PPS Bond Performance Audit Report for FY 24-25 and FY 25-26 (1)

455 Capitol Mall • Suite 700 • Sacramento, California • 95814 • Tel 916.443.1300 • www.secteam.com Portland Public Schools Annual Bond Performance Audit Covering Fiscal Years 2024/2025 and 2025/2026 PPS Has Met Bond Pledges Since 2012, But Structural Changes and Missed Oversight Affected Controls and Significantly Increased Financial Risks October 6, 2026 – Final Report October 6, 2026 Dr. Kimberly Armstrong, Superintendent Portland Public Schools 510 N. Dixon Street Portland, OR 97227 Dear Dr. Armstrong Sjoberg Evashenk Consulting is pleased to submit our report for the Portland Public Schools (PPS) Annual Bond Performance Audit for a two-year cycle covering Fiscal Years 2024-25 and 2025-26. We assessed performance of the 2017 Bond, 2020 Bond, and 2025 Bond programs with focus on the status bond projects, schedule and budget, project delivery, contingency practices, oversight, and risks associated with the bond program. We also assessed PPS progress made towards implementing recommendations from prior annual bond performance audits. Our report concludes that PPS continued progress toward meeting its bond pledges and delivered many projects since the 2012 bond including completing more projects than planned. We found PPS made significant progress implementing prior audit recommendations. Although, this audit also revealed missing controls that caused unallowable bond expenditures, unsupported payroll charges, missed savings, noncompliance with contract terms, and additional fiscal impacts from practices. Further, the audit highlights risks for PPS’ bond program reorganization and related contracts that have not been mitigated. PPS lacked a clear business case for its outsourcing shift and accurate information available to the Board for contract approval in addition to adequate capital expertise to monitor the outsourced function. Some Board members asked for additional data and time to review, but the Board voted on the contracts before such information was made available. This revealed disconnects between the Board’s view of its bond fiduciary responsibilities and best practices for effective governance. We also found early collaboration with PPS’ program management consultant and discrepancies in the solicitation process to conclude that the competitive nature may have been compromised. The resulting contract PPS negotiated was at the high end of market and contained provisions that PPS failed to enforce leading to more than $762,000 being overpaid. We appreciate the professionalism, cooperation, and dedication of PPS’ Board, members of the Bond Accountability Committee, PPS leadership, former-OSM management and staff, and new RISE management and staff throughout the audit. Respectfully Submitted, Catherine Brady, Partner Sjoberg Evashenk Consulting, Inc. SJOBERGEVASHENK P a g e | i Table of Contents Table of Contents .............................................................................................................................................. i List of Acronyms ................................................................................................................................................ ii Executive Summary .......................................................................................................................................... 1 Introduction and Background ............................................................................................................................ 6 Finding 1: Bond Status & Activity .................................................................................................................... 12 Finding 2: Bond Delivery Practices ................................................................................................................. 23 Finding 3: Bond Delivery Structure & Staffing ................................................................................................. 38 Finding 4: Bond Contract Development & Approvals ...................................................................................... 54 Finding 5: Bond Program Management & Related Contracts ......................................................................... 72 Finding 6: Board Governance & Oversight ..................................................................................................... 91 Appendices ................................................................................................................................................... 105 Appendix A: Scope and Methodology .................................................................................................... 106 Appendix B: Summary of Audit Recommendations with Priorities ......................................................... 110 Appendix C: Status of Bond Programs 2012, 2017, 2020, 2025 ............................................................ 115 Appendix D: Outstanding Prior Audit Recommendations ....................................................................... 119 Appendix E: Auditee Response.............................................................................................................. 123 Appendix F: Auditor Comments to PPS Response ................................................................................ 146 SJOBERGEVASHENK P a g e | ii List of Acronyms BAC Bond Accountability Committee BCC Bond Compensability Committee CBSE Center for Black Student Excellence (now Grice-Adair Center for Educational Excellence) CD Construction Documents CHS Cleveland High School CM Construction Manager CMAA Construction Management Association of America CMGC Construction Manager/General Contractor COSO Committee of Sponsoring Organizations of the Treadway Commission ERP Enterprise Resource Planning FAM Facilities and Maintenance FIOC Facilities Infrastructure Oversight Committee GMP Guaranteed Maximum Price IBW Ida B. Wells High School JHS Jefferson High School OIPA Office of Internal Performance Auditor OSM Office of School Modernization (now part of RISE)1 OTIS Office of Technology & Information Services OTL Office of Teaching & Learning PM Project Manager PMP Program Management Plan PMCM Program Manager/Construction Manager PPS Portland Public Schools RFP Request for Proposal RFQ Request for Qualifications RISE Real Estate, Infrastructure, and School Enhancement2 SOP Standard Operating Procedures 1 OSM was responsible for delivery and implementation of the bond program and related projects from 2012 through January 2026. 2 RISE is responsible for delivery and implementation of the bond program and related projects from February 2026 through current. SJOBERGEVASHENK P a g e | 1 Executive Summary As part of the required safeguards for transparency and accountability promised to voters in bond language, the Portland Public School District (PPS) hired Sjoberg Evashenk Consulting (SEC), Inc. in October 2018 to conduct annual performance audits of the school improvement bonds. For this performance audit cycle, our audit period covers a two-year period from July 1, 2024, through June 30, 2026. What We Looked At Audit objectives focused on:3 1. Delivery status for the bond program and projects including risks 2. Contingency practices for the bond program and projects 3. Implementation status of prior audit recommendations What We Found PPS capital delivery teams continue to deliver projects and generally meet obligations to the voters for the 2012, 2017, and 2020 Bonds with extra money made available through bond premiums allowing the completion of additional projects—more than pledged to the voters. This included six modernized high schools, one middle school, and one K-8 school in addition to hundreds of planned infrastructure improvements. Infrastructure projects related to water quality, lead, asbestos, radon, roof, accessibility, seismic retrofit, security, and fire systems in addition to curriculum and technology upgrades. Also, activity for the 2025 Bond is off to a good start. Even though it faced challenges over the last thirteen years, PPS has generally delivered within revised budgets and originally intended timeframes, apart from two important 2020 Bond projects at Jefferson High School and the Center for Black Student Excellence (CBSE). While there are always opportunities for improvement that can be made to capital delivery processes and bond management practices, PPS’ structure and approach employed since 2012 was effective in delivering the bond program and follow practices and policies that align with industry. Further, PPS made headway implementing prior annual bond performance audit recommendations with 16 out of 75 total audit recommendations made over the past six years remaining in progress. Eight of the 16 in-progress recommendations were only first reported in the annual bond performance audit finalized in June 2025. Despite this progress, this audit revealed fiscal controls that need to be strengthened as we found unallowable bond expenditures that did not align with authoritative accounting treatment, payroll charges lacking supporting documentation, potential missed savings opportunities, contract overpayments that did not comply with contract terms, and additional fiscal impacts from practices as shown in Exhibit 1. After auditors brought these issues to management’s attention, PPS began implementing corrective actions, controls, and processes. 3 See Appendix A for Detailed Audit Scope and Methodology. SJOBERGEVASHENK P a g e | 2 EXHIBIT 1. SUMMARY OF ESTIMATED FISCAL IMPACT TO BOND PROGRAM BASED ON AUDIT FINDINGS Source: Financial records, payroll distribution, e-Builder files, invoices, external construction auditor reports, contracts, and contract negotiations. Further, as the audit began, our risk assessment revealed higher risks, repeated claims, and significant press attention placed on management’s reorganization of its bond program and related contracts. These risks and reports related to outsourcing, staff terminations, external collaborations, competitive solicitations, and contract awards. Given the concerns raised by internal PPS staff, external stakeholders, and the press, our audit standards require us to examine these matters.4 This audit revealed that PPS leadership took several actions that increased risks to the bond program without requisite controls or activities to mitigate those risks. For instance, PPS leadership made significant shifts in its bond delivery approach and terminated the employment of almost half of the internal positions that made up its capital delivery program, impacting institutional knowledge and expertise gained over the prior thirteen years of the bond and replacing the work performed by those positions with contracted services. PPS experienced significant leadership turnover in the bond program, including the terminated bond delivery staff whose responsibilities will now be largely performed by an external consultant hired to manage the bond program and provide construction support services. While management and the Board have the discretion to outsource 4 Per General Accepted Government Auditing Standards Requirement §8.72, “when information comes to the auditor’s attention indicating that fraud, significant within the context of the audit objectives, may have occurred, auditors should extend the audit steps and procedures, as necessary, to (1) determine whether fraud has likely occurred and (2) if so, determine its effect on the audit findings.” Although we found conditions that indicate a heightened risk of fraud, we did not conclude fraud occurred. SJOBERGEVASHENK P a g e | 3 operational activities, the manner in which PPS outsourced management of its capital bond program was, in our judgment, problematic for three primary reasons. First, PPS lacked a clear and cohesive business case for the shift. There was no evidence provided that outsourcing the bond program was more cost-effective than keeping the activities in-house to support the need for change or that the change in approach would be more effective and significantly alter the positive results of the bond program that had achieved through past completion of modernized schools and hundreds of other capital improvement projects. According to PPS, they believed prior bond project challenges, including managing contacts, indicated that a different and more targeted management approach was appropriate. Second, the decision to outsource was made without sufficient and reliable information available to the Board and the public. Management asserted that there were concerns with the bond program and Board leadership stated the bond program was a failure; yet over the past six years our audits have demonstrated that the bond program has delivered projects as approved by the voters. There was a lack of substantive and accurate information provided to the Board upon which to make decisions regarding the external consultant contract with both Board and PPS leadership making assertions about bond program performance, project status, and condition of bond program that contradicted previous independent audit results. Management conveyed a sense of urgency regarding the need for the Board to quickly approve contracts for interim bond leadership and program management. This urgency was predicated on assertions that the capital delivery team had failed to deliver on the bond program—which was not accurate. According to PPS, the urgency was also driven by a lack of leadership within OSM with two significant resignations and PPS had significant concerns about the ability to execute three modernization projects concurrently based on its reliance on OSM leadership’s assertions. Nonetheless, this sense of urgency led the Board to act quickly, without full due diligence to make an informed decision, such as a clear business case for the reorganization and decision to outsource, the cost-benefit to PPS, and the methods management would employ to ensure bond performance under the outsourced approach would exceed the performance of in-house staff. Some Board members asked for additional information and extra time to review this information, but the Board voted on the contracts before such information was made available. This, in turn, revealed disconnects between the Board’s view of its bond oversight and fiduciary responsibilities, including internal controls for the bond program, and best practices for effective governance. Third, PPS terminated a significant portion of its bond program personnel, resulting in a substantial loss of institutional knowledge, and did not incorporate personnel with capital expertise to oversee and monitor the performance and compliance of its consultant in the newly outsourced model. SJOBERGEVASHENK P a g e | 4 Finally, this audit revealed PPS’ early collaboration with the bond program management service provider and discrepancies identified in the competitive solicitation and award process that conflict with best practices and controls to protect fair and open competition and increased risk that the solicitation and award was compromised. The resulting contract PPS negotiated was overpriced at the high end of our market comparisons, permitted decisions that may financially benefit the consultant, and contained provisions that PPS failed to enforce resulting in overpayments of more than $762,000 to the consultant. With limited in-house expertise at the leadership level over bond capital delivery, PPS is heavily reliant on the external firm as it restructures staffing, reporting relationships, systems, and protocols. This dependency could limit future competition for bond program management and project delivery because switching to a competitor could be cost-prohibitive or technically impractical—known as vendor lock-in.5After auditors discussed these issues with management, PPS advertised for an Executive Director of Capital and Planning position that will oversee the bond program management consultant once filled. Recommendations are listed at the end of each report finding and summarized in Appendix B, with key highlights shown as follows. After discussing preliminary results with PPS, management and staff have taken certain corrective action and have started working on several changes that align with our recommendations as described throughout this report. 5 Per General Accepted Government Auditing Standards, fraud involves obtaining something of value through willful misrepresentation. Waste is the act of using or expending resources carelessly, extravagantly, or to no purpose and relates primarily to mismanagement, inappropriate actions, and inadequate oversight. Abuse is behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances. Abuse includes misuse of authority or position for personal financial interests or those of an immediate or close family member or associate. Current Bond Environment is at Heightened Risk of Fraud. Conditions that can indicate a heightened risk of fraud include a history of improper payments, evidence of false or misleading information, and evidence of unusual patterns in contracting and procurement. -Generally Accepted Government Auditing Standards §8.75 Current Bond Environment is at Heightened Risk of Fraud.5 Conditions that can indicate a heightened risk of fraud include a history of improper payments, evidence of false or misleading information, and evidence of unusual patterns in contracting and procurement. -Generally Accepted Government Auditing Standards §8.75 SJOBERGEVASHENK P a g e | 5 To improve fiscal controls and accountability, be reimbursed for unallowable funds, seek to renegotiate unfavorable contract terms, reinforce transparency and integrity, and provide stronger governance and oversight, we made 38 recommendations to the Board and PPS as described in each report section and highlighted here. A complete list of recommendations are detailed in the Appendix B. Highlights of What we Recommend ✓ Correct Fiscal Control Weaknesses Over Bond Program: Establish methodical processes for determining cost allowability, prioritization of contingency balances, and support for bond staff time charges in addition to reinstitute other fiscal controls related to cash flow and external construction audit services for project costs. ✓ Return Unallowable Bond Funds and Report on Bond Expenditures: Seek general fund reimbursement for the unallowable bond spending and prepare an annual public report itemizing the types of expenditures and projects paid by bond funds to be more transparent to voters, as independently verified by the Board’s Office of Internal Performance Auditor. ✓ Mitigate Risks to Long-Term Bond Program Success by Rebuilding Internal Bond Capacity: Start rebuilding in-house capital bond expertise to supplement remaining PPS employees by hiring project management employees to ensure the longevity of the bond program in addition to hiring an executive-level position with capital expertise, while still receiving program management services from the external bond program management consultant. ✓ Seek to renegotiate the Bond Program Management Contract: Work with its consultant and seek to renegotiate the bond program management contract to correct math errors, change payment terms to require time reporting and status reports and remove conflicting features and incentives. ✓ Adjust Bond Management Consultant Invoice: Adjust the bond program management consultant’s next invoice by the $762,000 overpayment to comply with contract provisions and ensure proper reductions are made to the May 2026 invoice and future consultant invoices from that point in adherence with the contract. ✓ Modify Board Practices to Strengthen Oversight and Fiscal Responsibilities Over Bond Program: Create protocols to clarify governing activities and tasks for fulfilling fiduciary duties over funding, capital projects, and bond oversight including how the Board’s due diligence is best demonstrated related to Board member questions and data from PPS staff, if requested, for board deliberations. ✓ Regularly Engage and Support the Office of Internal Auditor to Review Bond Program Activity: Assign the Board’s Office of Internal Performance Auditor function to regularly review bond program activity as an extension of board oversight and to enhance transparency and accountability to taxpayers, including hiring an in- house auditor with capital project delivery experience to review expenditures and general fund transfers, and other bond areas as an extension of board oversight. SJOBERGEVASHENK P a g e | 6 Introduction and Background As the largest K-12 public school district in Oregon with slightly more than 40,000 students and 81 schools, PPS has been working on modernizing its aging school facilities and upgrading student learning environments through funding provided by general obligations bonds.6 To date, PPS voters in Multnomah and Washington County have passed four bond measures for school improvements in 2012, 2017, 2020, and 2025. 7 Combined, these bonds authorized $4.3 billion in funding through a property tax levy for modernizing school facilities. PPS received additional revenues through bond premiums, interest earnings, and grants increased the funding available across the bonds to nearly $4.7 billion, as shown in Exhibit 2. School Capital Improvement Bond Program In 2012, the bond centered on school improvement efforts at Grant, Franklin, and Roosevelt High Schools in addition to Faubion PK-8 School; while the 2017 bond largely focused on Lincoln, McDaniel, and Benson Polytechnic High Schools in addition to Kellogg Middle School as shown in Exhibit 2. Both bonds also set aside funds for a series of accessibility, seismic, and health and safety improvements at multiple schools within PPS. With the passage of a third bond in 2020, PPS expanded planned areas to include not only traditional capital improvements at physical school buildings such as the modernization of Jefferson High School but also allowed funding for educational curriculum and information technology infrastructure improvements as well as the CBSE also known as the Grice-Adair Center for Student Excellence. Additionally, the 2025 Bond included implementing the design and construction for the modernizations of Cleveland and Ida B. Wells High Schools, added funding to complete Jefferson High School, and authorized PPS to utilize cost savings to perform updates or repairs to elementary and middle schools. The bond also included funding for additional curriculum, technology, and infrastructure improvements to seismic, safety, athletic fields, and performing arts. 6 General obligation bonds are issued by state and local governments as a form of long-term borrowing to fund public infrastructure projects like schools, parks, and roads and are repaid through general tax revenues. PPS’ bonds are repaid based on property tax assessments. 7 Voters passed Measure 26-144 in 2012 for $482 million in bonds; Measure 26-193 in 2017 authorizing $790 million in bonds; Measure 26-215 in 2020 authorizing $1.208 billion in bonds; Measure 26-259 in 2025 authorizing $1.83 billion. In total, voters passed $4.3 billion in bonds for school modernization, renovation, repair, improvement, curriculum, technology, center for black student excellence, and safety. SJOBERGEVASHENK P a g e | 7 EXHIBIT 2. CAPITAL PROJECTS BY APPROVED BOND PROGRAM WITH AMOUNTS Source: Bond Components and amounts from Bond fact sheets, Board approved Bond planning memos, and prior annual bond performance audits. Note: 2025 Bond—$100 million of the $190 million of “Facility Improvements & Priority Scope” is allocated to Seismic Improvements. SJOBERGEVASHENK P a g e | 8 Bond Capital Projects Budget versus General Fund Budget Bond capital programs are complex, challenging, and long-term involving changing conditions, heavy reliance on supply markets, exposure to inflationary pressures, and higher levels of public scrutiny and accountability, requiring the need for full transparency and clear, accurate financial communications. Although the spending of bond money spans several years, PPS must budget annually for expected expenditure and debt service repayment against estimated bond proceeds.8 This activity is included in PPS’ capital projects fund (that also includes smaller non-bond capital projects) and PPS’ debt service fund. Over the last six years, the capital projects fund budget averaged about half of PPS’ entire budget, as shown in Exhibit 3. Conversely, the general fund budget averaged less than 38 percent over the same period. Bond funds must only be spent on capital improvements identified in the bond measures and cannot be used for general operations. EXHIBIT 3. CAPITAL PROJECTS FUND AND GENERAL FUND PERCENT OF PPS BUDGET Fund 2021-2022 2022-2023 2023-2024 2024-2025 2025-2026 2026-2027 6-Year Average Percent of District Budget Capital Projects Fund (includes debt service funding)1 49% 40% 50% 54% 45% 60% 49.7% General Fund 36% 43% 38% 36% 43% 31% 37.8% Source: PPS Adopted Budgets. Note: 1Debt service comprises approximately 11 percent, on average, of the combined amount shown in the exhibit. Although a small amount of debt service is for pension obligations that are unrelated to the bond, the amounts do not significantly impact overall percentages. Bond Program Management and Individual Project Management Capital improvements involve a multitude of tasks, stakeholders, and variables that challenge a project or program’s ability to stay on schedule, within budget, and aligned with planned scope. To ensure bond projects are managed and implemented as pledged to voters, PPS employs both program management activities and project management activities. While bond program management—focuses on a macro, strategic level across a portfolio of several projects, project management and delivery focuses on the micro, day-to-day implementation of an individual project. This is illustrated in Exhibit 4. These project delivery teams also involve construction managers or external construction management firms to perform site inspections, process submittals and requests for changes to the contract, review contractor payment applications, and monitor general contractor compliance with contract responsibilities. Together, this delivery team is critical for providing close oversight over a contractor’s performance and adherence to the contract. 8 Debt service is the amount of cash needed to pay back the bond debt (principal and interest) issued to raise money to fund the capital improvement expenditures. Most of the debt service relates to the general obligation bond program from 2012, 2017, 2020, and 2025, but also includes pension debt service to address unfunded pension liabilities. SJOBERGEVASHENK P a g e | 9 EXHIBIT 4. HIGHLIGHTS OF DIFFERENCE BETWEEN PROGRAM MANAGEMENT AND PROJECT MANAGEMENT RESPONSIBILITIES Source: CMAA Standards of Practice, Chapter 11 Program Management, 2021 Edition, Project Management Institute’s Common Body of Knowledge (PMBOK), PMBOK-Construction Extension, National Association of Construction Auditors, and SEC audits and proprietary best practice resource library. Bond Oversight and Organizational Structure Modernizing aging school facilities involves a variety of PPS executives and staff, private sector consultants and contractors, external stakeholders, a community-led accountability committee, and an elected oversight board that work together on ensuring bond programs are delivered as planned as shown in Exhibit 5. SJOBERGEVASHENK P a g e | 10 Overseeing and advising staff on the bond programs is a seven-member Board of Education (Board) and related board committees such as the Facilities Improvement Oversight (FIO) Committee and the Audit Committee, in addition to a community-led Bond Accountability Committee (BAC) with technical expertise on bond and capital delivery.9 While ultimate accountability for the bond program rests with the Board, the Superintendent and Senior Chief of Operations are responsible at the executive level for the delivery of the bond program and projects. EXHIBIT 5. OVERVIEW OF PPS BOND DELIVERY STRUCTURE, AS OF APRIL 2026 Source: PPS Leadership Staff Organizational Chart for 2025-2026 effective July 2025 and proposed 2026-2027 effective July 2026 as located on PPS website at https://www.pps.net/Page/12889 and PPS RISE organizational chart, version 20 as of April 14, 2026. 9 The FIO Committee was previously known as the School Facilities Improvement Oversight Committee or the Facilities & Oversight Committee. The establishment of the BAC was a requirement of each bond measure and consists of private community members that advise the Board and PPS on bond matters as defined by its charter. SJOBERGEVASHENK P a g e | 11 Since the first bond was approved in 2012, PPS assigned to the Office of School Modernization (OSM) the responsibility for administering, managing, and implementing capital improvement projects. This remained OSM’s responsibility until December 2025. OSM executed the design and construction of the school modernizations and infrastructure projects in addition to coordinating program management functions, meetings of the Board’s FIO committee and BAC, and status reporting to the Board. In early 2026, PPS reorganized the bond delivery structure into the new Real Estate, Infrastructure, and School Enhancement (RISE) department. Overseen by the PPS’ Senior Chief of Operations, the Executive Director position for the RISE department was outsourced to an external firm that has assumed responsibility for bond program management and implementing the high school bond modernization projects and capital improvements related to CBSE. While RISE primarily focuses on the bond program, it is also responsible for real estate, space planning, and non-bond funded smaller capital projects. These other functions are managed by a PPS Senior Director. According to PPS, once a newly advertised position for Executive Director of Capital and Planning is filled, the RISE structure will look different. Additional PPS departments became involved with the management and implementation of bond areas outside of typical capital construction projects. This includes the Office of Technology & Information Services (OTIS) for technology projects and the Office of Teaching & Learning (OTL) for curriculum projects. The bond program structure also includes various capital delivery support from assigned staff from Purchasing & Contracting procuring external firms to assist with bond-funded capital projects, Finance helping with bond financing and interpreting accounting principles for bond compensability, and Career and Technical Education (CTE) working on equity programs as part of capital projects. SJOBERGEVASHENK P a g e | 12 Finding 1: Bond Status & Activity Bond Status & Activity SJOBERGEVASHENK P a g e | 13 Since the 2012 Bond passed, OSM has delivered nearly $2.2 billion in capital projects to modernize six full high schools, one middle school, and one PK-8 modernization. Also, OSM has delivered hundreds of improvements related to accessibility, lead paint, water, asbestos, seismic, roof, security, mechanical, and technology infrastructure, as well as curriculum programs, as pledged to voters. Another $643 million remains available from bond premiums and interest earned which will allow additional projects to be delivered for the 2012, 2017, and 2020 Bond projects. With the passage of the 2025 Bond, an additional $1.8 billion in funding is available for projects that are starting up and off to a good start.10 RISE continues to make progress and meet bond obligations to voters, as did its predecessor, OSM. Prior annual bond performance audits issued between 2014 and 2025 reported that OSM employed delivery protocols over the bond program that aligned with best practices and industry standards—although auditors recommended improvements as is common in audits of large-scale capital programs.11 OSM implemented many of these prior audit recommendations; in fact, of the 75 recommendations auditors made since 2019, only 16 audit recommendations remain to be implemented.12 When OSM set out to modernize its aged school buildings more than a decade ago, it planned to gradually improve all facilities over several years and continue updating schools and making capital improvements if bond funding was available. Since 2012, PPS’ bond portfolio has grown nearly ten-fold. At the same time, OSM faced several budgetary challenges from inadequate 2017 bond budget estimates, claims on the Benson High School project, and significant cost escalation in the market. OSM encountered delays on two important 2020 Bond projects—due to factors largely outside OSM’s control. These factors included board action directing OSM to redesign the Jefferson High School project more than once and PPS delays in defining program concepts related to CBSE that were needed before OSM could launch a capital project. Also, the Harrison Park Middle School conversion encountered substantial scope increases which were driven by community feedback and ultimately decided by the Board to balance student enrollment needs and programs available.13 Despite these challenges, OSM delivered more to voters than planned at the time the bond passed, generally within budgets and originally intended timeframes.14 10 Bond premiums occur when the bond is sold to investors for more than its face value when the bond’s interest rate is higher than current market interest rates. 11 Industry guidance is from, but not limited to, Construction Owners Association of America, Construction Management Association of America, National School Board Association, National Center on School Infrastructure, National Council on School Facilities, Oregon School Boards Association, California School Boards Association, Project Management Institute’s Common Body of Knowledge (PMBOK) Construction Extension, and National Association of Construction Auditors. 12 All prior annual bond performance audit reports are available on the PPS website at https://bond.pps.net/about/oversight-and-accountability. 13 Refer to the annual bond performance audit issued in 2024 for details on the Harrison Park project https://bond.pps.net/about/oversight-and-accountability. 14 We considered a project to be delivered within budget if it met its estimated budget when the bond passed. We considered OSM met a planned bond pledge if a school was open for students or an infrastructure improvement project was completed or in use—including when curriculum textbooks or eBooks were purchased. It is not uncommon for large-scale capital improvements to have outstanding “punch list” items of repairs or work to be finished. These smaller items, in addition to potential claims or litigation affecting final costs, should not impact the use or function of the capital improvement. Finding 1: PPS Generally Fulfilled Its Bond Pledges with Projects Completed On-Schedule and Within Revised Budgets Across Bond Years, PPS Delivered More Than Pledged to Voters Generally Within Schedule and Budgetary Commitments SJOBERGEVASHENK P a g e | 14 As discussed in prior annual bond performance audits, projects envisioned by the $482 million 2012 Bond were mostly completed on schedule by summer 2019. Students returned to modernized learning environments at Faubion PK-8, Franklin High School, and Roosevelt High School in August 2017, followed by Grant High School in August 2019. Additionally, the pledged 2012 Bond seismic, roof, and accessibility projects were completed over four summers between 2013 and 2016 as planned. While final costs were higher at $579.4 million, this was primarily from the PPS Board expanding design requirements for capacity of a high school to accommodate 1,700 students rather than the 1,500 students anticipated at pre-bond planning. OSM covered the extra $97.4 million funding needed using available bond premium, interest earned, donations, and grants as shown in Exhibit 6. Because of this, we found the projects to be delivered as intended by the voters. EXHIBIT 6: 2012 BOND COST & DELIVERY STATUS, AS OF MARCH 2026 Source: Prior annual bond performance audit reports, e-Builder project management system records, 2012 Bond measure. Note: “Committed to Active Projects” includes project specific contingency that if unused is returned to program-wide contingency for other projects. See Appendix C for a universe of projects funded by 2012, 2017, 2020, and 2025 Bonds. 2012 Bond Projects Pledged to Voters Were All Delivered by Summer 2019, with More Projects Than Promised Subsequently Completed Through Extra Funds Available from Premiums and Interest SJOBERGEVASHENK P a g e | 15 With voter-pledged projects completed, OSM designated remaining funds available for smaller improvements at the original 2012 bond schools. Three of those additional projects were completed between 2020 and 2022 and included makerspace updates at Roosevelt High School, a teen parent playground at Franklin High School, and gym and batting cage improvements at Grant High School. With funds still remaining, OSM continued to spend down 2012 funds on smaller repair or enhancement projects at the 2012 schools such as bringing previously installed projectors at Franklin High School up to current electrical code which is expected to be completed by July 2026.15 Thus, projects that show as “currently active” as of March 2026 do not represent original planned project scopes that remain in progress but are newer improvements that have been identified as eligible for funding under the 2012 Bond. OSM added new projects because original projects were generally completed on schedule and budget, and unspent contingency monies and interest earned allowed OSM to initiate new school improvements that exceeded commitments made to voters in 2012. Likewise, as discussed in the annual bond performance audit report issued in June 2025, most 2017 Bond projects were completed—despite initial challenges with the development of the $790 million original bond cost estimates.16 Claims surrounding the construction contract for Benson High School continue to be litigated, but that high school and the other three modernized schools envisioned by the 2017 Bond opened to students on schedule. While the 2017 Bond set aside $150 million for health and safety improvements, additional funding from grants, bond premium, and interest earned allowed OSM to complete more projects than originally planned for including improvement related to accessibility, asbestos, radon, roofs, seismic, water quality, and other infrastructure. In fact, OSM completed health and safety improvements at more school sites than planned. For instance, security systems were updated at all 88 schools when initially only planned for 11 sites. Similarly, accessibility projects were completed at 16 sites compared to 9 originally planned sites. Using savings from completed projects and additional funds available, OSM completed additional projects such as replacing and seismically bracing existing roofs at additional schools and completing additional lead paint mitigation efforts throughout the district as shown in Exhibit 7 on the next page. Some of the additional sites continue to have activities in 2026 but those projects are beyond the original number of sites promised to voters. Further, OSM completed the modernizations and school improvements promised to voters within the timeframe envisioned in December 2017. Even the Benson High School project, which faced funding and construction challenges, opened to students on schedule as planned in 2024. Like the 2012 Bond, OSM continues to use remaining 2017 Bond funds available to complete additional projects that were not part of the original bond. These projects include athletic field and track projects at Benson and Grant High Schools, both completed in 2024, in addition to remediation projects underway at Benson High School related to ongoing litigation.17 15 According to PPS, the Franklin High School projectors installation project was completed in July 2026. 16 As reported in prior annual bond performance audit reports, for the 2017 Bond projects, OSM’s bond estimates did not include all components of project costs or accurate escalation factors; thus, we compared cost performance against the revised budgets once properly adjusted. All prior audit reports are available on the PPS website at https://bond.pps.net/about/oversight-and-accountability. 17 According to the prior annual bond performance audit report issued in June 2025, when the Benson Polytechnic High School main building opened for student attendance in August 2024, certain areas of the building were not completed. Open work related to items such as gym floors (impacted by pump failure), training rooms, rework on the roof, various signage, and exterior punch list items to name a few. This work is expected to wrap up by the end of 2026. All Four School Modernizations Under the 2017 Bond Have Been Completed and More Health & Safety Improvements than Initially Envisioned Are Being Delivered SJOBERGEVASHENK P a g e | 16 As of March 2026, OSM spent $865 million of the $913 million available from 2017 Bond funds, bond premium and interest earned, as well as general fund and grants, completing the modernization and infrastructure projects pledged to voters. With another $20.5 million of available funds in contingency (most of which resulted from $16.3 million in savings on the Lincoln High School project) as of March 2026, the new RISE department can implement additional 2017 Bond-funded improvements. While there are ongoing claims and litigation with the Benson High School project, the amount of the claims and potential fiscal impact are still unknown, since no decisions have been made as to who will bear the cost of paying claims. EXHIBIT 7: 2017 BOND DELIVERY STATUS, AS OF MARCH 2026 Source: Prior annual bond performance audit reports, e-Builder project management system records, 2017 Bond measure. Note: “Committed to Active Projects” includes project specific contingency that if unused is returned to program-wide contingency for other projects. See Appendix C for universe of projects funded by 2012, 2017, 2020, and 2025 Bonds. SJOBERGEVASHENK P a g e | 17 Like previous bonds, the 2020 Bond continued similar modernization and infrastructure efforts but also introduced new improvements for technology and curriculum as well as the CBSE. Initially valued at $1.2 billion, additional bond premium and interest earned increased available funding to $1.3 billion. Of the original $1.2 billion, more than half was set aside for modernizations projects including amounts covering the 2017 Bond funding shortfall at Benson High School, modernizing Jefferson High School, and implementing the CBSE. The remaining allocations included $128 million for technology, $53 million for curriculum, and $241 million for infrastructure projects, as shown in Exhibit 8. EXHIBIT 8. 2020 BOND COST & DELIVERY STATUS, AS OF MARCH 2026 Source: Prior annual bond performance audit reports, e-Builder project management system records, 2020 Bond measure. Note: “Committed to Active Projects” includes project specific contingency that if unused is returned to program-wide contingency for other projects. See Appendix C for a universe of projects funded by 2012, 2017, 2020, and 2025 Bonds. 2020 Infrastructure Bond Projects Were Mostly Complete but Board and Superintendent Decisions Jefferson High School Resulted in Delays and Higher Costs SJOBERGEVASHENK P a g e | 18 Through March 2026, OSM has spent over $738 million on 2020 Bond projects, with most of the planned infrastructure investments completed on schedule and at more schools than promised. At that time, OSM had $89.6 million left and available to spend on additional infrastructure projects through additional funds from bond premiums and interest. For instance, additional seismic and mechanical projects are underway as of March 2026 and expected to be completed by the end of 2026. Because of this, OSM has been able to deliver more to voters than when the bond passed. Also, as reported in the prior annual bond performance audit issued in June 2025, OSM continued to deliver 2020 Bond curriculum projects on schedule following Oregon Department of Education standards. With other funding sources supplementing bond funds, OSM has been able to leverage bond funds to provide more curriculum updates than planned. Over the last year, PPS made significant progress moving the delayed $60 million CBSE project forward through the purchase of a $16 million building in December 2025 for programming associated with the project’s vision. As of June 2026, PPS is currently in the design phase, determining the specific capital improvements that it will make to the purchased building with plans to complete construction by the 2029-2030 school year. With the 2020 Bond allocating funding up to $60 million for CBSE, PPS has a balance of approximately $44 million to complete its final vision for the center.18 Similarly, most 2020 Bond technology projects related to student device replacement and an enterprise resource planning (ERP) system have been generally completed on target, as revised. PPS also made progress towards its revised completion date in 2029 for the rest of the planned technology improvements that are still recovering from past delays and challenges surrounding OTIS’ procurement method and COVID-19 pandemic challenges for its contractors. Improvements impacted include classroom modernizations for wireless access points, projectors, and infrastructure or security projects such as data center server refresh, phone updates, and switch replacements to name a few. The largest remaining project underway for the 2020 Bond was the $466 million modernization of Jefferson High School which received $366 million from the 2020 Bond and required an additional $100 million in 2025 Bond funds. Additional funding was required to cover cost increases due to board-directed redesigns meant to accommodate school community design preferences and COVID-19 pandemic cost escalation.19 In December 2024, the Superintendent paused design development on the project to conduct cost reduction exercises. At the conclusion of the prior annual bond performance audit issued in June 2025, OSM was in process of addressing the Superintendent and Board’s direction to conduct cost-reduction exercises. Specifically, in December 2024, the project’s design efforts were paused to reduce total project costs by approximately $100 million from the project’s estimate ($491 million at that time) back to the initial $366 million budget when the bond passed. That effort, along with other cost analyses, did not result in the target project savings envisioned as discussed in more detail in Finding 3 of this report. 18 2020 Bond language set aside “up to” $60 million for CBSE. 19 The Board required redesigns required an update to the original comprehensive plan from 2022. The revised comprehensive plan was approved in October 2025. SJOBERGEVASHENK P a g e | 19 Since that time, OSM staff and project consultants completed a third redesign to save costs, and PPS engaged another external consultant firm to identify and provide alternative options for cost savings and accelerating construction. Those efforts did not result in the Board and Superintendent’s desired $100 million saving goal— rather savings were more modest at $25 million as shown in Exhibit 9. EXHIBIT 9. BOARD RE-DESIGN DECISIONS CAUSED DELAYS & INCREASED COST REQUIRING 2025 BOND FUNDING TO COMPLETE JEFFERSON HIGH SCHOOL Source: Conceptual Schedules, Comprehensive Plans, PPS Board Meetings. These attempts at cost savings and fast-tracking construction resulted in a year-long delay, less potential cost savings than desired, and the potential risk of higher future costs due to market inflation. Cost could potentially increase again since PPS and its general contractor are not yet at the stage of the modernization projects to negotiate construction contract budgets, known as a guaranteed maximum price. On May 20, 2025, Multnomah County voters approved a $1.8 billion bond to continue improving school facilities at PPS. While the measure did not specifically allocate amounts to individual schools or projects, a pre-bond staff memo from January 2025 outlined more specific improvements to be funded by the 2025 Bond.20 The amount of funds available increased as of March 2026 due to an influx of approximately $43 million from bond premium, as shown in Exhibit 10—and could continue to increase depending on premiums from future bond sales, additional grants received, and other funding made available. Thus far, PPS has spent $32 million of the 2025 bond proceeds, including $19 million on new technology devices, $6.8 million on security software, and $5.7 million on program administration, bond issuance costs, and external bond program management consultant services—as shown in Exhibit 10. Since the bond passed in May 2025, PPS has spent minimal 2025 Bond funds for Cleveland, Ida B. Wells, and Jefferson High Schools because 2017 Bond and 2020 Bond funds were used to pay for planning, early design, and related PPS staff costs. Like Jefferson High School, PPS’ pause to cost-reduction studies on the 20 PPS Board Meeting January 7, 2025 “Staff Memo – Bond Referral – Updated Version 01.09.2025.” 2025 Bond Modernizations Proceeded with Final Designs After Year-Long Delay from Cost Reduction Studies and Progress is Being Made on Technology SJOBERGEVASHENK P a g e | 20 modernization projects also caused a one-year delay in the completion schedule for the Ida B. Wells High School modernization as well. Instead of opening for the 2028-2029 school year as scheduled in the initial comprehensive plans approved by the Board in May 2024, both the Cleveland High School and Ida B. Wells High School projects are now expected for opening at the start of the 2029-2030 school year according to the revised comprehensive plans approved by the Board in October and November 2025, respectively. EXHIBIT 10. 2025 BOND COST & DELIVERY STATUS, AS OF MARCH 2026 Source: e-Builder project management system records, Bond Accountability Committee Meeting December 18, 2024, 2025 Bond measure. Note: “Total Available” will likely increase with future bond premium and interest earnings, as well as other grants, and funding sources. See Appendix C for a universe of projects funded by 2012, 2017, 2020, and 2025 Bonds. SJOBERGEVASHENK P a g e | 21 As part of fulfilling bond pledges to deliver capital improvements, each of the various bond measures requires independent audits of bond projects and expenditures. To meet this provision, PPS contracts with external independent firms to conduct annual bond performance audits. The scope of the audits includes current year activities, so recommendations can be shared and implemented as the bond program is in progress to best affect positive change.21 PPS has implemented many of these prior audit recommendations, making improvements in areas including contract language, cost estimation, progress and accomplishment reporting, and equity to name a few. In fact, of the 75 recommendations auditors made over the last six annual bond performance audits since 2019, only 16 audit recommendations remain to be implemented as detailed in Appendix D. This is commendable given that about half of those outstanding recommendations were first reported in the annual bond performance audit finalized in June 2025. In years past, PPS more formally tracked its progress against prior recommendations through an internal audit implementation tracker that it used to present status to the BAC on an annual or semi-annual basis. Previously, OSM bond delivery staff and managers met together to discuss actions, progress, and recommendations that were considered complete which were memorialized in the implementation tracker. Participants consisted of the Senior Director of OSM, directors of construction, business manager, project managers, and representatives from contracting, finance, curriculum, and technology as needed. Since the most recent annual bond performance audit was issued in June 2025, the RISE Executive Director has assumed responsibility for tracking and discussing audit recommendations status. RISE has changed previous practices of reporting implementation statuses. It currently only discusses those recommendations completed during the reporting period, rather than showing all outstanding recommendations in a single centralized document provided to the Board or the BAC. Highlighting and discussing individual audit recommendations that have been completed is good practice, although the oversight bodies should also have visibility into the status of all outstanding audit recommendations. This practice could also be enhanced by updating protocols to document the changed responsibilities, steps taken to discuss and address audit recommendations, and the people involved with discussing and confirming corrective actions have been taken prior to presentation to oversight bodies. After we communicated this recommendation to PPS, RISE implemented a new standard operating procedure on August 17, 2026, to address these elements. To continue enhancing transparency and accountability, the Board should employ its Office of Internal Performance Auditor (OIPA) to periodically review PPS’ implementation of the bond performance audit recommendations as part of its assurance function to determine if corrective controls are implemented as needed. 21 Prior annual bond performance audits found OSM employed solid project management, construction management, and delivery protocols over its bond program through an organizational structure that aligns with best practices recommended by leading industry guidance and standards. Industry guidance includes Construction Owners Association of America, Construction Management Association of America, National School Board Association, National Center on School Infrastructure, National Council on School Facilities, Oregon School Facilities Management Association, Oregon School Boards Association, California School Boards Association, California Association of Bond Oversight Committees, Project Management Institute’s Common Body of Knowledge (PMBOK), PMBOK-Construction Extension, National Association of Construction Auditors, and National State Auditors Association. While Building an Effective Capital Bond Program, PPS Has Recognized Opportunities for Improvement With Most Outstanding Prior Audit Recommendations Addressed SJOBERGEVASHENK P a g e | 22 1. Clearly define what success looks like for meeting bond pledges including definitions of project completion in terms of open for student use, outstanding punch list items, on-budget and schedule, or other factors considered. 2. Regularly measure and report on progress and completion against the established definitions for bond success so that it is clear to the public what the District and the Board consider in meeting bond pledges. 3. Provide a complete list of outstanding bond audit recommendations with implementation status, planned corrective actions or actions taken, and estimated dates for resolution to the relevant board committees and BAC on a quarterly basis for oversight and review. 4. Assign the Board’s Office of Internal Performance Auditor responsibility to periodically review implementation as part of its assurance function to determine if corrective controls are implemented as needed. To strengthen practices for reporting on success in implementing the bond program pledges to taxpayers and prior audit recommendations for transparency, accountability, and oversight To continue to demonstrate accountability to taxpayers, a commitment to continual improvement, and achieve the intended benefit from audit recommendations Finding 1: Board Recommendation Finding 1: PPS Recommendations SJOBERGEVASHENK P a g e | 23 Finding 2: Bond Delivery Practices Bond Delivery Practices Chapter 2: Bond Delivery Practices Bond Delivery Practices SJOBERGEVASHENK P a g e | 24 Implementing capital improvements is a challenging endeavor with continual opportunities for efficiencies and course correction especially with large-scale capital delivery programs like PPS’ bond program. Prior annual bond performance audits between 2014 and 2025 found PPS employed solid project management, construction management, and delivery protocols over its bond program through its organizational structure that generally aligned with best practices and leading industry standards.22 While these audits reported that PPS had delivered projects largely within budget and on schedule, they also identified opportunities for improvement, as is common in audits of large-scale capital programs. For this audit cycle, we found additional areas and controls that PPS needs to strengthen to better align with leading practices.23 Our results revealed that PPS charged the bond program for approximately $193,400 in unallowable bond project costs and nearly $1 million in unsupported payroll charges. As described below, we identified a lack of methodological controls to evaluate the eligibility of project expenses before transfers occur or to track and monitor staff time and effort in relation to the bond program. Further, PPS does not have procedures in place to prioritize project improvements for funding with available contingency funds, nor has it re-engaged services for its external construction auditor which ensured construction contractors’ costs are supported and compliant with contracts. Additionally, we found errors with PPS reporting of budget, cost, and schedule data for the bond program. After we discussed the audit findings with PPS, staff implemented or have begun implementing additional controls and corrective actions. Contingencies for capital delivery programs are funds set-aside to cover uncertainties and risks associated with the unknown costs of these long- term projects. They are typically established at both a program level and project level. Program contingency is maintained at the macro bond level to cover global risk or economic shifts and balance budgets across projects. Project contingency is allocated to provide a buffer that absorbs unanticipated issues such as differing site conditions, supply delays, or design changes on individual projects. As shown in Exhibit 11, there is a total of nearly $854 million in bond contingency—both allocated to projects and unallocated in program contingency remaining as of May 2026. Approximately $214 million was already allocated to specific projects while most of the remaining $640 million represented unallocated funding from the recent 2025 Bond. 22 Industry guidance includes Construction Owners Association of America, Construction Management Association of America, National School Board Association, National Center on School Infrastructure, National Council on School Facilities, Oregon School Facilities Management Association, Oregon School Boards Association, California School Boards Association, California Association of Bond Oversight Committees, Project Management Institute’s Common Body of Knowledge (PMBOK), PMBOK-Construction Extension, National Association of Construction Auditors, and National State Auditors Association. 23 As a recipient of federal funds, PPS is required by 2 CFR Part 200.303 to establish and maintain effective internal controls that should comply with the most widely recognized internal control framew