforcontributionsandindirectcosts 228,056CountySchoolServiceFundtransfertoCountySchoolFacilitiesFundforcontributionsfortheMcCollumProjectandaccruedinterest 482,364CountySchoolServiceFundtransfertoDebtServiceFundforcertificatesofparticipationpayment 1,166,400CountySchoolServiceFundtransfertoSelf‐InsuranceFundforcontributionsfordental,vision,andmedicalinsurance 1,988,776CafeteriaFundtransfertoCountySchoolServiceFundforprioryearcarryover 148,376

Total 5,554,930$

InterfundTransfersIn

NOTE5–FUNDBALANCESMinimumFundBalancePolicyTheCountyhasnotadoptedaformalminimumfundbalancepolicy,asrecommendedbyGASBStatementNo.54;however,theCountyfollowstheguidelinesrecommendedintheCriteriaandStandardsofAssemblyBill(AB)1200,whichrecommendaReserveforEconomicUncertaintiesconsistingofunassignedamountsequaltonolessthantwopercentoftotalGeneralFundexpendituresandotherfinancinguses.When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance isavailable,theCountyconsidersrestrictedfundstohavebeenspentfirst.Whenanexpenditureisincurredforwhichcommitted,assigned,orunassignedfundbalancesareavailable,theCountyconsidersamountstohavebeenspentfirstoutofcommittedfunds,thenassignedfunds,andfinallyunassignedfunds,asneededunlessthegoverningboardhasprovidedotherwiseinitscommitmentorassignmentactions.

32

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE5–FUNDBALANCES(continued)

AtJune30,2013,fundbalancesoftheCounty’sgovernmentalfundsareclassifiedasfollows:

SpecialEducation Non‐Major

CountySchool Pass‐Through GovernmentalServiceFund Fund Funds Total

Nonspendable:Revolvingcash 25,000$ ‐$ ‐$ 25,000$Storesinventories 327,110 ‐ ‐ 327,110Prepaidexpenditures 2,309 ‐ ‐ 2,309

TotalNonspendable 354,419 ‐ ‐ 354,419Restricted:

Categoricalprograms 6,693,071 ‐ ‐ 6,693,071Specialeducation ‐ 5,329 ‐ 5,329Childdevelopmentprograms ‐ ‐ 288,616 288,616Schoolfacilities ‐ ‐ 3,890,972 3,890,972Debtservice ‐ ‐ 1,171,250 1,171,250Otherlocal 3,161,039 ‐ ‐ 3,161,039

TotalRestricted 9,854,110 5,329 5,350,838 15,210,277Assigned:

Excesstaxes 9,914,841 ‐ ‐ 9,914,841Districtloansforcashflowissues 5,000,000 ‐ ‐ 5,000,000Carryoverunspentfunds 2,243,797 ‐ ‐ 2,243,797Facilities 6,846,069 ‐ ‐ 6,846,069Redevelopmentfunds 332,126 ‐ ‐ 332,126Technologyservices 8,454,774 ‐ ‐ 8,454,774Deferredmaintenance(FMP) 5,789,404 ‐ ‐ 5,789,404Vacationliability 1,300,028 ‐ ‐ 1,300,028COPpayoff 2,000,000 ‐ ‐ 2,000,000SEIUone‐timenegotiatedagreements 1,359,852 ‐ ‐ 1,359,852

TotalAssigned 43,240,891 ‐ ‐ 43,240,891Unassigned:

Reserveforeconomicuncertainties 7,156,923 ‐ ‐ 7,156,923Remainingunassignedbalances 726,326 ‐ ‐ 726,326

TotalUnassigned 7,883,249 ‐ ‐ 7,883,249

Total 61,332,669$ 5,329$ 5,350,838$ 66,688,836$

33

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE6–CAPITALASSETSANDDEPRECIATIONCapitalassetactivityfortheyearendedJune30,2013wasasfollows:

Balance Balance,

July1,2012 Additions Deletions June30,2013Capitalassetsnotbeingdepreciated:

Land 5,533,399$ ‐$ ‐$ 5,533,399$Constructioninprogress 7,916,602 3,500,232 10,720,602 696,232

Totalcapitalassetsnotbeingdepreciated 13,450,001 3,500,232 10,720,602 6,229,631Capitalassetsbeingdepreciated:

Buildingsandimprovements 63,454,812 10,720,602 32,638 74,142,776Furnitureandequipment 12,071,648 340,449 137,653 12,274,444

Totalcapitalassetsbeingdepreciated 75,526,460 11,061,051 170,291 86,417,220Accumulateddepreciationfor:

Buildingsandimprovements (13,203,482) (2,371,747) (32,638) (15,542,591)Furnitureandequipment (8,076,112) (874,774) (122,404) (8,828,482)

Totalaccumulateddepreciation (21,279,594) (3,246,521) (155,042) (24,371,073)Totalcapitalassetsbeingdepreciated,net 54,246,866 7,814,530 15,249 62,046,147

Governmentalactivitycapitalassets,net 67,696,867$ 11,314,762$ 10,735,851$ 68,275,778$

Depreciationexpensewaschargedtogovernmentalfunctionsasfollows:

GovernmentalActivites:Instruction 1,542,730$Supervisionofinstruction 283,359Instructionallibrary,media,andtechnology 31,485Schoolsiteadministration 188,906Hometoschooltransportation 31,485Foodservices 31,485Allotherpupilservices 409,296Ancillaryservices 62,969Allothergeneraladministration 444,417Dataprocessingservices 94,453Plantservices 125,936

Total 3,246,521$

34

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE7–GENERALLONG‐TERMDEBTChangesinlong‐termdebtfortheyearendedJune30,2013wereasfollows:

Balance, Balance,July1,2012 July1,2012 Balance, AmountDue

asoriginallystated Restatments asrestated Additions Deductions June30,2013 WithinOneYearCertificatesofParticipation 11,040,000$ ‐$ 11,040,000$ ‐$ 640,000$ 10,400,000$ 670,000$CompensatedAbsences 5,017,719 (3,646,383) 1,371,336 ‐ 71,308 1,300,028 ‐OtherPostemploymentBenefits 6,734,775 ‐ 6,734,775 1,083,379 ‐ 7,818,154 ‐

Totals 22,792,494$ (3,646,383)$ 19,146,111$ 1,083,379$ 711,308$ 19,518,182$ 670,000$

PaymentsforcertificatesofparticipationaremadebytheCountySchoolServiceFund.Accumulatedvacationandotherpostemploymentbenefitswillbepaidforbythefundforwhichtheemployeeworked.

CertificatesofParticipationOnJuly1,2002theCountyissued$15,895,000ofcertificatesofparticipationthroughtheSantaClaraBoardofEducation Financing Corporation. The certificateswere issuedwith stated interest rates ranging between3.0% and 5.0%. The certificateswere issued to advance refund certificates thatwere originally issued in1995.AtJune30,2013theprincipalbalanceoutstandingwas$10,400,000.The annual requirements to amortize certificates of participation outstanding as of June 30, 2013 are asfollows:

FiscalYear Principal Interest Total

2013‐14 670,000$ 499,200$ 1,169,200$2014‐15 700,000 470,725 1,170,7252015‐16 725,000 440,975 1,165,9752016‐17 760,000 408,350 1,168,3502017‐18 790,000 373,200 1,163,2002018‐23 4,585,000 1,249,925 5,834,9252023‐25 2,170,000 164,000 2,334,000

Total 10,400,000$ 3,606,375$ 14,006,375$

NOTE8–JOINTVENTURETheSantaClaraCountyOfficeofEducation isamemberoftheSouthBayAreaSchoolsInsuranceAuthority(SBASIA) joint powers authority (JPA). The County Office of Education pays an annual premium to theapplicable entity for itspropertyand liability coverages. The relationshipbetween theSantaClaraCountyOffice of Education and the JPA is such that the JPA is not a component unit of the County for financialreportingpurposes.TheJPAisgovernedbyaboardconsistingofarepresentativefromeachmemberdistrict.ThegoverningboardcontrolstheoperationsoftheJPAindependentofanyinfluencebythememberdistrictsbeyondtheirrepresentationonthegoverningboard.EachmemberdistrictpaysapremiumcommensuratewiththelevelofcoveragerequestedandsharessurplusesanddeficitsproportionatelytoitsparticipationintheJPA.

35

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE8–JOINTVENTURE(continued)CondensedauditedfinancialinformationasofJune30,2012isshownbelow:

SBASIAAssets 4,833,664$Liabilities 2,148,392NetAssets 2,685,272$

Revenues 3,327,589$Expenses 2,738,975OperatingIncome 588,614Non‐OperatingIncome 32,501ChangeinNetAssets 621,115$

NOTE9‐COMMITMENTSANDCONTINGENCIESA. StateandFederalAllowances,Awards,andGrants

TheCountyhasreceivedstateandfederalfundsforspecificpurposesthataresubjecttoreviewandauditbythegrantoragencies.Althoughsuchauditscouldgenerateexpendituredisallowancesundertermsofthegrants,itisbelievedthatanyrequiredreimbursementwillnotbematerial.

B. LitigationThe County is involved in certain legalmatters that arose out of the normal course of business. TheCountyhasnotaccruedliabilityforanypotentiallitigationagainstitbecauseitdoesnotmeetthecriteriatobeconsideredaliabilityatJune30.

NOTE10–RISKMANAGEMENTPropertyandLiabilityTheCountyisexposedtovariousrisksoflossrelatedtotorts;theftof,damageto,anddestructionofassets;errorsandomissions; injuriestoemployeesandnaturaldisasters. DuringfiscalyearendingJune30,2013,theCountyparticipatedintheSouthBayAreaSchoolsInsuranceAuthoritypublicentityriskpoolforpropertyandliabilityinsurancecoverage.Settledclaimshavenotexceededthiscommercialcoverageinanyofthepastthreeyears.Therehasnotbeenasignificantreductionincoveragefromtheprioryear.Workers’CompensationForfiscalyear2012‐13,theCountywasself‐insuredupto$350,000forworkerscompensation,withexcesscoverageprovidedbyapolicythroughStarInsuranceCompany.EmployeeDentalandVisionBenefitsThe County is self‐insured for dental and vision benefits for employees. The County uses Delta Dental toprocessthedentalbenefitclaims,andMEStoprocessthevisionclaims.

36

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE10–RISKMANAGEMENT(continued)Coveragesforpropertyandliabilityandworkers'compensationareasfollows:

InsuranceCarrier/PublicEntityRiskPool TypeofCoverageSelf‐InsuredRetention Limits

Workers'CompensationSantaClaraCountyOfficeofEducation Workers'Compensation N/A 350,000$StarInsuranceCompany Workers'Compensation 350,000$ 100,000,000$

PropertyandLiabilityProgramSouthBayAreaSchoolsInsuanceAuthority Property 10,000$ 500,000$SouthBayAreaSchoolsInsuanceAuthority Liability 5,000$ 300,000$

ExcessPropertyandLiabilityProgramGenesisInsuranceCompany ExcessLiability 300,000$ 1,000,000$CSACExcessInsuranceAuthority GeneralLiability‐JPAPool 1,000,000$ 24,000,000$PublicEntityPropertyInsuranceProgram ExcessProperty 500,000$ 1,000,000,000$

ClaimsLiabilityThe County records an estimated liability for workers’ compensation claims against the County. Claimsliabilitiesarebasedonestimatesof theultimatecostofreportedclaims(including futureclaimadjustmentexpenses)andanestimateforclaimsincurredbutnotreportedbasedonhistoricalexperience.UnpaidClaimsLiabilitiesTheCountyestablishesaliabilityforbothreportedandunreportedevents,whichincludesestimatesofbothfuture payments of losses and related claim adjustment expenses. The following represent the changes inapproximateaggregateliabilitiesfortheCounty'sworkers’compensationfromJuly1,2011toJune30,2013:

LiabilityBalance,June30,2011 9,408,880$Claimsandchangesinestimates 4,885,754Claimpayments (3,174,634)

LiabilityBalance,June30,2012 11,120,000$Claimsandchangesinestimates 1,709,442Claimpayments (2,150,442)

LiabilityBalance,June30,2013 10,679,000$

Assetsavailabletopayclaims 21,682,547$

NOTE11‐EMPLOYEERETIREMENTPLANSQualified employees are covered under multiple‐employer defined benefit pension plans maintained byagencies of the State of California. Certificated employees aremembers of the State Teachers’ RetirementSystem(STRS),andclassifiedemployeesaremembersofthePublicEmployees’RetirementSystem(PERS).

37

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE11‐EMPLOYEERETIREMENTPLANS(continued)PlanDescriptionandProvisionsPublicEmployees’RetirementSystem(PERS)PlanDescriptionThe County contributes to the School Employer Pool under the California Public Employees’ RetirementSystem (CalPERS), a cost‐sharing multiple‐employer public employee retirement system defined benefitpensionplanadministeredbyCalPERS.Theplanprovidesretirementanddisabilitybenefits,annualcost‐of‐livingadjustments,anddeathbenefitstoplanmembersandbeneficiaries.Benefitprovisionsareestablishedbystatestatutes,as legislativelyamended,within thePublicEmployees’RetirementLaw. CalPERS issuesaseparate comprehensive annual financial report that includes financial statements and requiredsupplementaryinformation. CopiesofthecomprehensiveannualfinancialreportmaybeobtainedfromtheCalPERSExecutiveOffice,400QStreet,Sacramento,California95811.

FundingPolicyActiveplanmembersarerequiredtocontribute7.0%oftheirsalaryandtheCountyisrequiredtocontributean actuarially determined rate. The actuarialmethods and assumptionsused fordetermining the rate arethoseadoptedby theCalPERSBoardofAdministration. Therequiredemployercontributionfor fiscalyear2012‐13was11.417%.ThecontributionrequirementsoftheplanmembersareestablishedbyStatestatute.TheCounty’scontributionstoCalPERSforthelastthreefiscalyearswereasfollows:

Contribution

PercentofRequiredContribution

2012‐13 $5,693,284 100%2011‐12 $5,462,120 100%2010‐11 $5,285,276 100%

StateTeachers’RetirementSystem(STRS)PlanDescriptionThe County contributes to the California State Teachers’ Retirement System (CalSTRS), a cost‐sharingmultiple‐employerpublicemployeeretirementsystemdefinedbenefitpensionplanadministeredbyCalSTRS.The plan provides retirement, disability and survivor benefits to beneficiaries. Benefit provisions areestablishedbystatestatutes,as legislativelyamended,withintheStateTeachers’RetirementLaw. CalSTRSissues a separate comprehensive annual financial report that includes financial statements and requiredsupplementary information. Copies of the comprehensive annual financial report may be obtained fromCalSTRS,100WaterfrontPlace,WestSacramento,California95605,oratwww.calstrs.com.FundingPolicyActiveplanmembers are required to contribute8.0%of their salary. The requiredemployer contributionrateforfiscalyear2012‐13was8.25%ofannualpayroll.ThecontributionrequirementsoftheplanmembersareestablishedbyState statute. TheCounty’s contributions toSTRS for the last three fiscalyearswereasfollows:

Contribution

PercentofRequiredContribution

2012‐13 $3,482,742 100%2011‐12 $3,515,982 100%2010‐11 $4,442,131 100%

38

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE11‐EMPLOYEERETIREMENTPLANS(continued)On‐BehalfPaymentsThe County was the recipient of on‐behalf payments made by the State of California to STRS for K‐12education.ThesepaymentsconsistofstateGeneralFundcontributionsofapproximately$1.8milliontoSTRS(4.267%ofsalariessubjecttoSTRSin2012‐13).NOTE12–OTHERPOSTEMPLOYMENTBENEFITSSantaClaraCountyOfficeofEducationadministersasingle‐employerdefinedbenefitotherpostemploymentbenefit(OPEB)planthatprovidesmedical,dentalandvisioninsurancebenefitstoeligibleretireesandtheirspouses. The County implemented Governmental Accounting Standards Board Statement #45,AccountingandFinancialReportingbyEmployersforPostemploymentBenefitPlansOtherThanPensionPlans,in2007‐08.PlanDescriptionsandContributionInformationMembershipintheplanconsistedofthefollowing:

Retireesandbeneficiariesreceivingbenefits* 90Activeplanmembers* 1,698Total 1,788

*AsofJuly1,2012actuarialvaluation

TheCountyprovidesemployeehealthbenefitscoverageforeligibleretireesandtheirdependentsasalifetimebenefit.Eligibilityrequirementsareasfollows:

SEIUemployeeswhoretireonorafterage50withatleast10yearsofservice. ACE/CTAemployeesandpsychologistswhoretireonorafterage55withatleast10yearsofservice. ManagementemployeeshiredonorbeforeNovember1,2008,whoretireonorafterage55withat

leastoneyearofservice. ManagementemployeesandSuperintendenthiredafterNovember1,2008whoretireonorafterage

55withatleasttenyearsofservice.Thesamemedicalcoverageasprovidedtoactiveemployees isprovidedtoeligibleretiredemployees. ThepercentageofthemonthlypremiumpaidbytheCountyvaries.Retireespayallamountsinexcessof:

forSEIUretirees,50%. forACE/CTA/psychologists,thepercentageis50%after10yearsofemployment,75%after15years,

and100%after20years. formanagementandSuperintendent,3.3%foreachyearofservice(100%after30years).

Benefitsceaseatage65.

39

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE12–OTHERPOSTEMPLOYMENTBENEFITS(continued)PlanDescriptionsandContributionInformation(continued)TheCounty’sfundingpolicyisbasedontheprojectedpay‐as‐you‐gofinancingrequirements.Forfiscalyear2012‐13,theCountycontributed$1,156,934.AtJune30,2013,theCountyhadalsosetasideapproximately$8.2millionforpost‐employmentbenefitsinSubFund671,whichisreportedinthesefinancialstatementsintheSelf‐InsuranceFund.However,becausethesefundswerenotplacedinanirrevocabletrust,theydonotqualifyas“contributions”foraccountingpurposes.

AnnualOPEBCostandNetOPEBObligationTheCounty’sannualOPEBcost is calculatedbasedon theAnnualRequiredContribution(ARC),anamountactuariallydeterminedinaccordancewiththeparametersofGASBStatement45.TheARCrepresentsalevelof funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize anyunfundedactuarialliabilities(orfundingexcess)overaperiodnottoexceedthirtyyears.ThefollowingtableshowsthecomponentsoftheCounty’sannualOPEBcostfortheyear,theamountactuallycontributedtotheplan,andchangesintheCounty’snetOPEBobligation:

Annualrequiredcontribution(ARC) 2,610,965$InterestonnetOPEBobligation 33,674AdjustmenttoARC (404,326)AnnualOPEBcost 2,240,313Contributionsmade:

Pay‐as‐you‐gocosts (1,156,934)IncreaseinnetOPEBliability 1,083,379NetOPEBliability‐July1,2012 6,734,775NetOPEBliability‐June30,2013 7,818,154$

TheCounty’sannualOPEBcost,thepercentageofannualOPEBcostcontributedtotheplan,andthenetOPEBobligationforthethreemostrecentyearsareasfollows:

YearEndedJune30,

Annual

OPEBCost

PercentageContributed

NetOPEB

Obligation2011 $2,832,098 45% $4,991,4322012 $2,938,631 41% $6,734,7752013 $2,240,313 52% $7,818,154

FundedStatusandFundingProgress–OPEBPlansAsofJuly1,2012,themostrecentactuarialvaluationdate,theCountyOfficedidnothaveafundedplan.Theactuarialaccrued liability (AAL) forbenefitswas$17.9million,andtheunfundedactuarialaccrued liability(UAAL)was$17.9million.Actuarialvaluationsofanongoingplaninvolveestimatesofthevalueofreportedamountsandassumptionsabouttheprobabilityofoccurrenceofeventsfarintothefuture.Examplesincludeassumptionsaboutfutureemployment, mortality, and the healthcare cost trend. Actuarially determined amounts are subject tocontinualrevisionasactualresultsarecomparedwithpastexpectationsandnewestimatesaremadeaboutthefuture.

40

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE12–OTHERPOSTEMPLOYMENTBENEFITS(continued)FundedStatusandFundingProgress–OPEBPlans(continued)The schedule of funding progress presented as Required Supplementary Information presents multiyeartrend informationaboutwhether theactuarialvaluesofplanassetsare increasingordecreasingover timerelativetotheactuarialaccruedliabilitiesforbenefits.ActuarialMethodsandAssumptionsProjections of benefits for financial reporting purposes are based on the substantive plan (the plan asunderstoodbytheemployerandplanmembers)andincludethetypesofbenefitsprovidedatthetimeofeachvaluationand thehistoricalpatternofsharingofbenefitcostsbetweentheemployerandplanmembers tothatpoint.Theactuarialmethodsandassumptionsusedincludetechniquesthataredesignatedtoreducetheeffectsofshort‐termvolatilityinactuarialaccruedliabilitiesandtheactuarialvalueofassets,consistentwiththelong‐termperspectiveofthecalculations.Additionalinformationasofthelatestactuarialvaluationfollows:

ValuationDate 7/1/2012

ActuarialCostMethod ProjectedUnitCredit

AmortizationMethod Level‐dollar

RemainingAmortizationPeriod 25years

AssetValuation N/A

ActuarialAssumptions:Discountrate 0.5%‐4.0%

Medicaltrendrates 6.0%‐11.0% NOTE13–HOUSINGLOANSA. CurrentSuperintendent

In lieuofadditionalcompensationandtoassistCountySuperintendent intherelocationofhisprimaryresidence to Santa Clara County, the Board provided the County Superintendent with a residentialhousing loan of $960,000. The first $500,000 in loan proceeds disbursed to County Superintendentaccrues simple interest at the rate of 2% per annum, and the remaining $460,000 in loan proceedsdisbursedtoCountySuperintendentaccruessimpleinterestattherateof3%perannumfromandafterthedateofdisbursementuntilrepaid.

ThehomeiscurrentlyreportedasacapitalassetontheStatementofNetPosition.

B. FormerSuperintendent

TheBoardprovidedtheformerSuperintendentwitha$915,000housingloanaspartofacompensationpackage. Due to thedecline in thehousingmarketbetween the formerSuperintendent's appointmentand resignation, the value of the property has declined. At this time, the Board and formerSuperintendent have agreed to settlement, with the former Superintendent making a payment to theBoardof$13,400,andadeedinlieuofforeclosurebeingexecutedtogivetheCountytitletotheproperty.It is expected that this settlementwill be concludedwithin the nextmonth. As of June 30, 2013, thepropertywasreportedasacapitalassetontheStatementofNetPosition.

41

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE14–CONTINGENCIESPayrollAuditInFebruary2013,theCountymovedthepayrollfunctionfromtheInternalBusinessServicesDepartmenttoDistrict Business Advisory Services. In July 2013 given reports regarding payroll errors, BusinessManagementaskedtheauditorstofullyreviewpayrollprocessesandprocessing.InSeptember2013,therewere reports of password sharing between staff processing payroll. In September 2013, the CountySuperintendent asked BusinessManagement to issue an RFP for a payroll audit that included a review ofpasswordapprovalandpayrollprocessing.InOctober2013,theCountySuperintendentcontractedwithanexternal consultant to conduct a review and assessment of the payroll and human resources functions,includinga reviewof information technologysecurity. Theextentof thepayrollerrors isundeterminedatthis time,and theauditorscouldnotquantify thepotential liability forpenalties, taxes,and feesassociatedwith the errors in processing. Accordingly, no liability has been recorded in the financial statements.However,managementdoesnotcurrentlybelievethattheimpactwillmateriallyaffectthefinancialpositionoftheCounty.NOTE15‐ADJUSTMENTSFORRESTATEMENTSThebeginningnetpositionontheStatementofActivitieshasbeenrestatedby$3,646,383inordertoremovetheliabilityassociatedwithaccruedsickleave,whichdoesnotmeetthecriteriatobeconsideredalong‐termliability.The beginning net position on the Proprietary Fund Statement of Revenues, Expenses and Changes inNetPositionhasbeenrestatedby($6,734,775)inordertorecognizethebeginningbalanceoftheOPEBobligationasofJune30,2012.NOTE16–FUTUREGASBPRONOUNCEMENTSThe following statements issued by the Governmental Accounting Standards Board (GASB) will becomeeffectiveinfutureyearsandareexpectedtohaveasignificantimpactontheCounty'sfinancialreporting:A. StatementNo.65,ItemsPreviouslyReportedasAssetsandLiabilities(Issued03/12)

This Statement establishes accounting and financial reporting standards that reclassify, as deferredoutflows of resources or deferred inflows of resources, certain items thatwerepreviously reported asassetsandliabilitiesandrecognizes,asoutflowsofresourcesorinflowsofresources,certainitemsthatwerepreviouslyreportedasassetsandliabilities.Concepts Statement No. 4, Elements of Financial Statements, introduced and defined the elementsincluded in financial statements, including deferred outflows of resources and deferred inflows ofresources.Inaddition,ConceptsStatement4providesthatreportingadeferredoutflowofresourcesoradeferredinflowofresourcesshouldbelimitedtothoseinstancesidentifiedbytheBoardinauthoritativepronouncementsthatareestablishedafterapplicabledueprocess.This Statement also provides other financial reporting guidance related to the impact of the financialstatementelementsdeferredoutflowsofresourcesanddeferredinflowsofresources,suchaschangesinthe determination of themajor fund calculations and limiting the use of the termdeferred in financialstatementpresentations.ThisStatementwillbecomeeffectivein2013‐14.

42

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestoFinancialStatementsJune30,2013NOTE16–FUTUREGASBPRONOUNCEMENTS(continued)B. Statement No. 68, Accounting and Financial Reporting for Pensions—An Amendment of GASB

StatementNo.27(Issued06/12)The primary objective of this Statement is to improve accounting and financial reporting by state andlocalgovernments forpensions. Italso improves informationprovidedbystateand localgovernmentalemployersaboutfinancialsupportforpensionsthatisprovidedbyotherentities.ThisStatementresultsfrom a comprehensive review of the effectiveness of existing standards of accounting and financialreporting forpensionswithregardtoprovidingdecision‐useful information,supportingassessmentsofaccountabilityandinterperiodequity,andcreatingadditionaltransparency.ThisStatementreplacestherequirementsofStatementNo.27,AccountingforPensionsbyStateandLocalGovernmentalEmployers, aswell as the requirements of StatementNo. 50,PensionDisclosures, as theyrelate to pensions that are provided through pension plans administered as trusts or equivalentarrangements(hereafterjointlyreferredtoastrusts)thatmeetcertaincriteria.This Statement establishes standards for measuring and recognizing liabilities, deferred outflows ofresources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions,thisStatementidentifiesthemethodsandassumptionsthatshouldbeusedtoprojectbenefitpayments,discountprojectedbenefitpaymentstotheiractuarialpresentvalue,andattributethatpresentvaluetoperiodsofemployeeservice.Cost‐SharingEmployersIn financialstatementspreparedusingtheeconomicresourcesmeasurementfocusandaccrualbasisofaccounting, a cost‐sharing employer that does not have a special funding situation is required torecognizea liability for itsproportionateshareofthenetpensionliability(ofallemployersforbenefitsprovided through the pension plan)—the collective net pension liability. An employer’s proportion isrequired tobedeterminedonabasis that is consistentwith themanner inwhich contributions to thepension plan are determined, and consideration should be given to separate rates, if any, related toseparate portions of the collective net pension liability. The use of the employer’s projected long‐termcontributioneffortascompared to the totalprojected long‐termcontributioneffortofallemployersasthebasisfordetermininganemployer’sproportionisencouraged.A cost‐sharing employer is required to recognize pension expense and report deferred outflows ofresourcesanddeferredinflowsofresourcesrelatedtopensionsforitsproportionatesharesofcollectivepensionexpenseandcollectivedeferredoutflowsofresourcesanddeferredinflowsofresourcesrelatedtopensions.ThisStatementwillbecomeeffectivein2014‐15.

RequiredSupplementaryInformation

Seeaccompanyingnotestorequiredsupplementaryinformation. 43

SANTACLARACOUNTYOFFICEOFEDUCATIONBudgetaryComparisonSchedule–CountySchoolServiceFundFortheFiscalYearEndedJune30,2013

ActualVariancewithFinalBudget‐

Original Final (BudgetaryBasis) Pos(Neg)Revenues

RevenueLimitSources 89,222,740$ 91,205,750$ 93,205,078$ 1,999,328$Federal 43,488,475 46,066,836 40,987,170 (5,079,666)OtherState 22,700,003 23,218,054 22,809,363 (408,691)OtherLocal 35,184,811 36,170,287 34,882,982 (1,287,305)

TotalRevenues 190,596,029 196,660,927 191,884,593 (4,776,334)

ExpendituresCurrent:CertificatedSalaries 45,647,577 44,336,803 44,086,826 249,977ClassifiedSalaries 50,264,787 50,765,472 50,454,732 310,740EmployeeBenefits 41,070,335 38,416,345 37,439,921 976,424BooksandSupplies 4,455,851 8,736,812 5,046,047 3,690,765ServicesandOtherOperatingExpenditures 35,636,751 44,390,992 31,063,652 13,327,340Indirectcosts (487,964) (462,366) (506,192) 43,826

CapitalOutlay 2,482,509 3,152,685 1,072,310 2,080,375Intergovernmental 4,105,009 4,323,170 4,859,235 (536,065)


Excess(Deficiency)ofRevenuesOver(Under)Expenditures 7,421,174 3,001,014 18,368,062 15,367,048

OtherFinancingSourcesandUsesInterfundTransfersIn ‐ ‐ 148,376 148,376InterfundTransfersOut (5,450,503) (4,178,111) (5,406,554) (1,228,443)AllOtherFinancingSources ‐ 312,009 ‐ (312,009)

TotalOtherFinancingSourcesandUses (5,450,503) (3,866,102) (5,258,178) (1,392,076)

Excess(Deficiency)ofRevenuesandOtherFinancingSourcesOver(Under)ExpendituresandOtherFinancingUses 1,970,671 (865,088) 13,109,884 13,974,972

FundBalances,July1,2012 48,222,785 48,222,785 48,222,785 ‐

FundBalances,June30,2013 50,193,456$ 47,357,697$ 61,332,669$ 13,974,972$

BudgetedAmounts


SANTACLARACOUNTYOFFICEOFEDUCATIONBudgetaryComparisonSchedule–SpecialEducationPass‐ThroughFundFortheFiscalYearEndedJune30,2013

ActualVariancewithFinalBudget‐

Original Final (BudgetaryBasis) Pos(Neg)Revenues

Federal 26,731,813$ 28,093,534$ 20,633,360$ (7,460,174)$OtherState 41,663,480 39,722,675 38,960,839 (761,836)OtherLocal 1,283,692 1,286,279 1,282,354 (3,925)

TotalRevenues 69,678,985 69,102,488 60,876,553 (8,225,935)

ExpendituresIntergovernmental 69,678,985 69,104,089 60,872,825 8,231,264


Excess(Deficiency)ofRevenuesOver(Under)Expenditures ‐ (1,601) 3,728 5,329

FundBalances,July1,2012 1,601 1,601 1,601 ‐

FundBalances,June30,2013 1,601$ ‐$ 5,329$ 5,329$

BudgetedAmounts


SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofFundingProgress‐OPEBFortheFiscalYearEndedJune30,2013

ActuarialValuationDate

ValueofAssets

ActuarialAccruedLiability(AAL)

UnfundedAAL

(UAAL)

FundedRatio

CoveredPayroll

UAALasaPercentageofCoveredPayroll

July1,2008 $‐ $27,280,000 $27,280,000 0.0% $101,123,014 20.27%

July1,2010 $‐ $20,495,330 $20,495,330 0.0% $96,929,375 28.14%

July1,2012 $‐ $17,883,237 $17,883,237 0.0% N/A N/A

46

SANTACLARACOUNTYOFFICEOFEDUCATIONNotestotheRequiredSupplementaryInformationFortheFiscalYearEndedJune30,2013

NOTE1–PURPOSEOFSCHEDULESBudgetaryComparisonSchedulesTheseschedulesarerequiredbyGASBStatementNo.34asrequiredsupplementaryinformation(RSI)fortheGeneral Fund and for each major special revenue fund that has a legally adopted annual budget. Thebudgetarycomparisonschedulespresentboth(a)theoriginaland(b)thefinalappropriatedbudgetsforthereportingperiodaswellas(c)actualinflows,outflows,andbalances,statedontheCounty'sbudgetarybasis.A separate column to report the variance between the final budget and actual amounts is also presented,althoughnotrequired.ScheduleofFundingProgressThis schedule is required by GASB Statement No.45 for all sole and agent employers that provide otherpostemploymentbenefits(OPEB).Theschedulepresents,forthemostrecentactuarialvaluationandthetwoprecedingvaluations, informationabout the fundingprogressof theplan, including, foreachvaluation, theactuarial valuation date, the actuarial value of assets, the actuarial accrued liability, the total unfundedactuarial liability (or funding excess), the actuarial valueof assets as apercentageof the actuarial accruedliability(fundedratio), theannualcoveredpayroll,andtheratioof thetotalunfundedactuarial liability(orfundingexcess)toannualcoveredpayroll.NOTE2–EXCESSOFEXPENDITURESOVERAPPROPRIATIONSAt June 30, 2013, the County incurred the following excess of expenditures over appropriations in theBudgetaryComparisonSchedules:

GeneralFund AmountIntergovernmental $536,065Interfundtransfersout 1,228,443

SupplementaryInformation

47

SANTACLARACOUNTYOFFICEOFEDUCATIONLocalEducationalAgencyOrganizationStructureJune30,2013TheSantaClaraCountyOfficeofEducationwasorganizedin1852underthe lawsoftheStateofCalifornia.TheCountyOffice of Education operates under a locally‐elected seven‐memberBoard formof governmentand provides education services to grades K‐12 as mandated by the State and/or federal agencies. TheCounty Office of Education is the administrative agency for six Special Education Local Plan Areas andoperatesspecialeducationclassesatseventy‐twoschoolsiteswithintheCountyofSantaClara. TheCountyOfficeofEducationcoordinatesRegionalOccupationalProgramsforfiveschooldistrictsandonecommunitycollegedistrict.ItoperatesalternativeschoolsprogramsthatservechildreninavarietyofsettingsincludingJuvenileHall,ranchprograms,children'sshelterandnumerouscommunityschoolsthroughouttheCounty.Itoperates via the children's service department, various preschool, childcare, developmental programs andcomprehensive services for low income children and their families in SantaClaraandSanBenito counties.This effort is coordinated using funds from Headstart, Early Headstart, Migrant Education, Preschool andStatePreschoolprograms.TheSantaClaraCountyOfficeofEducationadministersprogramsto31elementary,highschool,unified,andcommunitycollegedistrictswithinSantaClaraCountyservinganareaofapproximately1,300squaremiles.

SANTACLARACOUNTYBOARDOFEDUCATION,AsofJune30,2013

Member Office TermExpires

GraceH.Mah President 2016

MichaelChang VicePresident 2014

LeonF.Beauchman Member 2016

JosephDiSalvo Member 2016

DarcieGreen Member 2014

JuliaHover‐Smoot Member 2014

AnnaSong Member 2016

ADMINISTRATION

XavierDeLaTorre,Ed.D.,Superintendent

MicaelaOchoa,

ChiefBusinessOfficer

AngelicaRamsey,Ed.D.,ChiefAcademicOfficer

KellyCalhoun,Ed.D.,

ChiefTechnologyOfficer

Seeaccompanyingnotetosupplementaryinformation. 48

SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAverageDailyAttendanceFortheFiscalYearEndedJune30,2013

SecondPeriod AnnualReport Report

(CertificateNo. (CertificateNo.A19E835A) 6161E4E9)

Elementary:Juvenilehalls,homesandcamps 5.97 7.80Communityschools‐probationreferred 24.75 28.34

TotalElementary 30.72 36.14

Secondary:Juvenilehalls,homesandcamps 217.70 223.32Communityschools‐probationreferred 194.88 209.40Communitydayschool 33.13 32.74

TotalSecondary 445.71 465.46

Total 476.43 501.60

CountyOperatedPrograms:NPS/LCI 65.10 65.48SpecialDayClasses 1,357.81 1,366.96

Total 1,422.91 1,432.44

TotalADA 1,899.34 1,934.04


SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAverageDailyAttendanceSpecialDayClassesasofSecondPeriodFortheFiscalYearEndedJune30,2013

MasterPlan

ExtendedYear

MasterPlan

ExtendedYear Total

AlumRock 96.54 8.19 ‐ ‐ 104.73Berryessa 36.46 3.04 ‐ ‐ 39.50Cambrian 22.85 2.01 ‐ ‐ 24.86CampbellHigh ‐ ‐ 99.64 7.96 107.60CampbellElementary 24.09 2.14 ‐ ‐ 26.23CupertinoUnion 19.00 1.18 ‐ ‐ 20.18EastSideUnionHigh ‐ ‐ 255.74 14.41 270.15Evergreen 99.18 9.04 ‐ ‐ 108.22Franklin‐McKinley 41.31 2.79 ‐ ‐ 44.10FremontUnionHigh ‐ ‐ 19.47 1.25 20.72GilroyUnified 18.39 2.05 8.89 0.11 29.44LakesideElementary 1.10 0.11 ‐ ‐ 1.21LomaPrieta ‐ ‐ ‐ ‐ ‐LosAltos 1.94 0.07 ‐ ‐ 2.01LosGatos 12.82 0.70 ‐ ‐ 13.52LosGatos‐SaratogaJointUnionHigh ‐ ‐ 8.16 0.64 8.80LutherBurbank 4.70 0.53 ‐ ‐ 5.23MilpitasUnified 23.03 2.61 22.03 1.77 49.44Moreland 19.62 2.08 ‐ ‐ 21.70MorganHill 58.24 4.13 18.10 0.82 81.29MountPleasant 14.47 1.52 ‐ ‐ 15.99MountainView‐LosAltosHigh ‐ ‐ 5.39 0.11 5.50MountainView 4.17 0.10 ‐ ‐ 4.27OakGrove 86.58 6.95 ‐ ‐ 93.53Orchard 7.66 0.57 ‐ ‐ 8.23PaloAltoUnified 0.42 0.10 2.13 0.21 2.86SanJoseUnified 64.20 4.99 63.29 3.91 136.39SantaClaraUnified 33.66 2.30 31.38 2.14 69.48SaratogaUnion 5.41 0.28 ‐ ‐ 5.69Sunnyvale 14.95 0.82 ‐ ‐ 15.77Union 19.30 1.87 ‐ ‐ 21.17

730.09 60.17 534.22 33.33 1,357.81

Elementary Secondary


SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofInstructionalTimeFortheFiscalYearEndedJune30,2013SantaClaraCountyOfficeofEducationdidnotparticipateinthelongerinstructionaldayincentivefor

specialdayclasses.


SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofFinancialTrendsandAnalysisFortheFiscalYearEndedJune30,2013

(Budget)CountySchoolServiceFund 20143 2013 2012 20114

Revenuesandotherfinancingsources 183,702,223$ 192,032,969$ 170,810,336$ 261,878,513$

Expenditures 181,684,507 173,516,531 180,536,792 261,895,045Otherusesandtransfersout 1,549,430 5,406,554 1,654,545 1,552,296

Totaloutgo 183,233,937 178,923,085 182,191,337 263,447,341

Changeinfundbalance(deficit) 468,286 13,109,884 (11,381,001) (1,568,828)

Endingfundbalance 61,800,955$ 61,332,669$ 48,222,785$ 59,603,786$

Availablereserves1 12,143,740$ 7,883,249$ 9,403,103$ 11,017,623$

Availablereservesasapercentageoftotaloutgo 6.6% 4.4% 5.2% 4.2%

Totallong‐termdebt5 18,848,182$ 19,518,182$ 19,146,111$ 21,487,370$

AveragedailyattendanceatAnnual2 1,844 1,934 1,998 2,203

TheCountySchoolServiceFundbalancehasincreasedby$1,728,883overthepasttwoyears.Thefiscalyear2013‐14adoptedbudgetprojectsanincreaseof$468,286.Foracountyofthissize,thestaterecommendsavailablereservesofatleast2%oftotalCountySchoolServiceFundexpenditures,transfersout,andotheruses(totaloutgo).

TheCountyhasincurredanoperatingdeficitintwoofthepastthreeyears,butdoesnotanticipateincurringanoperatingdeficitduringthe2013‐14fiscalyear.Long‐termdebthasdecreasedby$1,969,188overthepasttwoyears.

Averagedailyattendancehasdecreasedby269overthepasttwoyears.Adecreaseof90ADAisanticipatedduringfiscalyear2013‐14.

1AvailablereservesconsistofallunassignedfundbalancesintheCountySchoolServiceFund.

2IncludesCountyOperatedPrograms

3RevisedFinalBudgetSeptember,2013

4Duringthe2010‐11fiscalyeartheactivityoftheSpecialEducationPass‐ThroughFundwasreportedwithintheCountySchoolServiceFund.

5Asrestated.


SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofExpendituresofFederalAwardsFortheFiscalYearEndedJune30,2013

Pass‐Through

Federal EntityFederalGrantor/Pass‐Through CFDA Identifying Cluster FederalGrantor/ProgramorClusterTitle Number Number Expenditures Expenditures

FederalPrograms:U.S.DepartmentofAgriculture:

PassedthroughCaliforniaDept.ofEducation(CDE):ChildNutrition:SchoolProgramsClusterNationalSchoolLunchProgram 10.553 13391 145,160$SchoolBreakfast‐Basic 10.553 13525 20,265SchoolBreakfast‐EspeciallyNeedy 10.553 13526 32,877SubtotalChildNutrition:SchoolProgramsCluster 198,302$

ChildandAdultCareFoodProgramClusterChildCareFoodProgramClaims‐CentersandFamilyDay 10.558 13393 1,303,105CashinLieuofCommodities 10.558 13389 65,422SubtotalChildandAdultCareFoodProgramCluster 1,368,527

TotalU.S.DepartmentofAgriculture 1,566,829

U.S.DepartmentofJusticeAt‐RiskYouthStudentInformationSystem(ARYSIS) 16.540 10045 29,987

U.S.DepartmentofEducation:PassedthroughCaliforniaDept.ofEducation(CDE):

NoChildLeftBehind(NCLB):TitleIGrantstoLocalEducationalAgenciesClusterTitleI,PartA,BasicGrantsLow‐IncomeandNeglected 84.010 14329 2,170,783TitleI,BasicSchoolSupport 84.010 14416 597,749TitleI,PartD,LocalDelinquentPrograms 84.010 14357 859,925TitleI,PartA,ProgramImprovementLEACorrectiveAction 84.010 14955 292SubtotalTitleIGrantstoLocalEducationalAgenciesCluster 3,628,749

MigrantEducationClusterTitleI,PartC,MigrantEd(RegularandSummerProgram) 84.011 14326 6,760,751TitleI,MigrantEdSummerProgram 84.011 10005 1,200,774SubtotalMigrantEducationCluster 7,961,525

TitleII,PartD,EnhancingEducationThroughTechnology 84.318 14334 15,676EnglishLanguageAcquisitionGrantsClusterTitleIII,TechnicalAssistance 84.365 14917 146,985TitleIII,LimitedEnglishProficiency 84.365 14346 41,423SubtotalEnglishLanguageAcquisitionGrantsCluster 188,408

TitleIV,21stCenturyCommunityLearningCenters,TechnicalAssistance 84.287 14350 28,785DepartmentofRehabilitation:WorkabilityII,TransitionPartnership 84.158 10006 240,056CarlD.PerkinsCareerandTechnicalEducationCluster

Secondary,Section131(VocationalEducation) 84.048 14894 75,035Adult,Section132(VocationalEducation) 84.048 14893 16,988SubtotalCarlD.PerkinsCareerandTechnicalEducationCluster 92,023

SpecialEducation:EarlyInterventionGrants,PartC 84.181 23761 787,560IndividualswithDisabilitiesEducationAct(IDEA):

LocalAssistanceEntitlement 84.027 13379 20,868,079PreschoolGrants,PartB,Section619(Age3‐4‐5) 84.173 13430 813,229PreschoolAccountabilityGrants,PartB,Section619 84.173A 14688 62,056PreschoolLocalEntitlement,PartB 84.173A 13682 1,331,860MentalHealthServices,PartB,Section611 84.027A 14468 893,481PreschoolStaffDevelopment,PartB,Section619 84.173A 13431 5,668TotalSpecialEducation(IDEA)Cluster 23,974,373

TotalU.S.DepartmentofEducation 36,917,155

U.S.DepartmentofHealth&HumanServices:HeadStart 93.600 10016 22,165,945PassedthroughCaliforniaDept.ofEducation:

ChildCareandDevelopmentFundClusterFederalGeneral(CCTR)andStatePreschool 93.596 13609 735,717QualityImprovementActivities 93.575 13979 651,431FederalLocalPlanningCouncils 93.575 13946 56,472

SubtotalChildCareandDevelopmentFundCluster 1,443,620MedicaidClusterMedi‐CalBillingOption 93.778 10013 2,644,459Medi‐CalAdministrativeActivities(MAA) N/A 10060 470,355

SubtotalMedicaidCluster 3,114,814TotalU.S.DepartmentofHealth&HumanServices 26,724,379

TotalExpendituresofFederalAwards 65,238,350$


SANTACLARACOUNTYOFFICEOFEDUCATIONReconciliationofAnnualFinancialandBudgetReportwithAuditedFinancialStatementsFortheFiscalYearEndedJune30,2013

CountySchool Self‐InsuranceServiceFund Fund

June30,2013,annualfinancialandbudgetreport(SACS)fundbalances 58,171,630$ 10,384,107$

Adjustmentsandreclassifications:Deferredrevenueoverstated 3,161,039 ‐OPEBliabilityunderstated ‐ (7,818,154)

June30,2013,auditedfinancialstatementfundbalances 61,332,669$ 2,565,953$


SANTACLARACOUNTYOFFICEOFEDUCATIONCombiningBalanceSheet‐Non‐MajorGovernmentalFundsJune30,2013

TotalChild County Debt Non‐Major

Development Cafeteria SchoolFacilties Service GovernmentalFund Fund Fund Fund Funds

ASSETSCash 615,683$ 6,136$ 5,138,601$ 1,171,250$ 6,931,670$Accountsreceivable 375,067 296,779 5,371 ‐ 677,217Duefromotherfunds 290,228 92,720 368 ‐ 383,316

TotalAssets 1,280,978$ 395,635$ 5,144,340$ 1,171,250$ 7,992,203$

LIABILITIESANDFUNDBALANCES

LiabilitiesAccountspayable 157,387$ 23,557$ 1,253,368$ ‐$ 1,434,312$Duetootherfunds 636,943 372,078 ‐ ‐ 1,009,021Deferredrevenue 198,032 ‐ ‐ ‐ 198,032

TotalLiabilities 992,362 395,635 1,253,368 ‐ 2,641,365

FundBalancesRestricted 288,616 ‐ 3,890,972 1,171,250 5,350,838

TotalLiabilitiesandFundBalances 1,280,978$ 395,635$ 5,144,340$ 1,171,250$ 7,992,203$


SANTACLARACOUNTYOFFICEOFEDUCATIONCombiningStatementofRevenues,Expenditures,andChangesinFundBalances‐ Non‐MajorGovernmentalFundsFortheFiscalYearEndedJune30,2013

TotalChild County Debt Non‐Major

Development Cafeteria SchoolFacilities Service GovernmentalREVENUES Fund Fund Fund Fund Funds

Federalsources 790,851$ 1,511,292$ ‐$ ‐$ 2,302,143$Otherstatesources 2,858,284 93,925 (379,202) ‐ 2,573,007Otherlocalsources 289,265 144,692 30,207 125 464,289

TotalRevenues 3,938,400 1,749,909 (348,995) 125 5,339,439

EXPENDITURESCurrent:

Instruction‐relatedservices 3,558,811 ‐ ‐ ‐ 3,558,811Supervisionofinstruction 436,161 ‐ ‐ ‐ 436,161Schoolsiteadministration 568,459 ‐ ‐ ‐ 568,459

Pupilsupportservices:Foodservices 55,261 1,616,085 ‐ ‐ 1,671,346Allotherpupilservices 140,756 ‐ ‐ ‐ 140,756

Generaladministration ‐ ‐ ‐ 125 125Plantservices 273,305 135,388 ‐ ‐ 408,693Transfersofindirectcosts 428,076 78,116 ‐ ‐ 506,192

Capitaloutlay ‐ ‐ 2,703,359 ‐ 2,703,359Debtservice:

Principal ‐ ‐ ‐ 640,000 640,000Interest ‐ ‐ ‐ 526,400 526,400

TotalExpenditures 5,460,829 1,829,589 2,703,359 1,166,525 11,160,302

Excess(Deficiency)ofRevenuesOver(Under)Expenditures (1,522,429) (79,680) (3,052,354) (1,166,400) (5,820,863)

OTHERFINANCINGSOURCES(USES)Interfundtransfersin 1,540,958 228,056 482,364 1,166,400 3,417,778Interfundtransfersout ‐ (148,376) ‐ ‐ (148,376)

TotalOtherFinancingSourcesandUses 1,540,958 79,680 482,364 1,166,400 3,269,402

NetChangeinFundBalances 18,529 ‐ (2,569,990) ‐ (2,551,461)

270,087 ‐ 6,460,962 1,171,250 7,902,299

FundBalances,June30,2013 288,616$ ‐$ 3,890,972$ 1,171,250$ 5,350,838$

FundBalances,July1,2012


SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofCharterSchoolsFortheFiscalYearEndedJune30,2013

InclusioninFinancialCharterSchool Statements

ACECharterSchool NotincludedBullisCharterSchool NotincludedDiscoveryCharterSchool NotincludedDowntownCollegePreparatory‐AlumRock NotincludedLeadershipPublicSchools NotincludedMagnoliaScienceAcademy NotincludedRocketshipAcademyBrilliantMinds NotincludedRocketshipAlmaAcademy NotincludedRocketshipDiscoveryPrep NotincludedRocketshipLosSuenosAcademy NotincludedRocketshipMateoSheedyElementary NotincludedRocketshipSiSePuedeAcademy NotincludedSiliconValleyFlexAcademy NotincludedSummitPublicSchool‐Tahoma NotincludedUniversityPreparatoryAcademyCharterSchool Notincluded

Inaddition,theCountyBoardofEducationapprovedtwonewcharterschoolstobeginclassesin2013‐14.

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SANTACLARACOUNTYOFFICEOFEDUCATIONNotetotheSupplementaryInformationJune30,2013NOTE1–PURPOSEOFSCHEDULESScheduleofAverageDailyAttendance(ADA)Averagedailyattendance (ADA) isameasurementof thenumberofpupilsattendingclassesof theCounty.The purpose of attendance accounting from a fiscal standpoint is to provide the basis on whichapportionments of State funds aremade to school districts and county offices of education. This scheduleprovidesinformationregardingtheattendanceofstudentsatvariousgradelevelsandindifferentprograms.ScheduleofInstructionalTimeTheCountyhasnotreceivedincentivefundingforincreasinginstructionaltimeasprovidedbytheIncentivesforLongerInstructionalDay.ScheduleofFinancialTrendsandAnalysisThisschedulediscloses theCounty’s financial trendsbydisplayingpastyears’dataalongwithcurrentyearbudgetinformation.ThesefinancialtrenddisclosuresareusedtoevaluatetheCounty’sabilitytocontinueasagoingconcernforareasonableperiodoftime.ScheduleofExpendituresofFederalAwardsThe schedule of expenditures of Federal awards includes the Federal grant activity of the County and ispresented on the modified accrual basis of accounting. The information in this schedule is presented inaccordancewiththerequirementsoftheUnitedStatesofAmericaOfficeofManagementandBudgetCircularA‐133,AuditsofStates,LocalGovernments,andNon‐ProfitOrganizations.Therefore,someamountspresentedinthisschedulemaydifferfromamountspresentedin,orusedinthepreparationofthefinancialstatements.SubrecipientsOftheFederalexpenditurespresentedintheschedule,theCountyprovidedFederalawardstosubrecipientsasfollows:

ProgramFederalCFDANumber

Pass‐ThroughAmount

LocalAssistanceEntitlement 84.027 $17,869,740IDEAPreschoolGrants,PartB,Section619(Age3‐4‐5) 84.173 691,638PreschoolLocalEntitlement,PartB 84.173A 1,176,889IDEAMentalHealthAllocationPlan,PartB,Sec611 84.027 855,436PreschoolStaffDevelopment 84.173A 6,745

ReconciliationofAnnualFinancialandBudgetReportwithAuditedFinancialStatementsThisscheduleprovidestheinformationnecessarytoreconcilethefundbalanceofall fundsreportedontheUnauditedActualfinancialreporttotheauditedfinancialstatements.Non‐MajorGovernmentalFunds–BalanceSheetandStatementofRevenues,ExpendituresandChangesinFundBalanceThe Non‐Major Governmental Funds Combining Balance Sheet and Combining Statement of Revenues,ExpendituresandChangesinFundBalanceisincludedtoprovideinformationregardingtheindividualfundsthathavebeenincludedintheNon‐MajorGovernmentalFundscolumnontheGovernmentalFundsBalanceSheetandStatementofRevenues,Expenditures,andChangesinFundBalance.ScheduleofCharterSchoolsThis schedule lists all charter schools chartered by the County, and displays information for each charterschoolandwhetherornotthecharterschoolisincludedintheCountyaudit.

OtherIndependentAuditors'Reports

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INDEPENDENTAUDITORS'REPORTONINTERNALCONTROLOVERFINANCIALREPORTINGANDONCOMPLIANCEANDOTHERMATTERSBASEDONANAUDITOFFINANCIALSTATEMENTSPERFORMEDINACCORDANCE

WITHGOVERNMENTAUDITINGSTANDARDSBoardofEducationSantaClaraCountyOfficeofEducationSanJose,California

We have audited, in accordance with the auditing standards generally accepted in the United States ofAmericaandthestandardsapplicabletofinancialauditscontainedinGovernmentAuditingStandards issuedbytheComptrollerGeneraloftheUnitedStates,thefinancialstatementsofthegovernmentalactivities,eachmajorfund,andtheaggregateremainingfundinformationofSantaClaraCountyOfficeofEducationasofandfor the year ended June 30, 2013, and the related notes to the financial statements, which collectivelycomprise Santa Clara County Office of Education's basic financial statements, and have issued our reportthereondatedDecember13,2013.InternalControlOverFinancialReportingInplanningandperformingourauditofthefinancialstatements,weconsideredSantaClaraCountyOfficeofEducation’sinternalcontroloverfinancialreporting(internalcontrol)todeterminetheauditproceduresthatareappropriateinthecircumstancesforthepurposeofexpressingouropinionsonthefinancialstatements,but not for the purpose of expressing an opinion on the effectiveness of the Santa Clara County Office ofEducation’sinternalcontrol.Accordingly,wedonotexpressanopinionontheeffectivenessoftheSantaClaraCountyOfficeofEducation’sinternalcontrol.Adeficiencyininternalcontrolexistswhenthedesignoroperationofacontroldoesnotallowmanagementoremployees, in the normal course of performing their assigned functions, to prevent, or detect and correctmisstatements on a timely basis. Amaterialweakness is a deficiency, or a combination of deficiencies, ininternal control such that there is a reasonable possibility that a material misstatement of the County'sfinancialstatementswillnotbeprevented,ordetectedandcorrectedonatimelybasis.Asignificantdeficiencyis a deficiency, or a combination of deficiencies, in internal control that is less severe than a materialweakness,yetimportantenoughtomeritattentionbythosechargedwithgovernance.Our consideration of internal control was for the limited purpose described in the first paragraph of thissectionandwasnotdesignedtoidentifyalldeficienciesininternalcontrolthatmightbematerialweaknessesor significantdeficiencies. Given these limitations,duringourauditwedidnot identifyanydeficiencies ininternalcontrolthatweconsidertobematerialweaknesses. However,materialweaknessesmayexistthathave not been identified. We did identify certain deficiencies in internal control, described in theaccompanyingscheduleoffindingsandquestionedcostsasFindings2013‐1through2013‐4thatweconsidertobesignificantdeficiencies.

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ComplianceandOtherMattersAspartofobtainingreasonableassuranceaboutwhetherSantaClaraCountyOfficeofEducation’s financialstatementsarefreeofmaterialmisstatement,weperformedtestsofitscompliancewithcertainprovisionsoflaws, regulations, contracts, and grant agreements, noncompliance with which could have a direct andmaterial effect on the determination of financial statement amounts. However, providing an opinion oncompliancewiththoseprovisionswasnotanobjectiveofouraudit,andaccordingly,wedonotexpresssuchanopinion.TheresultsofourtestsdisclosedaninstanceofnoncomplianceorothermattersthatisrequiredtobereportedunderGovernmentAuditingStandardsandwhichisdescribedintheaccompanyingscheduleoffindingsandquestionedcostsasFinding2013‐5.SantaClaraCountyOfficeofEducation’sResponsestoFindingsSantaClaraCountyOfficeofEducation’sresponsestothefindingsidentifiedinourauditaredescribedintheaccompanyingscheduleoffindingsandquestionedcosts.SantaClaraCountyOfficeofEducation’sresponseswere not subjected to the auditing procedures applied in the audit of the financial statements and,accordingly,weexpressnoopiniononthem.PurposeofthisReportThepurposeofthisreportissolelytodescribethescopeofourtestingofinternalcontrolandcomplianceandtheresultsofthattesting,andnottoprovideanopinionontheeffectivenessoftheCounty'sinternalcontrolor on compliance. This report is an integral part of an audit performed in accordance with GovernmentAuditing Standards in considering the County's internal control and compliance. Accordingly, thiscommunicationisnotsuitableforanyotherpurpose.

December13,2013

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INDEPENDENTAUDITORS'REPORTONCOMPLIANCEFOREACHMAJORFEDERALPROGRAMANDREPORTON

INTERNALCONTROLOVERCOMPLIANCE

BoardofEducationSantaClaraCountyOfficeofEducationSanJose,CaliforniaReportonComplianceforEachMajorFederalProgramWe have audited Santa Clara County Office of Education's compliance with the types of compliancerequirements described in the OMB Circular A‐133 Compliance Supplement that could have a direct andmaterialeffectoneachofSantaClaraCountyOfficeofEducation'smajorfederalprogramsfortheyearendedJune30,2013.SantaClaraCountyOfficeofEducation’smajorfederalprogramsareidentifiedinthesummaryofauditors’resultssectionoftheaccompanyingscheduleoffindingsandquestionedcosts.Management'sResponsibilityManagementisresponsibleforcompliancewiththerequirementsoflaws,regulations,contracts,andgrantsapplicabletoitsfederalprograms.Auditors'ResponsibilityOurresponsibilityistoexpressanopiniononcomplianceforeachofSantaClaraCountyOfficeofEducation'smajorfederalprogramsbasedonourauditofthetypesofcompliancerequirementsreferredtoabove. Weconductedour audit of compliance in accordancewithauditing standardsgenerally accepted in theUnitedStatesofAmerica; the standardsapplicable to financial audits contained inGovernmentAuditingStandards,issued by the Comptroller General of the United States; and OMB Circular A‐133, Audits of States, LocalGovernments,andNon‐ProfitOrganizations. Those standards andOMBCircularA‐133 require thatweplanand perform the audit to obtain reasonable assurance about whether noncompliance with the types ofcompliance requirements referred to above that couldhaveadirect andmaterial effectonamajor federalprogramoccurred.Anaudit includesexamining,onatestbasis,evidenceaboutSantaClaraCountyOfficeofEducation’s compliancewith those requirements and performing such other procedures aswe considerednecessaryinthecircumstances.Webelievethatourauditprovidesareasonablebasisforouropiniononcomplianceforeachmajorfederalprogram. However, our audit does not provide a legal determination of Santa Clara County Office ofEducation’scompliance.OpiniononEachMajorFederalProgramIn our opinion, Santa Clara CountyOffice of Education complied, in allmaterial respects,with the typesofcompliancerequirementsreferredtoabovethatcouldhaveadirectandmaterialeffectoneachofitsmajorfederalprogramsfortheyearendedJune30,2013.

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ReportonInternalControlOverComplianceManagement of Santa Clara County Office of Education is responsible for establishing and maintainingeffective internalcontrolovercompliancewiththetypesofcompliancerequirementsreferredtoabove. Inplanning and performing our audit of compliance,we considered Santa Clara County Office of Education’sinternalcontrolovercompliancewiththetypesofrequirementsthatcouldhaveadirectandmaterialeffecton each major federal program to determine the auditing procedures that are appropriate in thecircumstancesforthepurposeofexpressinganopiniononcomplianceforeachmajorfederalprogramandtotestandreportoninternalcontrolovercomplianceinaccordancewithOMBCircularA‐133,butnotforthepurposeofexpressinganopinionontheeffectivenessofinternalcontrolovercompliance.Accordingly,wedonotexpressanopinionontheeffectivenessoftheCounty’sinternalcontrolovercompliance.A deficiency in internal control over compliance exists when the design or operation of a control overcompliance does not allowmanagement or employees, in the normal course of performing their assignedfunctions,toprevent,ordetectandcorrect,noncompliancewithatypeofcompliancerequirementofafederalprogram on a timely basis. Amaterialweakness in internal control over compliance is a deficiency, or acombination of deficiencies, in internal control over compliance, such that there is a reasonablepossibilitythat material noncompliance with a type of compliance requirement of a federal program will not beprevented, or detected and corrected, on a timely basis. A significant deficiency in internal control overcomplianceisadeficiency,oracombinationofdeficiencies,ininternalcontrolovercompliancewithatypeofcompliancerequirementofafederalprogramthatislessseverethanamaterialweaknessininternalcontrolovercompliance,yetimportantenoughtomeritattentionbythosechargedwithgovernance.Our consideration of internal control over compliance was for the limited purpose described in the firstparagraphofthissectionandwasnotdesignedtoidentifyalldeficienciesininternalcontrolovercompliancethatmightbematerialweaknessesorsignificantdeficiencies.However,weidentifiedacertaindeficiencyininternalcontrolovercompliance,asdescribedintheaccompanyingscheduleoffindingsandquestionedcostsasFinding2013‐5thatweconsidertobeasignificantdeficiency.Santa Clara CountyOffice of Education's response to the finding identified in our audit is described in theaccompanyingscheduleoffindingsandquestionedcosts. SantaClaraCountyOfficeofEducation'sresponsewasnotsubjectedtotheauditingproceduresappliedintheauditofcomplianceand,accordingly,weexpressnoopinionontheresponse.ThepurposeofthisreportoninternalcontrolovercomplianceissolelytodescribethescopeofourtestingofinternalcontrolovercomplianceandtheresultsofthattestingbasedontherequirementsofOMBCircularA‐133.Accordingly,thisreportisnotsuitableforanyotherpurpose.

December13,2013

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INDEPENDENTAUDITORS’REPORTONSTATECOMPLIANCEBoardofEducationSantaClaraCountyOfficeofEducationSanJose,California

ReportonComplianceforStateProgramsWe have audited Santa Clara County Office of Education's compliance with the types of compliancerequirements described in the Standards and Procedures for Audits of California K‐12 Local EducationalAgencies2012‐13,publishedbytheEducationAuditAppealsPanel,fortheyearendedJune30,2013. SantaClaraCountyOfficeofEducation’sstateprogramsareidentifiedbelow.Management'sResponsibilityManagementisresponsibleforcompliancewiththerequirementsoflaws,regulations,contracts,andgrantsapplicabletoitsStateprograms.Auditors'ResponsibilityOurresponsibilityistoexpressanopiniononcomplianceforeachofSantaClaraCountyOfficeofEducation'sStateprogramsbasedonourauditofthetypesofcompliancerequirementsreferredtobelow.Weconductedour audit of compliance in accordance with auditing standards generally accepted in the United States ofAmerica;thestandardsapplicabletofinancialauditscontainedinGovernmentAuditingStandards, issuedbytheComptrollerGeneraloftheUnitedStates;andStandardsandProceduresforAuditsofCaliforniaK‐12LocalEducational Agencies 2012‐13. Those standards require that we plan and perform the audit to obtainreasonableassuranceaboutwhethernoncompliancewiththetypesofcompliancerequirementsreferredtobelow occurred. An audit includes examining, on a test basis, evidence about Santa Clara County Office ofEducation’s compliancewith those requirements and performing such other procedures aswe considerednecessaryinthecircumstances.WebelievethatourauditprovidesareasonablebasisforouropiniononcomplianceforeachStateprogram.However, our audit does not provide a legal determination of Santa Clara County Office of Education’scompliance.

Description

ProceduresinAuditGuide

ProceduresPerformed

AttendanceReporting 6 YesTeacherCertificationandMisassignments 3 YesKindergartenContinuance 3 NotapplicableIndependentStudy 23 YesContinuationEducation 10 NotapplicableInstructionalTime: SchoolDistricts 6 NotapplicableCountyOfficesofEducation 3 NotapplicableInstructionalMaterialsGeneralRequirements 8 YesRatiosofAdministrativeEmployeestoTeachers 1 NotapplicableClassroomTeacherSalaries 1 NotapplicableEarlyRetirementIncentive 4 Notapplicable

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Description

ProceduresinAuditGuide

ProceduresPerformed

GannLimitCalculation 1 YesSchoolAccountabilityReportCard 3 YesJuvenileCourtSchools 8 YesClassSizeReduction:

GeneralRequirements 7 NotapplicableOptionOne 3 NotapplicableOptionTwo 4 NotapplicableDistrictswithOnlyOneSchoolServingK‐3 4 Notapplicable

AfterSchoolEducationandSafetyProgram: GeneralRequirements 4 NotapplicableAfterSchool 5 NotapplicableBeforeSchool 6 Notapplicable

CharterSchools: ContemporaneousRecordsofAttendance 1 NotapplicableModeofInstruction 1 NotapplicableNonclassroom‐BasedInstruction/IndependentStudy 15 NotapplicableDeterminationofFundingforNonclassroom‐BasedInstruction 3 NotapplicableAnnualInstructionalMinutes–ClassroomBased 4 Notapplicable

OpiniononCompliancewithStateProgramsInouropinion,SantaClaraCountyOfficeofEducationcomplied,inallmaterialrespects,withthecompliancerequirementsreferredtoabovefortheyearendedJune30,2013.The purpose of this report on State compliance is solely to describe the scope of our testing of Statecompliance and the results of that testing based on the requirements of the StandardsandProcedures forAuditsofCaliforniaK‐12LocalEducationalAgencies2012‐13. Accordingly,thisreportisnotsuitableforanyotherpurpose.

December13,2013

FindingsandQuestionedCosts

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SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAuditFindingsandQuestionedCostsFortheFiscalYearEndedJune30,2013SECTIONI‐SUMMARYOFAUDITORS'RESULTS

FinancialStatements

Typeofauditor'sreportissued UnmodifiedInternalcontroloverfinancialreporting:

Materialweakness(es)identified? NoSignificantdeficiency(s)identifiednotconsideredtobematerialweaknesses? Yes

Noncompliancematerialtofinancialstatementsnoted? No

FederalAwards

Internalcontrolovermajorprograms:Materialweakness(es)identified? NoSignificantdeficiency(s)identifiednotconsideredtobematerialweaknesses? Yes

Typeofauditor'sreportissuedoncomplianceformajorprograms: Unmodified

Anyauditfindingsdisclosedthatarerequiredtobereported inaccordancewithCircularA‐133,Section.510(a) YesIdentificationofmajorprograms:

CFDANumbers NameofFederalProgramorCluster

84.010 TitleI,GrantstoLocalEducationalAgenciesCluster84.027&84.173 SpecialEducation(IDEA)Cluster

DollarthresholdusedtodistinguishbetweenTypeAandTypeBprograms: 1,957,151$

Auditeequalifiedaslow‐riskauditee? Yes

StateAwards

Internalcontroloverstateprograms:Materialweakness(es)identified? NoSignificantdeficiency(s)identifiednotconsideredtobematerialweaknesses? No

Typeofauditor'sreportissuedoncomplianceforstateprograms: Unmodified

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SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAuditFindingsandQuestionedCostsFortheFiscalYearEndedJune30,2013SECTIONII‐FINANCIALSTATEMENTFINDINGSThis section identifies the significant deficiencies, material weaknesses, and instances of noncompliancerelatedtothefinancialstatementsthatarerequiredtobereportedinaccordancewithGovernmentAuditingStandards.Pursuant toAssemblyBill (AB)3627,allaudit findingsmustbe identifiedasoneormoreof thefollowingcategories:

FiveDigitCode AB3627FindingTypes10000 Attendance20000 InventoryofEquipment30000 InternalControl40000 StateCompliance41000 CalSTRS50000 FederalCompliance60000 Miscellaneous61000 ClassroomTeacherSalaries70000 InstructionalMaterials71000 TeacherMisassignments72000 SchoolAccountabilityReportCard

Finding2013‐1:ContractApprovals(30000)Finding:BoardPolicy3312statesthatallcontractualagreementsestimatedtoexceed$100,000shallrequirepriorapprovaloftheCountyBoard.Allcontractualagreementsestimatedtofallwithintherangeof$100,000to $250,000 shall be placed on the agenda of regular County Boardmeetings as Consent Action items; allcontractualagreementsestimatedtoexceed$250,000shallbeplacedontheagendaofregularCountyBoardmeetingsasStudyActionitems.Specifically,Countypolicyrequiresthatallcontractsinexcessof$250,000beplacedontheagendaofaregularCountyBoardmeetingasaStudyitem,andsubsequentlyapprovedbytheBoardofEducation. Duringour testing,wenoted two instanceswhereCountyBoardofEducationpoliciesandprocedureshadnotbeenfollowed.Thetwocontractsnotedwereformedicalhealthinsuranceproviders,whichhadnotbeenapprovedbytheBoardofEducationsinceOctober4,2004. Bothcontractsindividuallyexceeded$17millioneachfiscalyear.Recommendation: Due to the lack of consistency in following board policies and procedures, and thedecentralizednatureoftheSCCOE’scontractprocess,werecommendthattheBoardofEducationimplementacontroltorestricttheauthorityofSCCOEemployeeswhoareauthorizedtoenterintocontractsonbehalfofSCCOEandenforceCountypolicywhichstatesthattheSuperintendentorhis/herdesignee,mustreceiveandapprove all contracts in excess of $100,000 prior to formal authorization. Restricting the number ofemployees who have the authority to enter into binding contracts with external parties will reduce thelikelihoodofcontractsbeingenteredintowithouttheBoardofEducation’sapproval,preventtheCountyfromexceedingbudgetappropriations,andlimittheexposuretorisk.EnforcingtheCountypolicywhichrequirestheSuperintendentorhis/herdesigneetoapproveandreceiveacopyofcontractsinexcessof$100,000willallowBusinessOfficestafftoensureallcontractsmeetSCCOEpolicyinbothcontentandapprovals.CountyResponse: TheSantaClaraCountyOfficeofEducationagreeswiththisfindingasalsonotedintheOctober2013Proposition55audit. TheBusinessServicesBranchwillworkwiththeSCCOE’slegalofficetoreview the current Board Policy, and contract approval processes and establish controls to ensure that allcontractsinexcessof$100,000areplacedontheagendaofaregularCountyBoardmeeting.

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SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAuditFindingsandQuestionedCostsFortheFiscalYearEndedJune30,2013SECTIONII‐FINANCIALSTATEMENTFINDINGS(continued)Finding2013‐2:CreditCards(30000)Finding: DuringourtestingoftheCounty’scontrolsovercreditcardpurchases,wenotedseveralinstanceswherecontrolswerenotfollowed.WenotedthefollowingareasofconcerninrelationtoCountycreditcards:

ThereappearstobeanexcessiveamountofcreditcardsissuedtoSCCOEemployeesatvariouslevelswithintheorganization.

Itappearsasthoughpurchasesarebeingsplitintomultipletransactionstoavoidexceedingthe$500creditcardlimitpertransactionandalsotoavoidthenormalpurchasingprocess.

Wenotedseveralinstanceswherethemonthlylimitof$2,500perCountypolicywasexceeded. Wenotednumerous instanceswherepurchasesdidnothaveitemizedreceiptsorothersupporting

documentation. Wenotedseveralinstanceswhereitemswereshippedtoemployees’personaladdresses. Wenoted thepurchaseof theQuickBookssoftware.Since theBusinessOfficewasunawareof this,

theremaybecashcollectionsoccurringoutsidethepurviewoftheBusinessOffice. It appearsas thoughduesandmembershipswerepurchasedoncredit cards. Countypolicystates

thatonly50%ofonemembershipwillbereimbursed. Wenoted largepurchases forgroceries,andwecouldnotverifyavalidbusinesspurposeforthese

purchases. Itappearsasthoughmultipleemployeesbeyondtheauthorizedcardholderaremakingpurchaseson

thecardsandnotifyingthecardholderafter‐the‐fact. We noted numerous large, routine purchases that should have followed the normal purchasing

process. Wenotedthepurchaseofalcoholononeoccasion.

Recommendation:Werecommendthefollowing:

Thenumberofcreditcardsshouldberestrictedtodepartmentsupervisorsandabove. Purchasesmade on County credit cards should be restricted to situationswhere vendorswill not

accept purchase orders or for travel. All other purchases should follow the normal purchasingprocess.

The monthly limit of $2,500 should be monitored so it is not exceeded without accountability.Additionally,werecommendthattheP‐cardmanualbeupdatedtobeconsistentwithCountypolicy.

Allcreditcardpurchasesshouldbesubstantiatedbyitemizedreceipts. AllpurchasesshouldbeshippedtotheCountyOfficeoraSCCOE‐ownedfacility. TheBusinessOfficeshouldinvestigatetheuseoftheQuickBookssoftware,whichwaspurchasedona

credit card, to determine if there are financial transactions which are not being reported to theBusinessOffice.

Duesshouldbeaprohibitedcreditcardpurchase. TheBusinessOfficeshouldinvestigatethepurposeofthesepurchases. All futurepurchasesshould

besubstantiatedbyevidencethatthepurchasewasforSCCOEbusiness. OnlyauthorizedcardholdersshouldbemakingpurchasesonCountycreditcards. Recurringroutinepurchasesshouldfollowthenormalpurchaseprocess. NoalcoholshouldbepurchasedbySCCOE.

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SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAuditFindingsandQuestionedCostsFortheFiscalYearEndedJune30,2013SECTIONII‐FINANCIALSTATEMENTFINDINGS(continued)Finding2013‐2:CreditCards(30000)(continued)CountyResponse:TheSantaClaraCountyOfficeofEducationwillreview,evaluateandupdateitscurrentP‐CardprocessesandprocedurestoensureinternalcontrolsareinplacewithP‐Cardusage,andconsistentwithAdministrativeRegulations(AR). BusinessServicesBranchManagementwillalsoupdateitsP‐CardManualthatitprovidestoP‐Cardholders,theirsupervisorsandallaffectedstaff.Purchasingwillprovideadditionaltrainings, in addition to the current annual training, on the responsibility, accountability anduse of theP‐cards. Both Purchasing and Accounting Staff will be trained on their roles and responsibilities to ensureestablished P‐card policies and procedures are being followed. County Administration will monitor theprocessforresolutionandcorrectiveactionimplementation.Finding2013‐3:CashReceipts(30000)Finding: During our testing of cash receipts, we noted 10 instances in our sample of 20 deposits whereadequate supportingdocumentationwasnotmaintained from thepoint of collection todeposit. All of thedeposits were for collections at SCCOE sites. Without adequate supporting documentation, we could notverifywhetherallcashcollectedhadbeendepositedintactandtothecorrectaccounts.Recommendation: The InternalBusinessServicesDepartment should implementproceduresandprovidepre‐numbered receipt books to each site so that adequate records can be maintained from the point ofcollectiontodeposit. Additionally,werecommendthat theCountyproperlytrainsitesecretariestoensurethatsitedocumentationisproperlymaintainedforallcashreceiptingactivities.CountyResponse: The Internal Business Services Departmentwill review and implement procedures toaddress this audit finding, which will include providing pre‐numbered receipt books to each site so thatadequaterecordscanbemaintainedfromthepointofcollectiontodeposit.Inaddition,theInternalBusinessServicesDepartmentwillprovidetrainingtothesitesecretariesonthisprocedure.Finding2013‐4:PayrollFunction(30000)Finding: In February 2013, the County moved the payroll function from the Internal Business ServicesDepartment to District Business Advisory Services. In July 2013 given reports regarding payroll errors,BusinessManagement asked the auditors to fully review payroll processes and processing. In September2013, there were reports of password sharing between staff processing payroll. In September 2013, theCountySuperintendentaskedBusinessManagementtoissueanRFPforapayrollauditthatincludedareviewofpasswordapprovalandpayrollprocessing. InOctober2013,theCountySuperintendentcontractedwithan external consultant to conduct a review and assessment of the payroll and human resources functions,includinga reviewof information technologysecurity. Theextentof thepayrollerrors isundeterminedatthis time,and theauditorscouldnotquantify thepotential liability forpenalties, taxes,and feesassociatedwiththeerrorsinprocessing.Recommendation: We recommend that the County perform a thorough investigation of the payroll andhuman resources function. Additionally,we recommend that the Countymodify its current procedures toensurethatfutureerrorsinthesefunctionsdonotoccurwhichcouldhaveamaterialeffectonthefinancialpositionoftheCounty.

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SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAuditFindingsandQuestionedCostsFortheFiscalYearEndedJune30,2013SECTIONII‐FINANCIALSTATEMENTFINDINGS(continued)Finding2013‐4:PayrollFunction(30000)(continued)CountyResponse: OnOctober 25, 2013, the payroll functionwas returned to InternalBusiness Services.Payrollstaffhavebeenworkingoncorrectinganypayrollerrorsastheyareidentified.Inaddition,BusinessManagement plans to issue an RFP for a full audit of payroll processing in both the Payroll and HumanResources Departments. As part of this full audit, password approval processes, manual processes,technologysystemautomation,andpayrollstafftrainingwillalsobeassessed.

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SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAuditFindingsandQuestionedCostsFortheFiscalYearEndedJune30,2013SECTIONIII‐FEDERALAWARDFINDINGSANDQUESTIONEDCOSTSThis section identifies the audit findings required to be reported by Circular A‐133, Section .510(a) (e.g.,significantdeficiencies,materialweaknesses,andinstancesofnoncompliance,includingquestionedcosts).Finding2013‐5:ProcurementandSuspensionandDebarment(50000)ProgramIdentification:FederalAgency: U.S.DepartmentofEducation Pass‐ThroughEntity: CaliforniaDepartmentofEducation ProgramName(s): TitleI,PartA,BasicGrants(CFDANo.84.010)

SpecialEducation‐GrantstoStates(IDEA,PartB)(CFDA Nos.84.027and84.173)

Criteria:Non‐Federalentitiesareprohibitedfromenteringintoprocurementcontractsforgoodsorservicesthatareexpectedtoequalorexceed$25,000withpartiesthataresuspendedordebarredorwhoseprincipalsaresuspendedordebarredasspecifiedin2CFRSection180.220,unlesstheyarespecificallyexempt.Condition:TheCountydoesnotcurrentlyhaveaprocessorprocedure inplacetoverify thatprocurementcontracts forgoodsorservicesexpectedtoequalorexceed$25,000willbemadewithentitieswhoarenotsuspendedordebarredbytheFederalGovernment.Context: Thisaffectsallfederalprograms.However,noinstancesofcontractsenteredintowithsuspendedordebarredentitieswerenoted.QuestionedCost:None.Effect:TheCountymayinadvertentlyenterintoacontractequalingorexceeding$25,000withasuspendedordebarredentity.Cause:TheCountywasunawareoftherequirement.Recommendation:TheCountyshouldimplementaprocesswherevendorsarecomparedagainstthelisting,maintainedbytheFederalGovernmentatwww.SAM.gov,ofsuspendedordebarredpartieswhenpaymentisexpectedtoequalorexceed$25,000thatistobepaidfromaFederalGrantAward.CountyResponse:TheSantaClaraCountyOfficeofEducationagreeswiththisfindingandrecommendation,and will implement processes and procedures in purchasing to ensure that non‐Federal entities areprohibitedfromenteringintoprocurementcontractsforgoodorservicesthatareexpectedtoequalorexceed$25,000 with parties that are suspended or debarred or whose principals are suspended or debarred asspecified in 2 CFR Section 180.220, unless they are specifically exempt. The purchasing process will beestablishedandimplementedonorbeforeJanuary31,2013.

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SANTACLARACOUNTYOFFICEOFEDUCATIONScheduleofAuditFindingsandQuestionedCostsFortheFiscalYearEndedJune30,2013SECTIONIV‐STATEAWARDFINDINGSANDQUESTIONEDCOSTSThis section identifies the audit findings pertaining to noncompliance with state program rules andregulations.Therewerenostateawardfindingsorquestionedcostsin2012‐13.

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SANTACLARACOUNTYOFFICEOFEDUCATIONSummaryScheduleofPriorAuditFindingsFortheFiscalYearEndedJune30,2013

Original

FindingNo.

Finding

Code

Recommendation

CurrentStatus Finding2012‐1:SchoolAccountabilityReportCard

In accordance with the provisions of subdivision(b)(9) of Education Code Section 33126. The schoolaccountabilityreportcard(SARC)shallinclude,butisnot limited to, the assessment of the schools'condition regarding the safety, cleanliness, andadequacy of school facilities, including any neededmaintenance to ensure good repair as specified inSection17014, Section17032.5, subdivisionof (a) ofSection.The Office of Public School Construction (OPSC) hasdevelopedaFacilityInspectionTool(FIT)thatisusedby school districts when performing facilityinspections forpurposesof SARCreporting. TheFITcontains all the required inspection criteria neededfor proper SARC reporting as it relates to facilities.The auditor noted in their testing that the CountyOffice did not use FIT when gathering facilityinformation for SARC reporting for the AlternativePlacementAcademysites,CountyCommunitySchools,and Juvenile Hall. The County Office did performinspections on these sites for insurance renewalpurposes,butdidsousingaformthatdidnotincludeall of the inspection criteria that are included in theFIT. Theauditorfurthernotedthattheactualfacilitydisclosures in the SARC's could not, in all cases, bevalidatedagainsttheinspectionformsused.

72000 UseoftheOPSCFITisnotmandated. Butwhateverformisused,itshouldcontain,ataminimum,theinspectioncriteriathat is included in the FIT. The auditor recommended theCountyOfficeeither1)modifytheirexistinginspectionformtoincludealltheelementsincludedintheFIT,or2)usetheOPSCFacilityInspectionToolinsubsequentexaminations.

Implemented.

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TotheCountyBoardofEducationSantaClaraCountyOfficeofEducationSanJose,CaliforniaIn planning and performing our audit of the basic financial statements of Santa Clara County Office ofEducation for the year ending June 30, 2013, we considered its internal control structure in order todetermine our auditing procedures for the purpose of expressing our opinion on the basic financialstatementsandnottoprovideassuranceontheinternalcontrolstructure.However,duringourauditwenotedmattersthatareanopportunityforstrengtheninginternalcontrolsandoperatingefficiency.Thefollowingitemsrepresentconditionsnotedbyourauditthatweconsiderimportantenough tobring toyourattention. This letterdoesnotaffectour reportdatedDecember13,2013,on thefinancialstatementsofSantaClaraCountyOfficeofEducation.EXPENDITURESObservation:During our testing of the County’s purchasing process,we noted numerous instanceswhereinvoicesweredatedpriortotherequisitionapprovaldate.Thisindicatesthatpurchasesweremadepriortoproperauthorization.Recommendation: WerecommendthattheBusinessOfficeworkcollaborativelywithallpurchasingagentstoensureproperaccountingcontrolsarefollowedforallpurchases. Alldisbursementsshouldbeapprovedprior to the incurrence of any expenditure or purchase commitment. This will help to ensure that nounauthorizedpurchasesaremade.Observation: CountypolicyrequirestheSuperintendenttoapproveallpurchases,bothcontractsandnon‐contracts,inexcessof$35,000priortoincurringtheexpense.Duringourtesting,wenotedseveralinstanceswheretheSuperintendenthadapprovedthepurchases,buthadnotdatedhisapproval.Withoutanapprovaldate,wecouldnotverifywhetherCountycontrolshadbeenfollowed.Recommendation: We recommend that the Superintendent begin dating his approval of purchases toprovideproperauditevidencethathisapprovaltookplacepriortothepurchasecommitment.REIMBURSEMENTSObservation: Duringourtestingofreimbursementstoemployees,wenotedemployeeswhowerepaidforexpenses that were substantiated with non‐itemized receipts or without any supporting documentation.Without itemized receipts,we couldnotverify that theentire amountof the reimbursementwas forvalid,authorizedSCCOEpurchases.Recommendation:Werecommendthatnoreimbursementsbemadetoemployeeswithoutoriginalitemizedreceipts.

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REIMBURSEMENTS(continued)Observation: Duringour testingof County reimbursements,wenoted several instanceswhereemployeeswere reimbursed for dues andmembershipswithout proof of payment by the employee. Further, Countypolicy states that the County will reimburse management employees for 50% of one membership to aprofessionalorganization. However, itdoesnotappear that theCountycurrentlyhasaprocess inplace toverifythatemployeesarenotbeingreimbursedformorethanonemembership.Recommendation: WerecommendthattheCountyimplementaprocesstoensuremanagementemployeesare only reimbursed for a maximum of 50% of one membership. This process should also include theverificationthattheemployeehaspaidforthemembershippriortoprocessingpaymentforreimbursement.STALE‐DATEDCHECKSObservation: Duringour reviewof thepetty cash revolvingbankaccount and theworker’s compensationself‐insurancerevolvingaccount,wenotednumerousstale‐datedcheckswhichweremore thansixmonthsold.Thepettycashrevolvingaccounthadanadditional$220inbankadjustmentsthatwerenotrecordedintheCounty’sfinancialsystem.Stale‐datedchecksforthepettycashrevolvingaccountamountedto$5,893intheaggregate,andstale‐datedchecksfortheworker’scompensationrevolvingaccountamountedto$3,790intheaggregate.Recommendation: We recommend that the County remove the stale‐dated checks from the accountreconciliations and issue stop payments on the amounts. Additionally, the County should record all bankadjustmentsforthepettycashrevolvingaccountinthegeneralledger.Wewillreviewthestatusofthecurrentyearcommentsduringournextauditengagement.

December13,2013

SANTA CLARA COUNTY OFFICE OF EDUCATION AUDIT REPORT …

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