Responses to the Audit
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- Imperial County Office of Education
- California Department of Education
Imperial County Office of Education
May 5, 2017
Elaine Howle, CPA
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814
Dear Ms. Howle:
We appreciate the opportunity to respond to the recommendations developed by the California State Auditor’s team. The audit team was extremely professional and their ability to quickly learn the nuances of the program was impressive.
In general, ICOE finds the recommendations outlined in this report helpful. We believe in continuous improvement and as reported by your team, in the past few years, we have been refining our processes and reporting procedures to ensure the State fully understands the issues and challenges around such a dynamic program with multiple funding sources (which themselves experience rule changes over time).
In light of the recommendations outlined in this report, it is important to note that the context for network connectivity has dramatically changed in the recent years with the explosive use of technology in the instructional and business practices within schools and the use of online assessments in K12. While ICOE has managed to reduce operational costs and worked to maximize the use federal and state broadband subsidies, expenditures for maintaining the network will continue to increase in the next few years.
ICOE shares the concern expressed by the audit team about its cash position as it is affected by late receipts of federal subsidies that could jeopardize ICOE’s ability to pay for ongoing expenses of the network. ICOE seeks to strike a balance between prudence in its use of State resources while preserving some flexibility to manage and maintain adequate network capacity in a lively and challenging environment.
We look forward to working with the California Department of Education (CDE), the Corporation for Educational Network Initiatives in California (CENIC) and the Legislature to implement the recommendations outlined in this report and appreciate the opportunity to offer our perspective on the content of the report.
J. Todd Finnell, Ed.D.
Imperial County Superintendent of Schools
ICOE Management’s Responses
- To better inform decision makers at the state level about the amount of funding necessary to operate and maintain the network, by November 2017 ICOE should formally amend its annual budget documents to specify multiple potential levels of network expenditures for the coming year, and it should detail the specific network upgrades and project costs included in each scenario. As part of this process, ICOE should also provide information about how these upgrades will affect the network’s functionality.
- ICOE acknowledges and agrees with this recommendation and has taken steps and will take further steps to revise the planning and procurement processes to meet the November timeline. This will afford ICOE the opportunity of reporting its budget year requirements at an acceptably early point in time to better align with the State’s budgeting process. ICOE has plans to work with CENIC to open the procurement process in the June time frame. This will result in the ability to consider bids and make decisions on the 2018-19 network changes in early fall.
- In addition, annual budget documents developed for presentation to CDE staff members and K12HSN Advisory Board members will include multiple iterations of possible network changes to meet node site demand and include their respective costs. This will enable our liaisons at CDE and our board members to provide guidance on these decisions.
- To ensure its projected program costs are as accurate as possible, by November 2017 ICOE should institute a formal practice for reviewing its budget planning document against its current network design plans and correct any inaccuracies before finalizing and submitting its budget.
- ICOE agrees with this recommendation and has taken steps to ensure that a final review is conducted before submitting budget documents to CDE or other State agencies. ICOE will implement a new process at the end of the new bidding cycle as it prepares budget proposals for the State in the fall. In the 2015-16 school year accounting guidelines changed with regard to how discounts provided by the state and federal telecommunications subsidy programs are to be reported. These changes have been implemented by ICOE’s accounting team. One result of these changes is that year-on-year comparisons require footnoting and explanations as to why both expenditures and revenues are inflated by sums that were formerly not reported since they were taken immediately off invoice as a realized discount.
- To help ensure that the K12HSN program maintains the necessary amount of state funds in reserve, ICOE should prepare a formal methodology for a proposed equipment reserve that is based on the actual likelihood of equipment failure and the costs associated with replacing that equipment.
- ICOE agrees with the recommendation and will work with the K12HSN Network Implementation Committee and CENIC to develop a formal methodology for determining an adequate equipment reserve that takes into consideration the current fleet of equipment, useful service life, and the likelihood that the equipment may fail prematurely. These steps will also include monitoring end-of-life announcements from equipment providers and the development of an asset inventory system that permits K12HSN to easily ascertain which node site equipment has not been replaced due to circuit upgrades and therefore needs replacement only when it is end-of-life.
- ICOE should establish procedures to routinely monitor the K12HSN program’s cash balance and evaluate upcoming costs. If at any point ICOE determines that it will be unable to fund costs due to delayed subsidy payment, it should notify Education regarding the size and timing of the anticipated shortfall and postpone significant discretionary expenditures, such as upgrading network equipment at sites, until ICOE collects the subsidies it is owed.
- ICOE agrees with the recommendation and notes that while previously there was less risk of deficit spending due to the reserve available, monitoring its cash position and planning expenditures in order to remain solvent is already part of the process for the internal accounting team. Nevertheless, ICOE will incorporate a process for reviewing the program’s cash position in alignment with existing ICOE fiscal procedures.
- In addition, ICOE agrees to follow the recommendation that it keep CDE fully apprised of any anticipated revenue shortfalls and plans to mitigate the risk.
- To better guarantee that network upgrades are necessary and are achieved at the lowest possible cost to the State, ICOE should develop a formal methodology for reviewing circuit capacity needs. This methodology should include consideration of multi-year trends in network traffic and the implications prospective upgrades may have for other parts of the network.
- ICOE agrees with the recommendation and plans to engage with its Network Implementation Committee to develop a tool and/or template to formally collect information on current usage and anticipated usage over the next 6, 12 and 18 month periods. The plan is to work with node sites to conduct data collection from the districts that they currently serve. These efforts may also include collecting information on district-level initiatives and other drivers of bandwidth usage and a link to the URL at which usage may be monitored, if any exists.
- In addition, ICOE will continue to use its monitoring tools to look at historical perspectives that can provide insight on growth trends and compile this information into public reports.
- To provide as many options for network upgrades as possible and to help ICOE provide the most cost-effective upgrade options without risking its eligibility for subsidies, ICOE should adopt the practice of requesting bids at all feasible levels of capacity upgrades as opposed to only those levels that represent a tenfold increase in circuit capacity.
- ICOE agrees with the recommendation and will seek bids at different capacities within the acceptable range of CENIC’s and node site technical parameters. These factors may include but not limited to equipment specifications, rack space, power and environmental limitations. In addition, ICOE will continue its practice of increasing capacity ten-fold in cases in those cases for which it yields additional savings to the State.
- To help facilitate the review of circuit capacity needs, ICOE should maintain historical data for the K12HSN traffic as long as is technically feasible. It should also ensure that its monitoring software includes all K12HSN sites.
- While ICOE agrees with the recommendation, it is our position that past network performance data points beyond a two-year period do not contribute meaningful data to the decision-making process for future capacity increases. Nevertheless, keeping historical performance data beyond the two-year period is not difficult and it will be factored into the decision-making process.
- ICOE will revisit the process for updating monitoring tools upon notification from CENIC that equipment has been installed or replaced.
- To reduce the risk of having to react to large increases in network traffic, ICOE should formalize a process to include input from network site administrators during network upgrade planning.
- ICOE agrees with these recommendations. They align well with the process ICOE has used in previous years to gather input from node site administrators. While ICOE already has a process to meet with node site administrators on an annual basis, this work can be improved with a formal data collection template that allows ICOE, along with node site administrators and CENIC to develop recommended changes to the network in order to better support school districts in their respective service areas.
- To better support future reporting efforts for the K12HSN program, ICOE should amend its contract with CENIC to require CENIC to report on specific network performance measures, including the frequency, cause, location and duration of the network outages or interruptions.
- ICOE agrees with the recommendation and plans to work with CENIC to develop a mechanism to enhance the reporting of network performance and reliability. ICOE will begin using its own monitoring system to compile outage reports and utilize those as a cross-reference against new reports to be provided by CENIC. When service credits are earned as a result of lengthy outages, ICOE will track the CENIC process of recovering those credits and ensure their receipt. The contract between ICOE and CENIC will be amended as needed to provide for these additional functions.
Other Recommendations #1:
- To ensure that the K12HSN program receives all of the service credits to which it is entitled, ICOE should amend its contract with CENIC to clarify CENIC’s responsibilities in this area, including reporting to ICOE about network outages or interruptions and requests for credits to service providers, along with the outcomes of those requests.
- ICOE agrees with the recommendations and will work with CENIC to amend the existing agreement and develop a procedure for reporting network outages and include any potential service credits from service providers.
Other Recommendations #2:
- ICOE should conduct a cost and benefit analysis of its memorandum of understanding with Butte to determine whether it represents the most cost-effective approach to providing the program activities it covers.
- The relationship between ICOE and Butte County Office of Education (BCOE) dates back to when we jointly drafted the response to the Request for Proposal staged by CDE in summer of 2004. Their role has been instrumental in the delivery of services for the program and advising CDE on the federal and state broadband subsidy programs as well as special projects such as Broadband grants and the professional development program. Over time there have been many changes to the role of BCOE in the program, both expansions and contractions of services dedicated to supporting California school districts in their efforts to secure a maximum level of federal support for their telecommunications services. Recently, two shifts simultaneously adjusted the workload again. One factor was that the CDE determined it would assume a greater role in Erate conversations in Washington DC and California Teleconnect Fund conversations in San Francisco, reducing BCOE’s workload. In addition, the Broadband Infrastructure Improvement Grants created a new need for K12HSN to support awardee school districts in transitioning contracts from CENIC’s Erate application to the individual district’s Erate application, increasing BCOE’s workload. In addition, BCOE is assisting ICOE in the development of procurement best practices to complement the Technical Assistance and Professional Development (TAPD) program.
- ICOE agrees that a cost-benefit analysis for the existing agreement with BCOE as it pertains to statewide E-rate support will provide valuable guidance in making any prudent and reasonable adjustments to the annual agreement.
CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE IMPERIAL COUNTY OFFICE OF EDUCATION
To provide clarity and perspective, we are commenting on the response to our audit from ICOE. The numbers below correspond to the numbers we have placed in the margin of ICOE’s response.
Although ICOE states that it has managed to reduce operational costs, financial information from its general ledger shows that costs pertaining to K12HSN program operations have increased in recent years. As we illustrate in Table 1 in the Introduction, ICOE’s costs for activities other than the contracted services provided by CENIC increased from $2.2 million in fiscal year 2013–14 to $3.7 million in 2015–16. Over the same period, the cost of services provided by CENIC also increased from $8.8 million to $9.5 million.
ICOE’s explanation regarding recent changes to accounting guidelines is not relevant to this issue. Our audit findings related to ICOE’s budgeting process, which we discuss in this section, pertain to errors and inaccuracies in the projected expenditures ICOE planned to submit to the State as support for ICOE’s requested level of funding for fiscal year 2017–18. These findings are unrelated to the accounting change pertaining to the way ICOE reports the value of the K12HSN program’s Internet subsidies at the close of each fiscal year.
Although ICOE plans to develop tools to improve its ability to project future usage for network circuits, we encourage it to establish goals for its projections beyond the 18‑month timeframe referenced in its response. Contracts pertaining to network circuit upgrades frequently encompass three or more years, so projecting usage as far into the future as possible would benefit the K12HSN program.
We are confused by ICOE’s assertion that more than two years of historical usage data is not meaningful for decisions about capacity increases. Our review indicates that ICOE has not attempted to store or utilize such data beyond two years, so it is unclear how ICOE could determine that this data would not add value to projecting future usage. As we explain here, retaining historical data will allow ICOE to compare rates of growth in usage before and after it last upgraded a circuit in order to determine whether growth rates have been constant or are accelerating. We also state that retaining historical data pertaining to the circuits serving high-use network sites could help ICOE predict how circuits serving sites that currently have lower capacity needs may ultimately behave. Given the significant cost differences we identified among various levels of capacity increases, as shown in Table 3, and the value of being able to project future usage for multiple years, retaining additional historical data and using that data when making upgrade decisions will help ensure the network is able to provide reliable services at the lowest cost to the State.
California Department of Education
May 5, 2017
Elaine M. Howle, State Auditor
California State Auditor
621 Capitol Mall Suite 1200
Sacramento, CA 95814
Subject: “K-12 High Speed Network Operations and Funding,” Report No. 2016-129, May 2017
The California Department of Education (Education) appreciates the opportunity to comment and provide a proposed corrective action on the recommendation outlined in the California State Auditor’s (CSA) Audit Report No. 2016-129, titled: “K-12 High Speed Network Operations and Funding.”
Recommendation No. 1:
To increase transparency in the K12HSN program and help ensure that the State has sufficient information to measure the program’s effectiveness, Education should direct ICOE to report annually on specific performance measures. These performance measures should include the following metrics:
- Cost per unit of capacity used;
- Network bandwidth;
- Frequency, duration, cause, and location of network outages or interruptions; and
- Latency and packet loss on K12HSN circuits.
Education should stipulate that the receipt of grant funds is conditional based on the recipient’s agreement to provide these measures and other information deemed necessary by Education, either on request or at regular intervals determined by Education. If Education believes that it does not currently have legal authority to direct K12HSN to report on this information, it should seek legislative change to obtain that authority.
Education’s Comments and Corrective Actions
Education concurs with the recommendation. Education will include language in the grant award notification requiring the K12HSN grant recipient submit an annual report, which includes the following: (1) cost per unit of capacity used; (2) network bandwidth utilization; (3) frequency, duration, cause, and location of network outages or interruptions; and (4) circuit performance relating to loss of packets and latency.
If you have any questions regarding Education’s comments or corrective actions, please contact Jerry Winkler, Director, Educational Data Management Division, by e-mail at firstname.lastname@example.org.
Chief Deputy Superintendent of Public Instruction