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Report Number: 2016-129

Abbreviations

K-12 High Speed Network
Improved Budgeting, Greater Transparency, and Increased Oversight Are Needed to Ensure That the Network Is Providing Reliable Services at the Lowest Cost to the State

Responses to the Audit

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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).

1

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.

Sincerely,

J. Todd Finnell, Ed.D.
Imperial County Superintendent of Schools


ICOE Management’s Responses

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Recommendation #2:

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Other Recommendations #1:

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Other Recommendations #2:

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Comments

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.

1

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.

2

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.

3

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.

4

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.


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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:

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 jwinkler@cde.ca.gov.

Sincerely,

Michelle Zumot
Chief Deputy Superintendent of Public Instruction

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