Attachment C

To: Terry Elfers, Chief Operating Officer

From: Michael Alao, Internal Auditor

Date: January 15, 2010

INTER-OFFICE
CORRESPONDENCE RE: FMP Supplier Diversity
Office of the Treasurer

Dear Mr. Elfers:

The objective of this document is to provide Senior Management with a brief overview of the FMP
supplier diversity figures, a summary of the proposed work plan for Internal Audit, and a recommendation
for additional assurance work.

Two sets of figures currently exist for the tracking of FMP supplier diversity numbers: (1) figures
compiled and reported by the CPS Supplier Diversity Department; and (2) figures compiled and reported
monthly by Turner in the FMP Tracking Report. Both CPS Supplier Diversity and Turner attempt to track
the FMP contracts awarded to minority firms. The latest figures reported by CPS and Turner do not agree:

SBE (Non-
Total Contract Minority) MBE WBE
CPS Supplier
Diversity 1 712,547,550 212,760,425 77,954,978 46,549,381

Turner 2 611,332,814 219,667,797 59,790,001 52,077,411

Difference 101,214,736 (6,907,372) 18,164,977 (5,528,030)

Per Pam Mullins, CPS Manager of Supplier Diversity, CPS figures differ from those of Turner because
her department tracks all Fund 04 – Building and Fund 10 – Classroom Facilities contract expenditures,
whereas Turner tracks only “bricks and mortars” and does not include costs such as architectural and
engineering design services, attorney fees, etc.

Ms. Mullins further stated that the CPS figures for “bricks and mortars” are based on supporting
documentation maintained by Turner. The supporting documentation maintained by Turner consists of
“Good Faith Estimates 3” submitted by prime contractors. Costs for contract services not tracked by

1
CPS Supplier Diversity Contract Monitoring Database, January 15, 2010
2
Turner FMP Tracking Report, December 30, 2009
3
e.g. Bidder Affidavit of Economically Disadvantaged, Small, Minority & Women Business Enterprises; Economically
Disadvantaged and Small, Minority & Women Business Enterprise Objectives Letter of Intent; etc.
Turner, such as architectural and engineering design services, are extracted from CPS financial ledgers
and manually keyed into the Supplier Diversity database.

Per discussion with Turner project managers, the diversity figures reported by Turner are also based on
“Good Faith Estimates” provided by prime contractors. Turner project managers also confirmed that
Turner does not monitor prime contractors subsequent to the request for First Payment. As a result,
diversity figures reported by Turner are based solely on contractor affidavits.

Internal Audit proposes to complete the following audit steps:

1. Agree reported Turner diversity figures (as of December 30, 2009) to “Good Faith Estimates”; and
2. Agree reported CPS diversity figures for non-“bricks and mortars” project expenses to CPS
Purchase Orders.

Internal Audit further recommends that Senior Management and the Board contract with an independent
audit firm to audit prime contractor payments to subsidiary firms in order to determine the actual amounts
of FMP expenditures paid to minority contractors.

Sincerely,

Michael Alao, CFE, CIA, CPA

Internal Auditor
 To: Terry Elfers, Chief Operating Officer

From: Michael Alao, Internal Auditor

Date: February 3, 2010

INTER-OFFICE
CORRESPONDENCE RE: FMP Supplier Diversity

Dear Mr. Elfers:

The objective of this document is to provide Senior Management with an update on the previously
proposed work plan for Internal Audit.

The Internal Audit work plan and recommendation included in the January 15, 2010 memorandum to you
stated the following:

Internal Audit proposes to complete the following audit steps:

1. Agree reported Turner diversity figures (as of December 30, 2009) to “Good Faith
Estimates”; and
2. Agree reported CPS diversity figures for non-“bricks and mortars” project expenses to
CPS Purchase Orders.

Internal Audit further recommends that Senior Management and the Board contract with
an independent audit firm to audit prime contractor payments to subsidiary firms in order
to determine the actual amounts of FMP expenditures paid to minority contractors.

As of February 3, 2010, Internal Audit has received “Good Faith Estimates” from Turner Construction for
the following Segment #3 projects: AMIS, Chase, College Hill, Taft High School, and Sayler Park. The
amounts included in the “Good Faith Estimates” have been compared to the amounts reported in the
December 30, 2009 FMP Tracking Report. Internal Audit noted the following:

• When the prime contractor is a Minority Business Enterprise (MBE), the total contract award is
included in the MBE total even when the subcontractors are not MBE. For example, Triton
Services was the prime plumbing contractor on Taft H.S. with a total contract award of $967K.
Part of the plumbing work, approximately $39K, was subcontracted to Priority Insulation, a non-
MBE, but the entire $967K is reported as the MBE amount.

Another example is College Hill, where Blau Mechanical, a MBE, was awarded the HVAC
contract totaling $1.33M. Blau Mechanical subcontracted 59% of the contract award to non-MBE,
 but the entire $1.33M is reported as the MBE amount.

• The prime contractor for electric on the College Hill project indicated on the Good Faith Estimate
Form (GFEF) that B & S Supply, identified as a MBE on the GFEF, would be awarded a
subcontract of $300K. The FMP Tracking Report, however, shows only $130K as the MBE
amount.

• The FMP Tracking Report includes $8K as part of the MBE amount for Sayler Park. Specifically,
the report identifies Judy Figgins as a MBE, but the GFEF does not.

Internal Audit is also in the process of reviewing the listing of vendors previously identified by the
Supplier Diversity Department as MBE. Additional exceptions have been identified where vendors were
incorrectly identified as MBE. Internal Audit is not prepared at this point, however, to determine the net
effect of these inaccuracies on the FMP MBE amounts previously reported to the public.

Turner Construction has committed to providing to Internal Audit the GFEF for New Evanston, Hartwell,
North Avondale, and Dater Montessori by close of business today. Turner expects to have the GFEF
documents for the Segment #1 and #2 projects by Friday, February 5.

Sincerely,

Michael Alao, CFE, CIA, CPA

Internal Auditor
 To: Terry Elfers, Chief Operating Officer

From: Michael Alao, Internal Auditor

Date: February 22, 2010

INTER-OFFICE
CORRESPONDENCE RE: FMP Supplier Diversity

Dear Mr. Elfers:

The objective of this document is to provide Senior Management with an update on the previously
proposed work plan for Internal Audit.

The Internal Audit work plan and recommendation included in the January 15, 2010 memorandum to you
stated the following:

Internal Audit proposes to complete the following audit steps:

1. Agree reported Turner diversity figures (as of December 30, 2009) to “Good Faith
Estimates”; and
2. Agree reported CPS diversity figures for non-“bricks and mortars” project expenses to
CPS Purchase Orders.

Internal Audit further recommends that Senior Management and the Board contract with
an independent audit firm to audit prime contractor payments to subsidiary firms in order
to determine the actual amounts of Facility Master Plan (FMP) expenditures paid to
minority contractors.

As of February 22, 2010, Internal Audit has received “Good Faith Estimates” from Turner Construction
for the 40 FMP project amounts reported in the December 30, 2009 FMP Tracking Report. Internal
Audit has agreed contract awards on the December 30, 2009 FMP Tracking Report to amounts included
on the “Good Faith Estimates” forms for 24 of the 40 FMP projects. Internal Audit will continue this
process for the remaining 16 projects. Once this is completed, reconciling items will be reviewed with
Turner management and then formally reported.

Internal Audit will then complete the second audit step, which is to agree CPS diversity figures
for non-“bricks and mortars” project expenses to CPS Purchase Orders.
Internal Audit will provide weekly updates to Senior Management on the progress of the work
plan, but cannot commit to a firm completion date due to the difficulty of determining the
amount of time required to complete and report on the two agreed upon audit steps.

Internal Audit has reviewed the listing of vendors previously identified by the Supplier Diversity
Department as Minority Business Enterprises (MBE), and identified 29 vendors that are likely to have
been misclassified. The 29 misclassified vendors include Shook, Inc., which was previously disclosed as
having been incorrectly classified. Reclassification of these vendors in the CPS Supplier Database results
in an MBE total as of January 15, 2010 of $72,179,194. This is $12,076,791 less than the $84,255,985
previously reported by CPS.

Please note that the internal audit review is ongoing and that the figures above are subject to
change as the agreed upon audit steps are completed.

Sincerely,

Michael Alao, CFE, CIA, CPA

Internal Auditor
 To: Terry Elfers, Chief Operating Officer

From: Michael Alao, Internal Auditor

Date: March 3, 2010

INTER-OFFICE
CORRESPONDENCE RE: FMP Supplier Diversity

Dear Mr. Elfers:

The objective of this document is to provide Senior Management with an update on the previously
proposed work plan for Internal Audit.

The Internal Audit work plan and recommendation included in the January 15, 2010 memorandum to you
stated the following:

Internal Audit proposes to complete the following audit steps:

1. Agree reported Turner diversity figures (as of December 30, 2009) to “Good Faith
Estimates”; and
2. Agree reported CPS diversity figures for non-“bricks and mortars” project expenses to
CPS Purchase Orders.

Internal Audit further recommends that Senior Management and the Board contract with
an independent audit firm to audit prime contractor payments to subsidiary firms in order
to determine the actual amounts of Facility Master Plan (FMP) expenditures paid to
minority contractors.

Internal Audit Step 1 – Turner FMP Tracking Report

As of February 22, 2010, Internal Audit had received “Good Faith Estimates” from Turner Construction
for the 40 FMP project amounts reported in the December 30, 2009 FMP Tracking Report. Internal
Audit has agreed contract awards on the December 30, 2009 FMP Tracking Report to amounts included
on the “Good Faith Estimates” forms for all of the 40 FMP projects. The “Good Faith Estimates” total
approximately 1,400 pages of documents. FMP totals (prior to audit adjustments) as of December 30,
2009 are as follows:

Grand Total $ 611,332,814 %

SBE/DBE $ 308,369,595 50.44%
MBE $ 59,790,001 9.78%
WBE $ 52,077,411 8.52%
Internal Audit identified 202 potential exceptions (reconciling items), and is currently in the process of
reviewing and documenting the exceptions. Once this is completed, reconciling items will be reviewed
with Turner management and then formally reported. The expectation is that Turner will update its FMP
Tracking Report to incorporate the findings from this review.

Internal Audit Step 2 – CPS Supplier Diversity Report

Internal Audit will then complete the second audit step, which is to agree CPS diversity figures
for non-“bricks and mortars” project expenses to CPS Purchase Orders. CPS reported FMP
totals as of January 15, 2010 were as follows (includes Shook misclassification adjustment
only):
Grand Total $ 712,547,550 %
SBE $ 212,760,425 34.80%
MBE $ 77,954,978 12.75%
WBE $ 46,549,381 7.61%

Internal Audit has reviewed the listing of vendors previously identified by the Supplier Diversity
Department as Minority Business Enterprises (MBE), and identified 29 vendors that are likely to have
been misclassified. The 29 misclassified vendors include Shook, Inc., which was previously disclosed as
having been incorrectly classified. Reclassification of these vendors in the CPS Supplier Database results
in an MBE total as of January 15, 2010 of $72,179,194. This is $12,076,791 less than the $84,255,985
previously reported by CPS.

Internal Audit will review and agree to support “soft” costs such as architectural design fees that are not
tracked by Turner. These “soft” costs can then be added to the Turner costs as of December 30, 2009 in
order to establish a new starting point for FMP supplier diversity tracking.

Internal Audit will provide weekly updates to Senior Management on the progress of the work plan, but
cannot commit to a firm completion date due to the difficulty of determining the amount of time required
to complete and report on the two agreed upon audit steps.

Please note that the internal audit review is ongoing and that the figures above are subject to
change as the agreed upon audit steps are completed.

Sincerely,

Michael Alao, CFE, CIA, CPA

Internal Auditor
 To: Terry Elfers, Chief Operating Officer

From: Michael Alao, Internal Auditor

Date: March 17, 2010

INTER-OFFICE
CORRESPONDENCE RE: FMP Supplier Diversity

Dear Mr. Elfers:

The objective of this document is to provide Senior Management with an update on the previously
proposed work plan for Internal Audit.

The Internal Audit work plan and recommendation included in the January 15, 2010 memorandum to you
stated the following:

Internal Audit proposes to complete the following audit steps:

1. Agree reported Turner diversity figures (as of December 30, 2009) to “Good Faith
Estimates”; and
2. Agree reported CPS diversity figures for non-“bricks and mortars” project expenses to
CPS Purchase Orders.

Internal Audit further recommends that Senior Management and the Board contract with
an independent audit firm to audit prime contractor payments to subsidiary firms in order
to determine the actual amounts of Facility Master Plan (FMP) expenditures paid to
minority contractors.
Internal Audit Step 1 – Turner FMP Tracking Report
Internal Audit has completed step 1 of the above audit steps: Agree reported Turner diversity figures (as of
December 30, 2009) to “Good Faith Estimates”. Exceptions identified during the review were shared
with Turner Construction management. Turner Construction is still in the process of verifying potential
exceptions, and the final adjustments will be reported during the week of March 22, 2010.

Internal Audit further recommends that the Board and management reconsider the methodology used to
report minority business participation. Currently, when the prime contractor is a Minority Business
Enterprise (MBE), the total contract award is included in the MBE total even when the subcontractors are
not MBE. When the prime contractor is a majority business enterprise, however, the amounts sub-
contracted to MBE firms are counted toward the MBE participation total. The current methodology is
inconsistent and leaves the Board and management open to criticism that reported minority participation
numbers are “inflated”.

Internal Audit identified two MBE prime contractors that regularly sub-contracted work to non-MBE
firms: Blau Mechanical and Triton Services. Both of these prime contractors were awarded a total of
approximately $17.1 million in FMP contracts through December 30, 2009. Of the $17.1 million,
approximately $4.8 million, or 28%, was awarded to non-MBE sub-contractors.

Internal Audit Step 2 – CPS Supplier Diversity Report

Internal Audit intends to complete the second audit step, which is to agree CPS diversity figures
for non-“bricks and mortars” project expenses to CPS Purchase Orders, during the week of
March 22.

Sincerely,

Michael Alao, CFE, CIA, CPA

Internal Auditor
 To: Terry Elfers, Chief Operating Officer

From: Michael Alao, Internal Auditor

Date: April 2, 2010

INTER-OFFICE
CORRESPONDENCE RE: FMP Supplier Diversity

Dear Mr. Elfers:

The objective of this document is to provide Senior Management with an update on the previously
proposed work plan for Internal Audit.

The Internal Audit work plan and recommendation included in the January 15, 2010 memorandum to you
stated the following:

Internal Audit proposes to complete the following audit steps:

1. Agree reported Turner diversity figures (as of December 30, 2009) to “Good Faith
Estimates”; and
2. Agree reported CPS diversity figures for non-“bricks and mortars” project expenses to
CPS Purchase Orders.

Internal Audit further recommends that Senior Management and the Board contract with
an independent audit firm to audit prime contractor payments to subsidiary firms in order
to determine the actual amounts of Facility Master Plan (FMP) expenditures paid to
minority contractors.
Internal Audit Step 1 – Turner FMP Tracking Report
Internal Audit has completed step 1 of the above audit steps: Agree reported Turner diversity figures (as of
December 30, 2009) to “Good Faith Estimates”. Exceptions identified during the review were shared
with Turner Construction management. As a result of the exceptions identified, Internal Audit
recommends the following adjustments to the December 30, 2009 FMP Tracking Report:

SBE WBE MBE

Net Adj. (453,725) 707,394 241,728

Total (pre-adjustment)
SBE WBE MBE

308,369,595 52,077,411 59,790,001

Adj. % -0.15% 1.36% 0.40%
% of total 50.44% 8.52% 9.78%

Total (adjusted)
SBE WBE MBE
307,915,870 52,784,805 60,031,729
% of total 50.37% 8.63% 9.82%

Internal Audit further recommends that the Board and management reconsider the methodology used to
report minority business participation. Currently, when the prime contractor is a Minority Business
Enterprise (MBE), the total contract award is included in the MBE total even when the subcontractors are
not MBE. When the prime contractor is a majority business enterprise, however, the amounts sub-
contracted to MBE firms are counted toward the MBE participation total. The current methodology is
inconsistent and leaves the Board and management open to criticism that reported minority participation
numbers are “inflated”.

Internal Audit identified two MBE prime contractors that regularly sub-contracted work to non-MBE
firms: Blau Mechanical and Triton Services. Both of these prime contractors were awarded a total of
approximately $17.1 million in FMP contracts through December 30, 2009. Of the $17.1 million,
approximately $4.8 million, or 28%, was awarded to non-MBE sub-contractors.

Internal Audit Step 2 – CPS Supplier Diversity Report

Internal Audit is in the process of completing the second audit step, which is to agree CPS
diversity figures for non-“bricks and mortars” project expenses to CPS Purchase Orders. The
second step and a draft internal audit report will be issued during the week of April 5.

Sincerely,

Michael Alao, CFE, CIA, CPA

Internal Auditor